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Winston001
27-04-2006, 07:26 PM
I'm inclined to view equity markets as being overvalued while property is quietly slowing. So I'd like to buy some property assuming I sell most shares in the next 12 months.

Lets assume $300,000 to invest and I prefer Central Otago. What is the best move?

Buy 2 - 3 sections?
Buy a large section with a view to subdivision/development?
Buy a geared commercial property?
Instead buy an industrial property?
Bare land and build industrial building?

I've observed plenty of people do well out of property over the years but can't pick any one preferred choice. Subdivision seems the most profitable but that is sometimes priced in already.

Any thoughts?

wns
27-04-2006, 10:40 PM
Hi Winston,

I think there are still good buys / bargains in the equity markets and there pretty much always is if you look around. Ditto for property.

I don't know the answer but I'll try and help you by asking a few questions... if you post your answers, someone else might be able to help you further.

By investing in property, how do you want to make your money? Cash flow, capital gains or a combination? What level of return are you looking for? What level of debt can you service & feel comfortable with? What do you know and understand enough in order to make an informed purchase? I'd let the answers guide you in what you do.

duncan macgregor
28-04-2006, 08:40 AM
WINSTON001, Different strokes for different folks.
1. Buy 2-3 sections in central otago is not to exciting an idea to me. Rates come off for starters plus selling cost against likely profit margin.
2. Buy a large section with a view to subdivide is not for a novice. Unless you know exactly what you are up against, dont even think about it, you will be shocked at all the unexpected cost and crap involved.
3. Buy a geared commercial property that is already up and running is your easiest option. You can do all the sums work out profit margins etc etc.
4. Buy industrial property. Be carefull of what it is Factories have a habit of closing down do your homework on what it is.
5.Bare land and build not if you are a first timer you must be experienced for this.
6. Property is the easiest way to make money. Look at mortgagee auctions,remember you are a cash buyer only buy a completely checked out bargain. Get it up and running first, then do your sums. Work out rent, rates, upkeep expences, against what you can borrow on the property so that the property is self supporting keeping in mind that you dont want to show a profit. When you worked out the sums borrow that ammount and buy your next one.
If you buy right you will get about 90 pc of your money back, do this over, and over again. All you want is a capital gain when you sell, which you do next time the market peaks. Doing it that way with enough cash in reserves for a rainy day is the easy way to make money. BE a cash buyer that insists on a bargain. To make real money you must use the banks money. macdunk

foodee
28-04-2006, 09:16 AM
Macdunk
Enjoyed your summary of property sectors. Infact always interested in your views on prop. Come to think of it you do sound a bit like O.N. on tv....Nah! it couldn't be - different name!

Winston001
Intrigue in your looking at Central Otago.

cheers

Capitalist
28-04-2006, 12:01 PM
quote:Originally posted by duncan macgregor

WINSTON001, Different strokes for different folks.
1. Buy 2-3 sections in central otago is not to exciting an idea to me. Rates come off for starters plus selling cost against likely profit margin.
2. Buy a large section with a view to subdivide is not for a novice. Unless you know exactly what you are up against, dont even think about it, you will be shocked at all the unexpected cost and crap involved.
3. Buy a geared commercial property that is already up and running is your easiest option. You can do all the sums work out profit margins etc etc.
4. Buy industrial property. Be carefull of what it is Factories have a habit of closing down do your homework on what it is.
5.Bare land and build not if you are a first timer you must be experienced for this.
6. Property is the easiest way to make money. Look at mortgagee auctions,remember you are a cash buyer only buy a completely checked out bargain. Get it up and running first, then do your sums. Work out rent, rates, upkeep expences, against what you can borrow on the property so that the property is self supporting keeping in mind that you dont want to show a profit. When you worked out the sums borrow that ammount and buy your next one.
If you buy right you will get about 90 pc of your money back, do this over, and over again. All you want is a capital gain when you sell, which you do next time the market peaks. Doing it that way with enough cash in reserves for a rainy day is the easy way to make money. BE a cash buyer that insists on a bargain. To make real money you must use the banks money. macdunk


Wow - totally agree with all that. I did no.2 - and believe me Mac is right. Still have the property and it has increased 100% in value at least, but I'm not going to subdivide now because of the costs involved.

The industrial property is doing well, and is less risky if you do your homework.

Property is the easiest way to make money - no doubt about it. All the wealthy people I know have made their money on property - it beats the sharemarket hands down.

