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Capitalist
10-04-2005, 02:57 PM
U think it is only my good self and MacDunk who believe this. About 2 years ago Belgarion said to Capitalist "What a fool you are to go into partnership to buy that 5 mil Coromandel coastal block - what with i-rates on the rise."

Well BWHAHAHHA!!! As Skinny has said property will last at least another 2 years. Property beats the sharemarket hands down.

duncan macgregor
10-04-2005, 03:42 PM
What most people forget is that they dont make any more land than is already there. It must increase in price, higher than inflation. Buy an inner city section if you can, and lease it out as car parking to cover the rates, or a block of land and lease it out to a farmer to cover the rates. woopy doo you might be a dummy but you will be a rich one sooner or later. If you are a bit smarter you will borrow the money and build something, and have someone pay the bank for you. Long term investment until the market peaks, then sell. Definately beats shares, but not as much fun over the long term. macdunk

Tim
10-04-2005, 09:08 PM
I start to wonder if shares are the best vehicle for wealth creation.
After investing in shares for a number of years and putting up with volatility, I am coming to the conclusion that the higher risk has not given a higher return.
Property gives a similar return, but holding property for
10 years,a no brainer, you are always ahead. The apetite for Nzers to hold property, its tax free status, and enhancing returns through easy gearing by
banks make property hard to compete with.
I look at funds like WINZ which is still close to 50% below its peak and wonder why invest in these funds or the sharemarket.
I still remember Brash saying property will always return what inflation is. What a load of rubbish, has he heard of supply and demand

elfer
11-04-2005, 11:15 AM
macdunk - that's too simplistic. There are always winners and losers --> they aren't making land anymore in central Detroit, but that didn't stop it turning into a ghetto when all the car makers downsized (first example jumping to mind).

Japan has had years of property price deflation.

And as I posted only a couple of days ago, at best median house prices have increased by 4% over inflation, and 3% might be more realistic. Since rental yields are pretty low, together its not exactly a screaming return.

But there are winners within that group. I'm just surprised no-one seems to remember the last property crash (or the one before that). It can happen, and if you buy at the wrong time it can hurt (or at least confine you to waiting 5-10 years just to get a positive return).

I'll put it another way, at the gearing level on which many people approach investment properties, the requirement for capital gain makes it a risky investment - possibly (probably?) more risky that than the equivalent investment in other asset classes.

duncan macgregor
11-04-2005, 02:50 PM
ELFER, I must disagree with you it is simplistic. Land in NZ rises faster than inflation and always will. One of the reasons why is an ever increasing population. Over the last 100 years, any town and surround land, increased more than inflation. It is like everything, some increases are much greater than others. If you had a 10acre block near any city in this country you could have leased it to a farmer, to cover the rates, and been well in front over any period in the last 100 years. That is simple, for simple people. If however you have a brain, you will do much better than that. We are talking to people here with a better understanding of property, and cycles in the market, who understand that certain areas will be in demand, and buy up in front, and make a killing. The sharemarket can never compete if you understand property. macdunk

elfer
11-04-2005, 04:25 PM
quote:Originally posted by duncan macgregor

If you had a 10acre block near any city in this country you could have leased it to a farmer, to cover the rates, and been well in front over any period in the last 100 years. That is simple, for simple people. If however you have a brain, you will do much better than that.

I don't know that I entirely dispute that. What I'm suggesting is that the price for that land should already reflect the potential for it to increase once it becomes potential residential land (with attendant development costs, risks and margins).

If you are able to buy that land at a price which allows a much higher return (hopefully more than inflation plus a small percentage - that isn't my idea of good money), then you have to recognise that this is a risky return, otherwise it would sell for more in the first place.

I guess I think that people don't see the risk they take on in property. Especially once you take gearing into account, it is definitely not low risk, IMHO.

duncan macgregor
11-04-2005, 04:38 PM
ELFER, You still dont get it. I showed that the greatest dummy on earth would be in front and you quible the how much factor. macdunk

Tinker
11-04-2005, 06:21 PM
I agree with aspexs point. I tried a while back to borrow money from a bank against a portfolio but the clueless woman there wouldn't have a bar of it. Property does seem to offer a far easier way to leverage. And with gearing even 2 to 3% margins over inflation over a few years really crank up the returns.
One point though is that risk measured as volatility if taken over longer periods often substantially decreases the possibilty of underperforming lower volatility investments eg shares held for 10 years have approxmately the same chance of a loss as bonds.

