shares or units

[voltage]

I can borrow to buy 3 units @ 400000 in Rotorua giving a 7.5% net yield or I could borrow and buy $400000 NZ blue chip high dividend shares like telecom, utilities and LPT that would give a slightly higher yield, no maintenance and diversification but more volatility. Any comments.

[777]

Talk to to someone who has had tenant problems and they will say by the shares. Talk to to some one that has not had tenant problems and they will say buy the units. Me I would take the easy way and buy the shares. Simply because it seems less hassle.

[lou]

The best thing about property is you can use the high leverage to increase your ROI.

It sounds like you are borrowing against equity in your personal home so I would go with the shares.

[voltage]

Thanks for the comments. I have gone a step further and found a studio in auckland in a good apartment block that will yield net 8.25%. The only problem one has no control, easy to buy and of course when you sell not always to dispose of. Cost $130000 studio rent $325, borrowing against my house. The market is strong at the moment. I am still hesitant. I keep comparing with borrowing $130000 and investing in 10 blue chip dividend NZ stocks, which are easy to buy and sell and I could get a similar yield. Stocks like Telecom, Chorus, Hallensteins, Ebos, delegats etc. Comments appreciated

[fungus pudding]

Thanks for the comments. I have gone a step further and found a studio in auckland in a good apartment block that will yield net 8.25%. The only problem one has no control, easy to buy and of course when you sell not always to dispose of. Cost $130000 studio rent $325, borrowing against my house. The market is strong at the moment. I am still hesitant. I keep comparing with borrowing $130000 and investing in 10 blue chip dividend NZ stocks, which are easy to buy and sell and I could get a similar yield. Stocks like Telecom, Chorus, Hallensteins, Ebos, delegats etc. Comments appreciated

Mildly curious. What are the outgoings, or body corp. charges on the 130,000 studio?

[Fred114]

I would support those comments. Although I have never actually experienced sale or purchase of property, the simplicity of stock transaction is far easier and less stress. Let someone else do it. Bricks and mortar sound attractive, but too seductive. Leverage is risky on family home. Direct investment in equity is far easier. That's the advantage of a market of share equity, no leverage.

[voltage]

body corp and rates under $5000. Property management around 8.5%. Looks good if there is 100% tenancy. Most of these apartments have shorter tenancies. I do get suspicious what sales people say.

[voltage]

borrowing on shares is really no different than borrowing to buy bricks and mortar. The big difference is shares are more volatile and you must have a longer term horizon. Of course banks will not loan on shares but they are not very interested in small apartments either.

[CJ]

I disagree that shares are more volatile. The issue is you only get a 'valuation' when you buy/sell. But what if you had to sell the unit tomorrow. My guess is the price would drop dramatically. If someone approaches you, the price goes up. You spend $2k on advertising and wait 40 days to get what you think is the non volatile price.

Just like shares, if you aren't selling, the market price is irrelevent and the yeild/capital gain is the only thing that matters (this is a Buffett style approach).

[Halebop]

Agree with CJ on volatility comparions - the main difference is that the volatility of shares is more visible because price changes are captured in real time.

Voltage studio apartments in Auckland are a proxy for exchange rates and the strength of the language school market. My partner owns investment properties here and overseas. Her portfolio here focuses on yield and studio apartments. The somewhat higher priced studios near Customs Street are close enough to both education providers and major CBD Businesses to attract more than one type of occupier. Consider buildings like Tower Hill on Emily Place (Higher Cost/Lower yield but have delivered around 80% capital growth in 10 years due to larger size and superior maintenance & building management) and Harbour City on Gore St (Higher net yield, some Body Corporate risks as owners pay for design/maintenance issues, a hangover of boom time construction). By maintaining the apartments and furnishing to a higher than average standard she maintains a high occupancy (a fraction below 100% over many years). Despite slightly under-renting, yields have been very good.

Having said that, personally I prefer shares.

[stanace]

There are 3 concerns with property, getting paid, keeping fully tenanted, and kept in good condition.
I structure mine as follows; Fixed tenancy, 6-12 months.
I pay the power and water. This means that the tenant knows beforehand what their outgoings are, and if this is paid for by overseas parents, this is a bonus. The power company pays me enough on their dividend to very nearly offset the power cost. The water cost is factored into a slightly higher rent, eg another @25 pw.
I rent to Korean students. Because I pay power and water, the deal is that when they are ready to leave, they find new tenants. They advertise on student notice boards and Korean papers etc. They find it hard to do so if the place is untidy, so that looks after itself.
After 7 years it has been vacant for about 3 days, for cleaning. You can buy one of these for about 110,000, BC 1400, water 1300, rent, 280-290. Over 11% for cash.

[voltage]

thank you for all the comments. Halehop my daughters rented in Harbourcity. Good complex but lots of noise from Fort St at night. This apartment is the Darlinghurst. Buying studios, what would be the yield one would expect to be financially worthwhile. Stanace you seem to have a winning formula. CJ you are right it is the yield and capital gain that matters. Unfortunately capital gain is not guaranteed.

[CJ]

CJ you are right it is the yield and capital gain that matters. Unfortunately capital gain is not guaranteed. Capital gain isn't guaranteed with shares either as my investment in Air NZ goes to show!

[darksentinel]

$325/week is a high rental income for a studio only costing $130k. If it were in Auckland City (i.e. CBD) I'd strongly suspect that it's leasehold, leaky or has other major issues - a CBD studio worth $325 market rent a week should easily fetch $250k+, especially in the current market.
What building is the studio in, and who is the vendor/agent?

[Blendy]

I also have rental properties in Auckland and have spent a while investigating the options of city apartments (they are mostly leasehold) compared to a freehold unit in a block of flats in the suburbs near the city. I ended up going with units in Meadowbank & Ellerslie which attract professional singles/couples who are prepared to pay a bit more in rent than students, plus the properties have a bigger rooms, area, garden etc.

The city seems to be filled with empty apartments that seem difficult to sell depending on their location and building dramas, so just be aware. Halebop obviously has some expert advice which is very useful if you are planning on city apartments. If it helps, I did really like the fancy apartments in the Hilton complex - they seem to have a good system going there.

[ENP]

I ended up going with units in Meadowbank & Ellerslie

If you don't mind me asking, how many bedrooms were they and what gross yield did you purchase them at?

[lou]

I If it helps, I did really like the fancy apartments in the Hilton complex - they seem to have a good system going there.

I think the Hilton has leaky building issues.

[voltage]

Thinking about this when I see property in auckland have passed the market peak of 2007. Compared to the Dow Jones which peaked at 14000 in 2007, the Auckland property market is well ahead. The Dow Jones is at 12100. Still a long way to go to reach the peak of that market.