Winston001
28-04-2006, 08:09 PM
Thanks everyone.

Using this forum is a bit like thinking out loud. Your suggestions and questions are very helpful in forming a view.

My preference is a commercial/industrial property yielding $50,000pa (inflation adjusted) in 10 - 15 years. I've already looked at this but the rental yields around Queenstown are 5%. That is historically low so I could be patient and wait for the average yield @8% approx to return. Otherwise it's going to be negatively geared.

I'm reasonably knowledgable about property but a bit of a nervous nellie at actually taking the step.

I could have purchased rental properties over the years but long ago realised that I don't have the temperament to be a landlord. My business partner used to spend hours of frustration trying to get rent, replace tenants etc. Mind you, it was all worth it in the end.

Commercial tenants are long term and generally businesslike. Much less human management than suburban rentals. But lose the tenant and........oh dear.

I'm unlikely to completely leave shares because I enjoy them.

wns
28-04-2006, 10:03 PM
Winston,

I hopes this helps...

FINANCES

I'd suggest you talk to a couple of mortgage brokers to find out what your borrowing capacity is.

That way, when you go looking for property you can confidently make an offer knowing that you've got the finance part under control, and you will know the maximum price you can afford.


SALE PRICES

In NZ do you have an info source (website) where you can buy a report on sales history for an area - address, date of sale, sale price, land area etc etc? We can in Australia, and that will really help you with knowing your values and that you don't overpay. Buy the report for the areas you are looking in then go take the printout and go driving past the properties listed on the report. It will really give you a feel for values and will be more accurate than looking in agents windows because it gives you actual sale prices, not asking prices.

Those couple of steps should help the 'nervous nellie' bit.


BEING A LANDLORD

I don't think there's such as thing as needing to 'have the temperament' to be a landlord. That's a costly thing to believe.

Instead... pay a property management company to manage the property for you. I pay 7.5% of weekly rent (+ gst) to a property manager and they look after any tenant issues, arrange quotes for any repairs etc, and they send me monthly statements and an annual summary for my accountant. Its money well "spent".

Winston001
29-04-2006, 01:00 PM
quote:Originally posted by wns

Winston,

I hopes this helps...

FINANCES

I'd suggest you talk to a couple of mortgage brokers to find out what your borrowing capacity is.

That way, when you go looking for property you can confidently make an offer knowing that you've got the finance part under control, and you will know the maximum price you can afford.

Fortunately I'm able to do this pretty accurately.



quote:
SALE PRICES

In NZ do you have an info source (website) where you can buy a report on sales history for an area - address, date of sale, sale price, land area etc etc? We can in Australia, and that will really help you with knowing your values and that you don't overpay. Buy the report for the areas you are looking in then go take the printout and go driving past the properties listed on the report. It will really give you a feel for values and will be more accurate than looking in agents windows because it gives you actual sale prices, not asking prices.

Those couple of steps should help the 'nervous nellie' bit.

Good advice. In NZ we can order, quite cheaply, that info from Quotable Value (formerly the Government Valuation Service). Nevertheless I've never done it, so thanks.

In fact, I'll do that as well as asking a couple of registered valuers what the trends are. And there is no substitute for looking.



quote:
BEING A LANDLORD

I don't think there's such as thing as needing to 'have the temperament' to be a landlord. That's a costly thing to believe.

Instead... pay a property management company to manage the property for you. I pay 7.5% of weekly rent (+ gst) to a property manager and they look after any tenant issues, arrange quotes for any repairs etc, and they send me monthly statements and an annual summary for my accountant. Its money well "spent".


Good advice. My observation of management outfits is the results are highly variable in smaller places. And Central Otago isn't large although it has a substantial housing rental market. So I take that on board. In fact a friend has a property in Christchurch which is managed and he can't praise them enough.

Winston001
29-04-2006, 01:09 PM
What I'm asking in essence - on a 10 year horizon, is a subdivisible no interim income piece of land, a better choice than 2/3 bare sections or one built-on income producing property?

After 10 years more or less I can move to the commercial property having built up some capital.

Here's an example of what concerns me. I know a building in the Frankton industrial estate (Queenstown) I could buy. The price is likely to be $1 million and its not on the market. The rent from the tenant is $42,000pa. If I borrowed $700,000 the rent won't even cover the interest.