Cheers
Tinker

whiteheron
11-04-2005, 06:25 PM
A lot of money has been made and lost on property

macdunk is a staunch property man , that is plainly obvious --- no doubt he has done well from it
I understand that he has a building background and builders by and large have done well over the years from property , from both building and investing
I have a nice home and that is sufficient property for me --- no way do I want to be called out on a Sunday evening at say 8 pm because a tenant has blocked a toilet and there is poop all over the floor
Worse still , how about a tenant who decides to set up a "P " lab and knocks holes in the walls ( and doesnt pay the rent ) making the property uninhabitable and unprofitable

Just like all types of investments there are both good and bad

macdunk will no doubt take me to task on these comments but they are valid as they relate to me as I am not a handyman and at my stage in life there is no way that I want the potential hassle

duncan macgregor
11-04-2005, 06:33 PM
WHITE HERON, No worries property is like investing in anything else. Buy into a car park building or factory. I only showed that a complete dummy will make money with property you cant say that about shares. macdunk

11-04-2005, 06:46 PM
White Heron - that rarely happens with good tenant selection, and a decent-sized bond helps. I'm pretty easy on my tenants - pay the rent, respect the property and the neighbours. That's it or else....
I'm coming around to Cap and Duncan's way of thinking - not only in our present bull mkt but forever.

11-04-2005, 08:33 PM
Duncan my property investment was an airport looking at 300% in 18 months plus income beats playing with rental properties My own house up just over 100% in 7 years Shares in ANZ bank up 100%in 6 years plus the dividend yield is 20% per annum now on what I paid for them and no hassles

whiteheron
11-04-2005, 08:52 PM
macdunk

You say that " a complete dummy will make money with property ; you cant say that about shares "

Fair comment , I agree with that
Maybe it says something about NZers though !

Sharemarket investing by the NZ public , I believe , is low by world standards
( I stand to be corrected on that though )

It is well known , of course , that the average NZer loves his property --- perhaps he ( or she ) feels that they know that in the long term property will be okay , but they know little or nothing about other forms of investment , especially share investments

It certainly helps to be savvy on many matters to get involved in share investing and even more so share trading

Cooper
11-04-2005, 08:56 PM
There have been a few warning shots fired by the Labour govt. regarding the use of incentives and penalties to induce kiwis to move money from property into other vehicles. Whether that happens or not, the intent is there.

whiteheron
11-04-2005, 08:56 PM
Longtack

You sound like a very good property investor and good luck to you --- you have obviously got it sussed

Perhaps I am not cut out to be a landlord

The stockmarket is for me

trackers
12-04-2005, 10:40 AM
more specifically, anyone have any ideas on the current state of the property market - Has it peaked, still going, or about to go backwards?

and interest rates.... up or down?

Whilst i think macdunk is correct in saying that (over a long enough period of time) any fool can make money in property....but as far as short term decent gains go its not all that simple.

Disc: Looking at consolidating my funds into a Chch rental property, given the current state of the sharemarket.

Bling_Bling
12-04-2005, 12:19 PM
The properties in our area seems to be doing very well, thank you. How long will it last? Who knows. We learn from 1987 and 1997 and put it into practice for todays market and thats all one can do.

http://xtramsn.co.nz/money/0,,5489-4281065,00.html

elfer
12-04-2005, 12:55 PM
quote:Originally posted by duncan macgregor

ELFER, You still dont get it. I showed that the greatest dummy on earth would be in front and you quible the how much factor. macdunk


Either you don't get it either, or we are talking at cross purposes. If your definition of a good investment is one which gets a few percent above inflation and the income covers the costs (the farmer leasing the land example), then why not invest in govt bonds at a few percent over inflation (even post tax)? They are genuinely a riskless investment. Land is not.

I'm getting the feeling that you and I have an extremely different view of the underlying risk of property investment. The interesting thing is that I think we both look at historical returns to come up with this view...

duncan macgregor
12-04-2005, 02:05 PM
ELFER, My idea of a good investment is a 10pc deposit of your own money,self funding, and a capital gain of 10pc pa. How much do you think your initial deposit is worth in 10 years?. It is a better investment than owning a gold mine. This is being done all round you, at this very moment, open your eyes and start to think. I even gave you an instance where the countries biggest dummy buying a block and getting a farmer to pay the rates for grazing comes out on top. Your responce was he might do better elsewhere. We then have people saying the rules might be changed. WOOPY DOO we will then change our investment strategies. macdunk

elfer
12-04-2005, 02:31 PM
Well see this is my point. You don't seem to understand - for a start you contradict yourself:

[
quote:ELFER, My idea of a good investment is a 10pc deposit of your own money,self funding, and a capital gain of 10pc pa. How much do you think your initial deposit is worth in 10 years?. It is a better investment than owning a gold mine.

This implies that it is easy (or even possible) to find rental properties for which the rental yield (after costs) covers a 90% mortgage. At todays interest rates that's not gonna happen much below 9-10% yield. To be fair, if you find and hold such a property, even if the capital gain is nil you are "earning" the mortgage rate on your investment (approx), and the effects of leverage on any capital gain is strong...

... but you have to recognise the risk inherent in having a 90% mortgage. It is risky, even if you don't believe it is.


quote:This is being done all round you, at this very moment, open your eyes and start to think. I even gave you an instance where the countries biggest dummy buying a block and getting a farmer to pay the rates for grazing comes out on top.