Sideshow Bob
29-04-2006, 06:18 PM
Winston,

My 2c is that to wait until at least the end of the year. In Queenstown/Wanaka, there is a bit of an overseas element in the market, so the predicted drop in the dollar will make property attractive to overseas buyers. But remember seeing something recently that only 6-7% of properties in the Lakes district (which don't think includes Alex/Cromwell) is owned by overseas owners.

Personally, I think prices are going to come back in Central, partly because they have risen so much, and many are 2nd homes plus also comes to jobs/income. I have been thinking this for a while, but believe just a matter of time.

There is a large number of houses/property on the market (just have to have a look at Trade Me).

Long term, I think that is a definitely banker as an investment area. Growth will continue, with more retirees, climate etc. In fact I have been looking to move there (not Q'town or Wanaka), but haven't found the right job/business opportunity.


Cheers
SSB

Winston001
30-04-2006, 11:52 AM
Agreed Bob. I've been through 2 real estate cycles in Central Otago - lucky enough to have a crib. I've no doubt the market is softening and there will be buying opportunities in a year to 18 months. Subdivisions are still being completed so there is going to be an oversupply soon.

Being patient is the hard part. I find that once you start looking and find a possibility, it is very hard not to buy it. Yet logically the choice will be even better in 18 months.

nelehdine
01-05-2006, 09:01 AM
I'd buy a piece of land in Central Otago with a heap of gold under it , then figure out a way to get it out ...

Sideshow Bob
01-05-2006, 05:17 PM
Don't know where you are Winston, but the ODT had an interesting article on page 9 with the headline 'Weekend Auctions mostly Fritless'. Guessing by the fact that you have a 'crib' and not a 'bach' then from the southern part of this fair land.:D

Couldn't find the article, but something similar from the Southland Times:

http://www.stuff.co.nz/stuff/southlandtimes/0,2106,3653342a6011,00.html

Gotta love those real estate agents!!

If you have been through 2 booms in Central, then think you should be able to time it at the right time.....

Can anyone post a chart on Central Otago property prices![:p]

trackers
01-05-2006, 08:10 PM
quote:Originally posted by Capitalist

Originally posted by duncan macgregor

WINSTON001, Different strokes for different folks.
1. Buy 2-3 sections in central otago is not to exciting an idea to me. Rates come off for starters plus selling cost against likely profit margin.
2. Buy a large section with a view to subdivide is not for a novice. Unless you know exactly what you are up against, dont even think about it, you will be shocked at all the unexpected cost and crap involved.
3. Buy a geared commercial property that is already up and running is your easiest option. You can do all the sums work out profit margins etc etc.
4. Buy industrial property. Be carefull of what it is Factories have a habit of closing down do your homework on what it is.
5.Bare land and build not if you are a first timer you must be experienced for this.
6. Property is the easiest way to make money. Look at mortgagee auctions,remember you are a cash buyer only buy a completely checked out bargain. Get it up and running first, then do your sums. Work out rent, rates, upkeep expences, against what you can borrow on the property so that the property is self supporting keeping in mind that you dont want to show a profit. When you worked out the sums borrow that ammount and buy your next one.
If you buy right you will get about 90 pc of your money back, do this over, and over again. All you want is a capital gain when you sell, which you do next time the market peaks. Doing it that way with enough cash in reserves for a rainy day is the easy way to make money. BE a cash buyer that insists on a bargain. To make real money you must use the banks money. macdunk


Coupla questions if you don't MacDunk...

1. Lets face it, earning money through residential property (rent, not capital gains) is dead...surely? Personally, even factoring in being able to pick up a 'bargain', finding a place where rents = mortgage payments, is just a thing of the past(personally am waiting to pick one up, but am waiting for a rise in average rents)

2. Mortagagee sales - My take on this was that this is nothing more than just a pie in the sky theory? Whereas in the past the bank would flick the said property off to whoever wanted it (for a semi reasonable price), nowadays it goes to an aligned property company and auctioned off (i.e chance of getting a really good deal is the same chance as any at auction?). Please correct me if im wrong


quote:
Property is the easiest way to make money - no doubt about it. All the wealthy people I know have made their money on property - it beats the sharemarket hands down.


I agree... My returns on property are only like 15-20% pa, whilst share trading is 70-80% (yes, this is on a smallish amount of money) - Guess which makes me more money? ahh leverage, gotta love it

duncan macgregor
02-05-2006, 07:54 AM
TRACKERS, Property is long term investment buying at the right price.
Mortgagee auctions the banks are caught between a rock and a hard place, and will only try to recover what is owed regardless of what the property is worth or what the owners equity in it is worth. The average person thinks that leverage in trading shares as something of extreme high risk, but feels happy about leverage in property.
What you fail to understand is that after a couple of years you can refinance, and get your total deposit back, on a self supporting property that doubles in price every ten years. You cant do that with shares my friend. With property you are still in business the whole cycle. Shares you will go under so fast levering in if it all hits the fan. macdunk

rmbbrave
02-05-2006, 09:22 AM
quote:Originally posted by duncan macgregor

a self supporting property that doubles in price every ten years.

Here we go again Duncan,

"Doubles in price every ten years" is just garbage.

Winston001
02-05-2006, 09:53 AM
quote:Originally posted by rmbbrave


quote:Originally posted by duncan macgregor

a self supporting property that doubles in price every ten years.

Here we go again Duncan,

"Doubles in price every ten years" is just garbage.


If this has been debated before I've missed it. My experience of watching other people own property since 1980 is that the doubling in 10 years is a fair statement. Horses for courses. I live in Invercargill and the gains aren't anywhere near that.

But in Queenstown and Wanaka, some properties exceed the doubling. Same for Tauranga, Taupo, parts of Auckland, Christchurch etc.

It's a matter of picking the right spot. Hate to say it but Location Location Location seems to work.

duncan macgregor
02-05-2006, 09:54 AM
quote:Originally posted by rmbbrave


quote:Originally posted by duncan macgregor

a self supporting property that doubles in price every ten years.

Here we go again Duncan,

"Doubles in price every ten years" is just garbage.
Better than that RMBBRAVE If you had been where i have.
Shares versus property for MR AVERAGE.
SHARES average = rise or fall in the market plus dividends over a period of time. Do better than that makes you above average with some one doing worse to make up for it. I would think if you buy a property get it self funding over a less than average time of four years refinance and get your own money out with your deposit back leaves your shares for dead. Incidentely RMBBRAVE my property is worth four times its cost in 12 years my neighbour has done exactly the same with a bare paddock. Its a funny thing all the self made rich people that i know did it with property, perhaps i move in the wrong circles. I know very few share investors in comparrison most of them gave it up in the eighties crash when i was doing property.
macdunk

trackers
02-05-2006, 02:35 PM
quote:Originally posted by rmbbrave


quote:Originally posted by duncan macgregor

a self supporting property that doubles in price every ten years.

Here we go again Duncan,

"Doubles in price every ten years" is just garbage.


My my we all have differing opinions don't we... I fully subscribe to the doubles in price every 10 yrs theory, but write off the "self supporting" one in the current climate (current meaning several years)

minimoke
02-05-2006, 03:27 PM
My my we all have differing opinions don't we... I fully subscribe to the doubles in price every 10 yrs theory, but write off the "self supporting" one in the current climate (current meaning several years)
[/quote]

Except with "Investor" Shares you just put your money in once, go for a ride, and hopefully collect dividends along the way. With Property you are constantly putting money in and lots of it – excepting of course DM’s bare block of land.

rmbbrave
02-05-2006, 06:29 PM
If you subscribe to the "doubles in price every ten years" theory you are not alone.

On page 9 of "...making money in residential real estate" Somers and de Roos make the ridiculous statement that:

"capital growth has averaged almost 10% over the last 900 years."

Duncan it seems is also a believer in this absurdity.

foodee
02-05-2006, 06:50 PM
RMB
Not as absurd as it seems.
Doubling every 10 years only require a yearly gain of 7.2%!

duncan macgregor
02-05-2006, 07:10 PM
quote:Originally posted by foodee

RMB
Not as absurd as it seems.
Doubling every 10 years only require a yearly gain of 7.2%!


You forgot to mention that its the banks money you use not your own. macdunk

Halebop
02-05-2006, 07:24 PM
Since the 1960s the total value of housing stock has increased by 8.9% per annum. While valuations can be out of wack year on year, over a 40+ year series this is a fairly accurate barometer.

Total housing stock includes:
Additional housing to cater for population growth
Larger housing in response to real economic growth per capita
Additional housing for recreational use (A mixture of demographics and real economic growth)
Year on year improvements to existing stock by investors, developers and DIY owner occupiers

Whittle these down and the rate of growth on housing values in the long term is around 7% - I suspect it might even be a little lower than that - perhaps 6.5%.