And then you post this - much closer to the initial subject matter (Capitalist's speculative buy of coastal land). You can't buy either the coastal land or land close to the city which is leased to farmer for grazing and gear it - the cashflow will be very negative. It might be low risk (if you don't gear it), but arguably low return too. If (like the coastal land) the return was very high then it must have been a risky purchase at the time it was made, otherwise the price would have been higher...

Halebop
12-04-2005, 02:35 PM
MacDunk everybody understands what you are saying but you never once answer the question of risk.

As a business property is cyclical, capital intensive and low yielding. Leverage is the only way to turbo-charge performance in the long term. However, to keep this performance up in the long term you must then remain leveraged or have returns drop away. If you remain leveraged you increase the probability of being stretched at cyclical low period in rental returns. This in turn increases risk and volatility, defeating the perceived defensive benefits.

Now if someone is supposed to pick cycles in interest rates, capital values and rental returns to achieve superior results then unfortuntely they cannot be one of your "dummys". So if I have to be a "smarty" to achieve I'll stick with share investing...

As a share investor I can maintain a higher cash income than a leveraged property investor just in the form of a modest dividend income. Additionally, I can exit and enter different businesses with much more ease than a property investment and in a timely manner. Counter-intuitively with shares, by mitigating rather than increasing risk and leverage I will also enjoy higher long term capital gains and income growth.

I agree on one aspect. The argument for direct property investment versus direct share investment is indeed suited towards less sophisticated investors for no other reason than its easier for a dummy to understand and then leave it alone once they've committed.

cdt18
12-04-2005, 04:27 PM
No doubt aspex. Generation X & Y aint having kids. Baby boomers who are 45 - 65 now own 3 - 5 bedroom houses. Hello ! who needs these, not gen x or y. They need 1 or 2 bedroom houses. We all know our own house is not an investment & I bet in the next 5 - 10 years alot of baby boomers will have large paper losses on their houses if they consider time to repair, opportunity cost and the final resale value.

It is absurd to propose property will outperform shares as an investment. Shares are the driving force of the economy. Property is just a byproduct of the wealth created by companies. If there are no jobs, there are no houses. If companies perform, people have more money & buy more expensive house Plus the shareholders get richer. The NZ sharemarket is perhaps not the best indication of returns as it is so small. But as an asset class share must outperform property or else the property market is being inefficient ( which is the case at the moment).

Dimebag
12-04-2005, 06:36 PM
Duncan: You state:

ELFER, My idea of a good investment is a 10pc deposit of your own money,self funding, and a capital gain of 10pc pa.

I would respond by saying "bloody oath"!! If I could buy such properties, believe me, I would be ditching many shares and buying as much as I could.

The issue for me is that you cannot obtain this type of return.

The Westpac data presented ealier shows that the average rental yield is now 5%pa. Deducting costs, your looking at 3.5%-4.0%.

We have also clearly determined that a capital gain of more than 5.0%, in a good area in a growing city like Auckland, is the most one can realistically hope for.

This is a far stretch from your 9-10% yield and 10% property growth. For me this makes all the difference, as there is no dispute that based on your assumptions property would be by far the best bet for 99% of people.

Dimebag

dingdong
12-04-2005, 06:42 PM
quote:Originally posted by duncan macgregor

How much do you think your initial deposit is worth in 10 years?. It is a better investment than owning a gold mine.


O Property Worshipper I suggest ANY investment is better than owning a gold mine.

skinny
12-04-2005, 08:53 PM
Nice discussion. To set one thing straight I never said that the NZ property market will last another couple of years as Cap states at the start of the thread. What I said was now is not a good time to buy IMO, but long term I am bullish about NZ property. If prices did come off such that you could earn a decent yield (say 10% gross and at least 5% net) then I would get in. At the end of the day if a property investment is not comfortably cash flow positive on a fairly high level of gearing (say 75% or more) I don't want to know about it. Currently I own just one rental property yielding 9% gross and 6% net on cost price and an initial debt level of 80%. Now its net yield would probably be negative on current valuations -- a strong signal to sell perhaps but the section is sub-dividable with really good sea views at the top...

Anyways, why I like property for the long term includes:

1) NZ income levels are around 20% below OECD average levels, 25% below Australia's and close to 40% below that of the US. IMO the really good growth NZ has seen since '97 is not a flash in the pan - the country is starting to converge back towards OECD average levels. This could be a *very* strong driver of property going forward. House prices would be expected to move in some multiple of any increase in incomes as households discount their elevated lifetime income paths into current house prices. E.g. if we take a historically conservative 5:1 ratio a 20% permanent shift in incomes implies house prices double.

2) Even if NZ incomes do not converge towards average OECD levels, to some extent we are seeing a convergence in international house price levels, at least in desirable locations such as along coasts or in pretty countryside settings which NZ has in abundance. To take an admittedly extreme example, I was reading an article in the US press recently that the State of Hawaii has the 2nd highest house prices in the country yet its income levels are only around 75% of average US levels.