Inflation between Q1 1960 and Q1 2006 is a compound 6.5%. Despite perception that property is an inflation hedge, like all asset classes it performs better when the economic stars are aligned and there is significant evidence to show it substantially underperforms during inflationary periods (1979,1988).

Property is just another asset class. We are entering a period where due to demographics the number of new property investors (1/3rd of residential property is owned by investors) will decline at the same time as baby boomers age and begin to close their chequebooks, downsize or simply sell the rental for something that requires less painting. If the commodity market boom results in inflation getting out of hand you can kiss goodbye to the recent period of outperformance - inflation will kill it like it kills all investment classes.

rmbbrave
02-05-2006, 09:35 PM
quote:Originally posted by duncan macgregor


quote:Originally posted by foodee

RMB
Not as absurd as it seems.
Doubling every 10 years only require a yearly gain of 7.2%!


You forgot to mention that its the banks money you use not your own. macdunk


You were the one to forget to mention "profit from borrowing the banks money" not me. If indeed, that is what you intended to say.

You also forgot to include a time span on your "Doubling every 10 years" theory - unlike Halebop whose claim that housing has increased by 6-7% per annum since the 1960s is fair enough.

But claiming historical gains of 7% for long periods (100+ years, let alone 900+) is just absurd.

Claiming these types of gains in the future is stretching the bounds of probability as well.

minimoke
03-05-2006, 08:57 AM
Lets not let a few yarns get in the way of a few facts.

According to the REINZ the Jan 1992 median NZ Residential Dwelling property sale price was $105,500. In Jan 1997 it was $160,007. In Jan 2002 it was $175,006. By Jan 2006 it was $300,000.

For DM, section prices were $45,000 in Jan 1992, $65,000 in Jan 1997, $85,500 in Jan 2002 and $140,000 in Jan 2006.

The data clearly shows that over time property values do increase. What I don’t have is the inflation rate data over this period so what the real increase is I don’t know.

However at times, property values do fall. For example Section prices in Jan 1998 were $78,500, dropped away and did not recover to until June 1998 (with 2 up months in this period). Dwellings for example in Nov 1997 were at $170,007, dropped away and got back to this level in Dec 1999 (after a few odd months when they rose a bit).

So what do the data tell me. Firstly timing in the market (entry/staying/exit) does appear to be important - even if you are leveraging one proprty off another.

Dwellings values increase on the back of land value increases. Therefore dwelling investments are problematic because you have to have enough cash flow to pay the rates and insurance (say $2,000 a year), property repairs (say 4% a year) and any costs of borrowing.

Sections would seem a better bet. But if you are buying into a subdivision there is probably some covenant that requires you to build within a few years so you break out of the long term good Section trend and end up in the not so good Dwelling trend. Suburban sections have the costs of rates and mowing (say $2,000 a year) which can’t be funded from elsewhere or your DM example of rural land which can be grazed to offset expenses.

Is there much value in looking at statistics beyond 10 years back? I think not because we do not generally stay with a single property for more than 7 years (I recall). This makes comparisons so much harder – suffice to say values do increase.

Winston001
03-05-2006, 01:37 PM
Good discussion and the 40 year data is helpful. Property does drop occasionally and there can be dead rental periods with no income.

So timing is important for the greatest benefit. The type and location of property is critical. My belief is that industrial property is the best choice. Any community needs it's car painters, engineers, contractors etc and they can't just park on the street.

I agree that it isn't always true that property grows 10%pa and indeed my own dismal experience in Invercargill proves that. My house cost $175,000 in 1991. Today it is worth $300,000. Thats a 72% increase over 15 years.

However my crib in Central has quadrupled over 18 years.

Halebop
03-05-2006, 01:41 PM
quote:Originally posted by minimoke

Lets not let a few yarns get in the way of a few facts.

According to the REINZ the Jan 1992 median NZ Residential Dwelling property sale price...

The median price tells you what is selling, not what the average value of property is. The REINZ figures are "yarns", not data.


quote:Originally posted by minimoke

Dwellings values increase on the back of land value increases. Therefore dwelling investments are problematic because you have to have enough cash flow to pay the rates and insurance (say $2,000 a year), property repairs (say 4% a year) and any costs of borrowing.

Sections would seem a better bet...

Sections make the argument for leverage and using other peoples money problematic. They don't provide cashflow. The property investment argument becomes one for property trading and development instead, which is a business just like any other.


quote:Originally posted by minimoke

Is there much value in looking at statistics beyond 10 years back? I think not because we do not generally stay with a single property for more than 7 years (I recall). This makes comparisons so much harder – suffice to say values do increase.

There is barely any value in a 7 year look at property unless you are trading or developing. Demographic trends in real estate last for 20 years or more. Looking at the long term picture helps confirm correlations between inflation and real estate. The real thruth is they basically match each other. There is no significant outperformance.

Halebop
03-05-2006, 01:48 PM
quote:Originally posted by duncan macgregor

You forgot to mention that its the banks money you use not your own.


This requires consistent re-leveraging to maintain returns.

Let's make some assumptions...
A major metropolitan market like Auckland with favourable demographics rather than a lower growth, higher income market.
Capital Growth 7.2% pa
Income Growth matches capital (not something that has happened in the last 10 years)
EBIDT 4%
Interest Rates 8%
Marginal Tax Rate 39%
Depreciation Allowance 1.5%
Reinvest all cash profits but support losses from external sources

In 20 years time a cash investment of $250,000 into $1,000,000 worth of real estate would be worth...

Property 4.017m
Mortgage -0.082m
Deferred Taxation -0.117m
Total $3.818m

...and have required additional external cash flows in the 1st 3 years of $8,000. Excluding these later monies the Internal Rate of Return is about 14.6%. Not bad, albeit flattered by income growth more than twice what the market has achieved in the last decade. From this point however, annual returns are about 10% per annum and dropping like a stone.

In order to maintain high returns, leverage must be maintained. So if we refinance at the beginning of each year, purchasing additional property in order to get us back up to 75% debt here's what the math looks like at year 20...

Property 131.4m
Debt -91.9m
Net Annual Cash flow, assuming you can make use of the $2m annual loss, is a loss of $1.289m
Total pre tax losses are now far in excess of $10m for the life of the portfolio

Question: All you folk who know rich property investors. Why has nobody appeared on the rich list with a $130m residential property portfolio? Could it be they are really doing something quite different from property investment? Could it be that the metrics of residential property investment are only attractive and sustainable on relatively low sums of money? Could it be that the good buying opportunities, sustained by cash flow, are just not readily available in this market?

Winston001
03-05-2006, 02:47 PM
quote:Question: All you folk who know rich property investors. Why has nobody appeared on the rich list with a $130m residential property portfolio? Could it be they are really doing something quite different from property investment? Could it be that the metrics of residential property investment are only attractive and sustainable on relatively low sums of money? Could it be that the good buying opportunities, sustained by cash flow, are just not readily available in this market?



Fair point. My observation of residential property investors is that they get rich but it is a relative term. Say $1 million cash after a lifetime. But then there are those who overgear and lose the lot, while others have several million. I'm know one at the moment who might just get his capital back if he is lucky.

Residential property is hard work and few people in my experience own more than 4 rental properties. So it isn't suprising such investors don't appear on the rich lists.

In terms of property John Spencer and Howard Patterson come to mind but they both had business investments as well.

Halebop - your calculations are enlightening - thanks for the effort.

Halebop
03-05-2006, 03:51 PM
Thanks Winston. Not sure all the property bulls will agree with your last statement!

As a disclaimer the data and analysis referring to residential property and not commercial property. Commercial is much more supportive of a debt load even if the banks don't like lending as much against it.

trackers
03-05-2006, 04:24 PM
(one example, straight off the top of my head)

New Zealand's richest man (or close?), that guy that died of a heart attack or w/e in Fiji - he made millions starting off buying student flats in dunedin, one at a time....

Its a good way to get good returns on low investments, what you then do with your money is the question.

Perhaps I'm one of the luckier ones, but I brought a house using 90% leverage 4 months ago, and have a 100% return on it already (valuation after a number of small, but necessary improvements) - I don't expect this sort of return to happen every day, but it can and does happen...

Bel
08-05-2006, 02:17 PM
Have you actually got your return on it already (refinanced using the gain or sold the house) or are just pulling fanciful figures out of a hat?

No offense of course.

trackers
09-05-2006, 04:55 AM
quote:Originally posted by Bel

Have you actually got your return on it already (refinanced using the gain or sold the house) or are just pulling fanciful figures out of a hat?