3) The demographic drag that people have bought up here is IMO overplayed. NZ's population level is still projected to keep on climbing until around 2050 on quite conservative net migration and fertility assumptions (see file below). Sure, there will be a shift in the type of dwellings demanded as the population ages - relatively less demand for the large family homes, more for 1 and 2 bdrm units closer to amenities. But this trend actually implies that there will be even more pressure bought to bear on land prices in the "right" locations -- not too difficult to figure out where they are!

http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN016778.pdf

Capitalist
12-04-2005, 09:03 PM
Right Skinny - never forget I have a photographic memory:

I am shocked by how much prices have gone up but how cheap they are still! If we take the view that the better growth performance in NZ over the past 5 years is a sign that the economy is starting to converge back towards upper OECD income levels then it follow house prices may have many years to run yet

F.E.T.E.

Halebop
12-04-2005, 09:17 PM
Perhaps your photographic memory is a bit selective Cap. Even my less than photographic memory can recall Skinny later saying what he just re-related above.

skinny
12-04-2005, 09:18 PM
Good memory Cap, that is point (1) of the epistle. As an economist I always reserve the right to distinguish between forces driving the the short and long runs though :D[:p]

...this is what I had to say on buying now:

Like Duncan I reckon NZ housing a good investment for the longer run, however, IMO Rmbbrave the stars are not in your favour at the moment at all. Over the next few years the NZ housing market could show negative real returns and its quite likely the NZD will fall against the USD -- if it does swings of over 30% are not unusual by historical standards. Have you factored such a fall into your sums? My advice is to wait out the next few months to see which way the wind blows.

wns
14-04-2005, 05:43 PM
What no-one has mentioned yet on this discussion is that buy and hold rental isn't the only way to make money in real estate.

You can make very healthy returns using vendor financing techniques.

For example:

Search for properties until you can negotiate one at a discount to market. Let's say you find one that is worth about $100,000 but you negotiate and buy it for $87,000.

Buy a house for $87,000. 10% deposit = $8,700.
At 90% LVR, take a loan for $78,300.
Closing costs @ say 6% of purchase price = $5,220.
Your initial investment = $8,700 + $5,220 = $13,920.

Let's say your loan is 7% interest only, that's $5,481 pa interest expense.

Now, resell it to someone who can't get a loan from a bank etc (eg. credit problem, doesn't have large enough deposit etc etc).

Mark it up to a bit above market price (but not too excessive). Let's say $105,000.

They pay you a deposit of $3,000 and take out that rest as a loan to you of $102,000.

Mark up the interest rate you charge them by say 2% principal & interest, so that's 9% p&i. Term of 25 years.

Their payments to you = $10,272 pa.
Plus the buyer covers the expense of rates and insurance.

Let's calculate your profit in year one.

$3,000 buyer's deposit
+
$10,272 their interest payments to you
-
$5,481 your interest payments
=
$7,791

Your cash-on-cash return in year one = $7,791/$13,920 = 55.96%.

If the buyer refinances in the first year, then your return is even higher.

In year two, if the buyer still hasn't refinanced, then your return is 34.42%, that's a passive income of $399 per month while the deal is in progress ($10,272-$5,481)/12.

When the buyer refinances, you get a chunk of cash amount equal to the principal left on their loan to you minus your purchase cost.

duncan macgregor
27-06-2005, 02:18 PM
WNS,You give a simplistict example that is full of thorns. A person with a bad credit record, or limited capital that will buy a property at an inflated price to the market is a bad business risk. When you seek out the fool to exploit remember the other guy might be doing likewise. The chances of finding a trouble free deal with an honest buyer, are remote with a deal like that, and shows a lack of business experience on your part. Questions to ask yourself.
1 How long to get them out with a mortgagee auction
2 how much will that cost.
3 The person in the house owns the chattels and sells them.
4 You got paid a few lousey dollars given someone a free house for six months find it trashed with everything gone, the owner overseas, paid an auction, got less than you paid for it, and think you are smart. That is a stupid business risk.
macdunk

27-06-2005, 03:48 PM
Duncan Macgregor WNS is right but I don't think it is legal in NZ it is actually a lease to purchase tittle does not transfer untill last payment. One day late in a payment triggers a huge penalty interest payment and one week in arrears triggers an eviction. (please note detail may not be quite 100% correct but that is the basics of the deal.)

duncan macgregor
27-06-2005, 04:25 PM
ENIGMA, A deal like that is legal anywhere. Vendor finance with a deposit at any level likewise interest rate. The point i make is the person silly enough to get involved in a deal like that is a sitting duck. The vendor takes an almighty risk, and has more to lose than the buyer. macdunk

wns
27-06-2005, 04:36 PM
macdunk, I'd recommend you check something out properly before dismissing it and thinking ill of someone who adds a different perspective to the conversation.

You can call it what you like but I have and continue to make money out of it. There are several variations/methods but they all come under the vendor financing umbrella. Actually on the deals I've done, I've partnered with a guy who has done 60+ transactions like this, and all day every day he is spending time in the market - screening potential buyers and sellers and putting deals together. In each case we have purchased properties at 15-25% below market price.