No offense of course.


Well I believe I mentioned it was a valuation, didn't I? I fail to see how refinancing would show the profit either? I know what my property's worth, and what I would get for it if I sold it...It's really not altogether that difficult - Thanks for your opinion.

Bel
23-05-2006, 07:42 AM
The person who told you how much your property is worth is actually a person willing to pay that price with his own $$$ or someone elses?

stevieb
23-05-2006, 11:26 AM
quote:Originally posted by Bel

The person who told you how much your property is worth is actually a person willing to pay that price with his own $$$ or someone elses?


This would seem to be an overly cynical view. Clearly valuers can get valuations wrong and you never really know until you sell but seems like an extreme action to actually go and sell the place just to show some doubting thomas on a chat forum it really is worth that.

In general terms valuers put conservative valuations on places as they are less likely to get sued if a property sells for more than valuation than vice-versa.

At the end of the day I think we should accept valuations for what they are, a reasonable approximation for the value of a place.

Halebop
23-05-2006, 11:37 AM
quote:Originally posted by stevieb

In general terms valuers put conservative valuations on places as they are less likely to get sued if a property sells for more than valuation than vice-versa.

This is the theory. In practice I've seen valuers say "How much do you need for it?". Always follow the money is my motto.

Bel
23-05-2006, 02:13 PM
Exactly and do valuers follow the market trend?

Yes i guess i am a cynic, works well for me because if i take a on paper loss i don't immediatly go and throw myself out of a tall building. I prefer to count my money once its actually in my hands or taken from it.

trackers
24-05-2006, 07:09 AM
Oh ok, yeah really good strategy there. Well in that case looks like I'm down the full amount (100%!)

I gave it out, I've got none of it back...-100% over 4 months, looks like this is going to be -300% returns every year.

Oh NO!

Dough Boy
06-06-2006, 06:16 PM
The assumption of property price increases of 7% or more over the last 10 or 20 years is valid but lets remember salaries have not increased to the same degree so what gives?

Well since the 70's society has changed a whole lot with the 1.5 to 2.0 income household now common. So when you look at the traditional 'average salary to house value' ratios they are no longer are valid, rather the 'household income to house value' ratio should be considered.

And this brings us back to how house values have managed to climb ahead of salaries, that is, the second income earner in the household has been the one to allow/push prices to climb as they have.

So can the 7.2% growth continue? Yes, for sometime as the worker participation rate inceases to it theoritcal limit. But not forever, as the need for sleep and relaxation overrides the consumer's addition for money. However the productivity of the household could be extended with drugs that limit the need for sleep (don't laugh people 'need' there coffee to get them thru' the day so its only a small step to medication to limit your sleep).

Then we will have a true or nearly true 24/7 society and property prices will keep rising for the time being, just not forever.

trackers
08-06-2006, 06:39 PM
quote:Originally posted by Dough Boy

The assumption of property price increases of 7% or more over the last 10 or 20 years is valid but lets remember salaries have not increased to the same degree so what gives?

Well since the 70's society has changed a whole lot with the 1.5 to 2.0 income household now common. So when you look at the traditional 'average salary to house value' ratios they are no longer are valid, rather the 'household income to house value' ratio should be considered.

And this brings us back to how house values have managed to climb ahead of salaries, that is, the second income earner in the household has been the one to allow/push prices to climb as they have.

So can the 7.2% growth continue? Yes, for sometime as the worker participation rate inceases to it theoritcal limit. But not forever, as the need for sleep and relaxation overrides the consumer's addition for money. However the productivity of the household could be extended with drugs that limit the need for sleep (don't laugh people 'need' there coffee to get them thru' the day so its only a small step to medication to limit your sleep).

Then we will have a true or nearly true 24/7 society and property prices will keep rising for the time being, just not forever.





I suspect it also has to do with the Bank's willingness to lend money, and consumer's willingness to take it.

In other matters, I headache by about lunchtime unless I've had at least one coffee [xx(]

duncan macgregor
09-06-2006, 12:04 PM
quote:Originally posted by Dough Boy

The assumption of property price increases of 7% or more over the last 10 or 20 years is valid but lets remember salaries have not increased to the same degree so what gives?