Title doesn't pass to the buyer until they have paid the final payment or until they cash us totally out of the deal (by refinancing), so your points 1-4 don't apply.

The first two deals I did cashed us out within a year so I earned something like a 50-60% annualised return on my money. The other two I've got going, are ticking over, earning me a couple of hundred profit per house per month. Yes there are some risks but there are things in place such as systems and legal documents, to manage and mitigate them.

27-06-2005, 05:43 PM
Mac Dunk not so as 24 hrs notice of eviction is all that is required and he can just repeat as he still has tittle and no mortgagee sale is required.

duncan macgregor
27-06-2005, 06:05 PM
Seems that i am not up with the play in exploiting the vulnerable take it all back. I like the way i look however when i have a shave do you?. macdunk

27-06-2005, 08:22 PM
MAC DUNK I never said I did it But others certainly are. And is that type of contract legal in NZ I do not think it is, would be very pleased if somebody could enlighten me.

wns
28-06-2005, 12:29 PM
There’s no excessive penalties for late payments with the way I’ve done it and I certainly wouldn’t recommend anything that is unfair or unethical. In fact with one of our buyers, they did get a few weeks behind with their payments but we didn’t penalize them at all.
Having only been in the house for about 6 months, they sold the house (for a good profit) because they decided to move overseas. And we made our profit too. Win-win.

Another of our buyers could refinance with a bank but doesn’t want to because he hates banks. Fair enough that’s his choice.
For ALL of our buyers, the value of their homes are now worth more than what they paid for them 1-3 years ago. In fact we want that to be the case so that they can refinance and we get our back-end profit. That’s what’s called a win-win situation. These are people who are sick of paying rent and want to own their own home, but cannot at that moment in time get the finance through conventional means to buy a home. We are giving them a chance to either save and get extra funds together, or to repair their credit rating. Normally this takes 1-5 years. In the meantime they get the opportunity to buy a home and benefit from the appreciation in its value. Yes I absolutely like the way I look in the mirror.

I can not comment on the specifics of what is legal or not in NZ because I'm in Australia.

I was reading in the NZX forum yesterday and came across the following. I for one see the irony.

“I think that what you forget is the type of person that makes up a large percentage of the forum. Inclined to be petty, and condemn an idea before even considering it. Catfighting like spoiled brats etc etc .
Posters are scared to voice opinions, or new systems with the multitude braying for their blood in the background. I give the example of me explaining my time line system. In the end i thought i dont need this crap, and couldnt be bothered with their rail track thinking, and gave up. It is not if you are right or wrong that counts, its giving the others an idea they might never have thought up that they might incorporate into their own system. I refuse to hide behind an alias and throw mud. My real name is displayed that is what counts the idiots wont do that. I dare you major, and stock man to start the trend, tell us who you really are then we might end up with good honest opinions. Macdunk”

duncan macgregor
28-06-2005, 01:47 PM
WNS, no irony in that post. I am always the first to say i got it wrong as indeed i did in this case. I pointed out however that i didnt like it. I prefer to make my money in a more honourable way. macdunk

Halebop
28-06-2005, 03:09 PM
MacDunk its just a form of trading. I see no dishonour in it unless someones intentions are dishonourable. A developer can sell me a house he's built without vendor financing and yet know full well its already rotting from the inside out. It doesn't make the transaction more honourable just because I borrowed my full debt load from a bank or paid X versus Y.

Vendor Financing is a well established property "trading" technique (as opposed to property investing). In New Zealand it slips somewhat through the cracks in terms of legislation which is why there have been some negative media reports on the topic here due to various operators and their sharp (and certainly dishonorable) practices.

It meets a valid need and provides those with access to credit lines a potential source of revenue. WNS' partner is the interesting one because often they divert these transactions to 3rd party investors like WNS to reduce their own debt exposure but still earn management fees or profit shares. Now that's trading!

wns
28-06-2005, 03:11 PM
Macdunk,

All I did was state a simple fact followed by a numerical example - to present an idea that some others perhaps had not heard of before (sound familiar?).

People can take it or leave it. If people are interested they will investigate it and evaluate the facts and see if its for them or not.

You first of all ridiculed the idea and now you have made (as evidenced by a few of your comments) moral judgments on the method I described, even though you aren’t informed with the facts of what I was talking about (sound familiar?) - as your first response clearly shows. It seems you aren’t even open to the idea I have presented. I don’t care if you do nothing with it, but I don’t particularly appreciate you bagging it when you don’t know what you’re talking about. If others just read your response they also would probably close their mind to the idea without exploring the facts.

I have some buy and hold rentals as well as those vendor finance deals and quite frankly I think the people who are buying their own home (and now have substantial built up capital appreciation) are getting a much better deal than the people who rent from me. Also, the cash flow is much better from the vendor finance deals.

I believe buy & hold and vendor financing both have their place in the market and both can be rewarding. But most people have only heard of buy & hold, which most of the time means negative cash flow unless people put in a sizeable deposit - so I wanted to let people know there’s an alternative.

Regards,
Warwick

wns
28-06-2005, 03:21 PM
Hi Halebop,

You hit the nail on the head - my partner has done very well out of it. Its his business, its what he does. He doesn't put up any money. I put up the money, he puts the deal together and we go halves in the profit. If by chance there is a negative cash flow one month, then that is halved as well.

For me its passive. I just sign a few bits of paper and the cash starts coming in. I'm busy doing other things, I don't want to spend all my time 'in the market', but I do want my money working for me.

My partner supplies the expertise, the contacts, the systems and the time. He puts it all together and manages it and earns multiple recurring income streams.

With buy and hold, the cash flow usually isn't decent until you have paid off the mortgage, which usually takes many years. With vendor financing the cash flow is good from the start.

duncan macgregor
28-06-2005, 03:32 PM
TSK, TSK we are getting touchy. For the second time i did say i got it wrong. I dont have to like it or take the moral high ground i merely implied that i would never do it. To be so touchy you must have ideas along those lines yourself why else would you be jumping up and down. BEST OF LUCK ANYWAY. macdunk

wns
28-06-2005, 03:47 PM
Macdunk,

I'm comfortable with the vendor finance concept, the guy I deal with and how we do business. If I wasn't comfortable I wouldn't do it.

Best of luck to you too.

Regards,
Warwick

Capitalist
28-08-2005, 02:23 PM
Bob Jones in Herald on Sunday - Talk of real estate crash 'bollocks'

Sir Bob Jones blames doomsayists for scaring two-thirds of Kiwis who own their own homes.Just look at Australia he urges...the much-vaunted crash failed to eventuate.

Property still rocks. High-fives with MacDunk :D:D:D

duncan macgregor
28-08-2005, 04:02 PM
Property crashes do not happen, unlike share market crashes. The reason being excluding forced sales, that people wont sell at a loss unless it is forced upon them. Let us presume you had a home in Auckland and shifted to wellingon. Let us presume that the house in auckland was worth $500000 and the house you wanted to buy was $500000. Let us be quite silly and say your house in Auckland sold at the bottom of the market at $400000 then i put it to you in the same market the house in Wellington you will buy at $400000. Where is the loss?. If you have a few rental properties you know that the market goes in cycles,and your portfolio goes up 10pc pa on average plus rent, so there is no where you will sell at the bottom of a cycle. The rich people understand the concept the dummies argue against it, look into the rich list and how they got there. macdunk

Halebop
28-08-2005, 08:11 PM
Property crashes do happen and one happened quite recently. In the 70's over a period that incurred some 30%+ in inflation property values remained static. That's a thirty percent "crash" for the mathematically challenged. Given the stagflation of the day though it was more a dull thud shrouded by the thuds of all the other dulls. Most people were more concerned working out which day of the week they were allowed to drive to the travel agent to book the one way ticket to Oz. ...Hang on, that sounds familiar...?

Confusing absense with avoidance is a common failing of those with a vested interest. Bob Jones would not be immune to vested interests. Hang on, that sounds familiar too!

28-08-2005, 08:48 PM
There was quite a significant one in 1990-91 as well. I was buying Auckland property in 1991 at $20,000.00 under Govt Valuation.

Mick Jagger
29-08-2005, 12:18 PM
"the market goes in cycles,and your portfolio goes up 10pc pa on average plus rent"

hey macdunk I've heard you quote this many times... I'm wondering where you get that sort of stat from...?

I've done plenty of research on historical house prices and i calculate long term average price increases at around 6% per annum... thats nominal i mean, not real...

so where do you get your 10% and which price data are you using here? thats a very bullish expectation of a long term average...

duncan macgregor
29-08-2005, 02:13 PM
MICK, I only can quote reality mick, and reality begins at home. I have never built bought or sold a property that didnt exceed 10pc.
Blocks of bare land in my area have gone up 500pc in ten years coastal blocks leave those figures for dead. Stick a house on it, let some smart financial wizard pay it off in rent, then tell them how clever they are for renting. The idea with property is to borrow let some other mug pay it off. macdunk

Halebop
29-08-2005, 03:05 PM
quote:Originally posted by duncan macgregor

The idea with property is to borrow let some other mug pay it off. macdunk


I keep hearing this. At 4% yields (or negative yields for a residential coastal section) how does the mortgage interest get serviced, let alone paying off the loan? How would this even happen at 8% yields? I think most property stats live in a fantasy world where cashflow, capex and tenanting problems don't exisit. I have plenty of friends crowing about they $x00,000's gain they made on this or that property, conveniently forgetting the costs of purchasing and deposits, x000's in improvements, x years of negative cashflow and uncounted hours of personal labour. Rent is dead money? What is interest, labour and capex?

I don't discount the benefit of a smart property purchase and in any market that great "self financing" deal can be found. But talking "property gains 10% per annum" is pure salesman's rubbish - not investors analysis. I could say shares gain 100% per annum on my last 2 and half years. I could say shares gain 25%+ per annum on the basis of my 20+ years of personal share investing experience. ...But they don't, do they?

duncan macgregor
29-08-2005, 03:25 PM
HALETOP, property is not for you stick with what you understand. macdunk

skinny
29-08-2005, 04:03 PM
One thing I have been pondering is the extent to which people negatively gear for taxation purposes.