I say property increases in value by 10pc pa. What gives you ask, or perhaps why is the increase greater than inflation.
The rules and regulations have changed. The cost of compliance has escalated into the absurd. Building inspectors will no longer make decisions, and force you to get an engineers report for trifleing little matters. Developers are forced to build roads, and contribute to all kinds of stupidity, to be allowed to develop new sites.
We are now going to have builders pay all sorts of money to be registered. The apprenticeships in the industry is a joke.
I can only presume that the price of houses will rise a lot higher than my 10pc pa in the future. macdunk

Halebop
09-06-2006, 01:02 PM
quote:Originally posted by duncan macgregor

I say property increases in value by 10pc pa. What gives you ask, or perhaps why is the increase greater than inflation?
The rules and regulations have changed. The cost of compliance has escalated into the absurd. Building inspectors will no longer make decisions, and force you to get an engineers report for trifleing little matters. Developers are forced to build roads, and contribute to all kinds of stupidity, to be allowed to develop new sites...

Duncan these either are inflationary pressures or just a redistribution of expenditures. If developers are "forced" to build roads (why should ratepayers cover their development profits anyway?) then council avoids it. In Macro terms for the end consumer they are paying for it one way or the other. There isn't a realistic model for housing in the CPI index either, with purchase or construction of new dwellings weighted at less than 10% and rent at slightly more than 6%.

If I'm an oldie and paid off my mortgage 17.5 years ago both rent and property values might have near zero influence on my personal inflationary expectations or expenditures. I'm probably more in tune with the price of groceries, petrol, power, prescriptions etc. So property inflation is in practical terms about 0%. They are merely enjoying a price rise that can be swapped for something valued by the same criteria. Bar superior deal making they are getting same for same.

If I'm younger, rent and contruction costs have a much more direct and substantial impact. Mortgage payments might take 40 or 50% of my income, rent payments are less on average but still substantial and most likely to target the youngest / poorest demographics in any case and so present a substantial outgoing. In either case far above 6% or 10% weightings. So inflation for people in this category (more particularly home owners than renters because rents have underperformed capital values) might actually be 10% or more, at present probably higher if interest rates were able to be included. So that then is just the cost of building (irrespective of the reason for the cost escalation) and not a significant criteria for out performance - its just matching it own inflated costs.

I personally think bottlenecks in the construction sector are accounting for the lions share cost escalations, particularly in the form of higher priced labour (and at lower and less efficient skill levels).

In the longer run the total value of housing stock hasn't increased by 10% per annum. So the average value certainly hasn't when the total includes renovations, additions and greenfields development as well.

duncan macgregor
09-06-2006, 02:03 PM
What i was trying to say was it costs a very large ammount of money to even start a building more so than it used to. Its not a case of who pays for what that counts its unnecessary costs of late that add up to the total. Labour costs are less percentage cost to a house than they were. The reason being machines which speed up construction.
In the old days they did most things by hand, [digging, sawing, planing etc]so that man hours are greatly reduced. The apprentice boy went to night school, now the employer pays them at day school. we had inspectors that made decisions now we pay an engineer five hundred bucks to get a simple little common sense problem passed.
We have to buy land and gift a portion back to be allowed to proceed.
I think that the way things are going 10pc pa is under estimating the future costs. macdunk

Snow Leopard
09-06-2006, 02:21 PM
Totally independent of the trails and tribulations of being a builder in modern day New Zealand and the rise in costs caused by the mindless pen pushers covering their own derrieres:
You can not sell it for more than someone will pay for it and that depends to a large degree upon the ability of the man on the street to borrow money, or the willingness of the lenders to lend money.

I would suggest that is in the long term, unrelated to builders costs but is related to incomes, interest rates and buyer psychological factors.

duncan macgregor
09-06-2006, 02:29 PM
Everything is related to building costs. If the costs are to high the market slows down until the buyers play catch up. It is all supply and demand. The building industry is very competative nobody is allowed to make extreme profits. macdunk

Snow Leopard
09-06-2006, 02:34 PM
quote:Originally posted by duncan macgregor

Everything is related to building costs. If the costs are to high the market slows down until the buyers play catch up. It is all supply and demand.

My point exactly.

Halebop
09-06-2006, 02:52 PM
Its only half the equation. Let's not forget the sellers have to do some slowing down too.

I don't buy the "not allowed to make extreme profits" scenario. Property like all cyclical industries is categorized by extremes - both profits and losses. Developers and their feeder associates like real estate agents and financiers have been making extemely good profits. At some point they will make extremely bad profits too.