Under the Nats tax policy, the shift out in the tax bands will reduce the tax incentives on property investment for most investors (tho not at all for those whose tax losses do not reduce their taxable income below 100k).

Interestingly the Oz housing market slowdown pretty much coincided with the Howard govt's shift out in the tax bands......perhaps we should be careful what we wish for [:o)]

Halebop
29-08-2005, 05:11 PM
Not sure what impact it would have Skinny but I've always agreed with the mantra that government legislation often achieves the opposite to its intent. Maybe tax cuts are no exception either?

Halebop
29-08-2005, 05:13 PM
QVNZ and treasury data aggregates the value of total housing stock in New Zealand at $452bn as of August 2005. This derives an average gross 9.7% increase in total housing stock values since Q4 1980. The data does not account for maintenance, improvements and new dwellings (current data indicates the $452b includes $9bn in new dwellings over the last 12 months or +2%).

There are around 1,350,000 dwellings counted in the current survey. The increase in dwelling numbers accounts for 1% or so in annual aggregate value rises.

Inflation was around 5.3% per annum for the same 25 year period.

The amount spent on maintenance and improvements is unknown but at a guess is also substantial. Given the size of the building and DIY industries an annual figure between 0.5% and 1% would seem conservative.

The average floating interest rate since 1980 was 12.4%.

It all makes 10% from property look a bit hard really. I don't discount the ability of a careful investor to buy individual properties well or a builder/developer/trader to trade well. But 10% on property is fantasy. A good run in any asset category always make people forget the risk premium that should be applied. Property presents no exception.

PGL
29-08-2005, 09:19 PM
Good analysis Halebop, I do think you have overlooked one factor though - the shrinking of average section size. The comparisons of total property values are not comparing like with like when you consider the large amount of infill housing over the 25 year period and the move towards apartment/unit title housing stock.

Halebop
29-08-2005, 09:24 PM
I did not consider shrinking section or perversely larger houses (!).

Nor did I consider that it often takes two incomes to buy where once one did the job. So standard of living is not factored either. At least gardening should be easier.

PGL
29-08-2005, 09:36 PM
quote:Originally posted by Halebop

I did not consider shrinking section or perversely larger houses (!).

Nor did I consider that it often takes two incomes to buy where once one did the job. So standard of living is not factored either. At least gardening should be easier.


Well I guess no-one has time for gardening when they are working to pay the mortgage.

The whole recent property price surge seems to me to be a con-job by the banks

Cheap Money = housing inflation (more easily available money chasing an essentially fixed supply)

The result is a transfer of wealth from some NZers (the buyers) to other NZers(the sellers) with the Aussie banks taking a healthy cut along the way.

Net effect Banks-1 NZ-nil

Halebop
29-08-2005, 09:57 PM
I can remember reading something from Gareth Morgan (I think) a couple of years back. His contention was that the gradual shift from 1 Full Time income families to 2 Full Time Income families merely resulted in higher house prices and due to mortgage commitments and inflated values lower net disposable incomes (despite the 2nd income!).

I really wonder how many people sit down and consider alternatives? There mostly seems to be two camps and neither appeal to me... Buy a house/land/property/properties at all costs or spend today and do nothing.

PGL
29-08-2005, 10:04 PM
quote:Originally posted by Halebop

I can remember reading something from Gareth Morgan (I think) a couple of years back. His contention was that the gradual shift from 1 Full Time income families to 2 Full Time Income families merely resulted in higher house prices and due to mortgage commitments and inflated values lower net disposable incomes (despite the 2nd income!).

I really wonder how many people sit down and consider alternatives? There mostly seems to be two camps and neither appeal to me... Buy a house/land/property/properties at all costs or spend today and do nothing.


Its even worse than that for most - buy a house which increases in value, so now you are rich, so you can borrow against your equity, and pay more interest so work end up working harder and longer.

You've got to ask where this leads for us as a society.

Cooper
29-08-2005, 10:26 PM
quote:Originally posted by PGL
You've got to ask where this leads for us as a society.


Well, under the basic scenario you've been describing, under which the demand for capital increases, and the supply of labour similarly increases... All else held constant that results in the relative returns for capital goods growing, and those who hold capital becoming wealthier. Meanwhile the relative returns on Labour have decreased due to increased supply, so those who contribute labour receive less return for their input, in a relative sense. So under that scenario, you work more for relatively less, and those who are already wealthy grow wealthier as the proportion of return for capital input increases and labour costs decrease.

Not an analysis of the current situation, just an extension of the example discussed here.

PGL
29-08-2005, 10:37 PM
quote:Originally posted by Cooper


quote:Originally posted by PGL
You've got to ask where this leads for us as a society.


Well, under the basic scenario you've been describing, under which the demand for capital increases, and the supply of labour similarly increases... All else held constant that results in the relative returns for capital goods growing, and those who hold capital becoming wealthier. Meanwhile the relative returns on Labour have decreased due to increased supply, so those who contribute labour receive less return for their input, in a relative sense. So under that scenario, you work more for relatively less, and those who are already wealthy grow wealthier as the proportion of return for capital input increases and labour costs decrease.

Not an analysis of the current situation, just an extension of the example discussed here.


Well, I guess I already knew that in my heart of hearts.

I was hoping for a more optimistic outlook - revolution perhaps?

Cooper
29-08-2005, 10:52 PM
Maybe, but if that very simple scenario is applicable then there is a point at which the demand for capital goods will reduce, because the market for those goods is predominantly those who provide labour, so the decrease in relative wealth for those whose main input is labour will also lead to a decrease in the demand for capital goods. In this instance it would be in the best interests of all concerned (particularly those providing the capital) to ensure that the discrepancies aren't large enough to warrant revolution. Time and the "invisible hand" would bring it back into equilibrium, in other words.

PGL
29-08-2005, 11:01 PM
It's late but I guess we are talking 'supply and demand' here

What troubles me is that we are moving (by stealth) to a different point on the supply demand curve than we were at say 20 years ago - vis-a-vis what the average joe/joess got for the number of hours that he/she worked.

So at what point does it come to equilibrium, and more importantly, why has the equilibrium shifted - the invisible hand perhaps?


Disc - no idea whether or not you put a question mark on a rhetorical question. Sad really, I can ask them but I can't punctuate them!

Cooper
29-08-2005, 11:27 PM
quote:Originally posted by PGL

It's late but I guess we are talking 'supply and demand' here

What troubles me is that we are moving (by stealth) to a different point on the supply demand curve than we were at say 20 years ago - vis-a-vis what the average joe/joess got for the number of hours that he/she worked.

So at what point does it come to equilibrium, and more importantly, why has the equilibrium shifted - the invisible hand perhaps?


Disc - no idea whether or not you put a question mark on a rhetorical question.



Yeah... it's too late in the day for me to say much of any intelligence. Why has the equilibrium shifted? Social factors maybe? Living beyond your means; cheap credit and/or expensive credit not being properly preceived as such, coinciding with a more materialistic way of valuing one's worth? Leading to increased indebtedness and the purchase of consumption goods that don't generate an economic return (the lack of ability to differentiate a true need from a perceived need which is actually a want), but which serves to increase a society's productivity, so as to give the perception that average "wealth" is growing. All leading to the individual needing to make the decision to increase their labour supply (working more) whilst also increasing the return on capital (by demanding more capital goods) which subsequently decreases the relative return on labour, leading to a bit of a downward spiral. I'm just making it up as I go but it makes sense at half past 12 on a tuesday morning.

The argument for why the equilibrium has/has not shifted would probably depend on what the individual would be proposing as a cure (if any!). An economic liberal would just claim it's the symptom of a productive society and the individual's decision to work more to increase their utility, a marxist would claim it's an example of the capitalist class using their might to gain extra leverage over the proletariat. Both would make the diagnosis on the basis of justifying the cure they have in mind to fix it. :)

Dough Boy
30-08-2005, 05:22 PM
Just a note from the field.

Took a half hour ride on a Auckland ferry to a far flung suburb.

A 1980's Fibrolite on 1/4 acre with no view going for $510,000.

Sections in adjacent new development selling for $280,000.

Assured by ferry boat driver prices still have a long way to go and will double.

Reminds me of that story about the shoe shine boy who gave a tip to that great share market investor who then immediately sold out of the market that day.

wns
12-09-2005, 05:09 PM
In answer to your first question, yes very good returns are obtainable by investing in property.
So if good returns = rocks, then yes property can ‘rock’.

I disagree with your comment that gearing is gambling. It all depends on what you do with the borrowed money.

To your example… a share price increase of 3.91x is certainly a very healthy return for a 12 month period. Congratulations!

If you could have done so, knowing what you knew about that stock a year ago, would you have borrowed $80k for every $20k of your own money and used the funds to buy more of that particular stock? Based on the fact that the share price went up by 3.91x in 12 months the company in question probably had/still has a pretty small market cap, and I’m guessing there’s no way a bank would lend to an 80% LVR on such a stock. A personal loan is always an option though.

Your example is partly hypothetical because you didn’t actually borrow the money, you just looked back at one particular share you hold that has appreciated a lot in the last year, and concluded that shares must be better than borrowing for real estate.

wns
13-09-2005, 02:02 PM
Hi aspex.

Yes you're right, I made a few incorrect assumptions.
So now I'm eating humble pie. [:I]

That's a great return! Good on you.

Perhaps I ought to educate myself on how CFD's work and then if it makes sense and I feel comfortable with it, give it a go, starting small of course.

What did you do to get educated & started?

Thanks for posting.

wns
13-09-2005, 05:41 PM
Thanks. :)

GB
10-02-2006, 02:10 PM
Property on the rocks