Negative Gearing

First of all hello everyone, ive been reading posts for the past few months and have found them all really helpful on the road to buying my first Investment property.

I have a couple of questions.

First of all, i have read a fair few books on residential Investment property and quite a few warn against negative gearing and negative cashflow. I agree in the fact that you cant have too many investments taking 50-$100 week out of your regular income.

However when i start to run the numbers, i find it very difficuilt to see a property anywhere (im currently looking in Tauranga) that reaveals positive or even a balancing cashflow.

As an example, looking at the estimates from the many different bank websites a 230,000 home less a fairly good deposit of 50,000 ($170,000). The payments per week are around the $300.00 mark. Whereas a 3 bed house in a healthy area of Tauranga averages rent of around $250.000. Thats $50.00 a week behind.

I dont mind too much topping it up with my own finaces as i know a tenant is imporoving my equity by 250.00 ever week (without even adding in the capital gain). Its just that i have seen a lot of reccomendations against it. I thought i would just throw the topic up to see

And finally, i am currently living in Japan and will return to NZ a around a year and a half (supposedly a the start of the down cycle). Would people reccomend entering the world of Investment property a this stage? I have heard people suggest that you should just get yourself in the game regardless of where the cycle is.

Also with this time up my sleeve could anyone reccomend a book or series of books that will help me continue my Education with Investment property (i have done most of Robert K`s stuff)

Also (sorry i have more questions than i though). I have both $80,000 of equity in my current home and $50,000 of cash. What do people suggest as a deposit on a Investment home....both or one or the other?

Thankyou very much
Keep up the interesting posting
Matt

Matty sit and wait & see what the market does with the change in interest rates.

This property market is due for a correction.

It is hard to see average residential property prices being able to rise much further,quite a chunk of lifestyle is now disappearing into extra work to pay the mortgage, can this go further?

Invariably though there will be ups and downs in localities.

From a real life perspective, my eldest son bought a house just over ten years ago,cost was round three times his annual income.
He is looking at selling this same house, it is without modification though well maintained,value now six times his annual income. He is still in same area of work - income up 50% over period - house value up 300%.

Youngest son is just back in NZ after several years oe, after house costs his disposable income and ability to save for investment and retirement is way behind his older brother, and probably will
stay this way for many years.

My point is, how can prices rise much further, our incomes are not growing at a rate that enables higher prices to be paid.

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quote:Originally posted by Bling_Bling

This property market is due for a correction.

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If I had a dollar for every time this meme has been posted on ST I would be a rich(er) woman. This has been trotted out for YEARS, and has been, and will continue to be, consistently wrong. Interest rates have far less effect on the property market than pundits here believe.

CAp, I agree with your views. That is why we have a market crash once in awhile. Those that continue to hold on and never take profit will eventually learn that nothing goes up forever. I, for one have learnt from 1987 and 1997. Dont get me wrong, I still hold properties, but have cashed up 50% of my portfolio of investments.Just ot be on the safe side. ;)

I'm not associated with these guys (or necessarily recommending them), but here's a reading list for you.
https://www.richmastery.com/webshop/...alogID=1&cc=NZ

Dolf de Roos discusses negative gearing, positive cashflow arrangements. However negative gearing is more a capital gain rather than an income play. The idea of positive gearing is that you put in a big enough deposit so that whatever cashflow is left is a positive one. It's harder to get started, but does gain momentum after a few houses.

Matty,

$250pw rental income, is only a 5.6% GROSS return on a purchase price of $230,000. Take expenses such as rates, maintenance, vacancy etc off that and your NET return will be even lower.

I would suggest that it is prudent to find properties that have a higher yeild than this, especially in the current climate where capital gain is not as likely over the next couple of years.

Interest rates are climbing at the moment - eroding cashflow (or at least once everyones fixed terms expire it will).



I personally believe that if a property will cover its costs with minimum management hassle, then it doesnt really matter what the market cycle is doing and you should purchase and sit on it till your old and grey. The problem is that finding properties that will pay for themselves right now is very difficult.

My suggestion is to find a property that you can add value too. I.e. a 3 bedroom that would rent for $250pw, turn it into a 4 bedroom house with as little money as possible, and rent it for $330pw. if it costs you $5000 to shift a wall to create the room then have potentally improved things to a cashflow positive status, and co-incidentally increased your capital value through the higher yeild also.

Of course this is much easier said than done, and required a bit of vision and time (to find the right property, and buy it before someone else does) but it is certainly not impossible, I have done it several times myself. Usually you would be looking for either Huge living areas that can be split, or two living areas where one is fairly redundant. Its usually too expensive and tricky to add extentions onto a house. Also, you will probably need to purchase a property yeilding say a percent more than your 5.6percent example, before you start.

If you know what you are doing, turning a basement or rumpus into a second flat, or building a self contained unit on the section of an existing home can produce fantastic yeilds. - this is definitely for the more experienced.

The other option would be to use more cash equity. If you put down say a deposit of $100,000 then your cost of borrowing/expense should be less than your income. In regards to your question about the equity in your current home and your $50,000 cash - Always remember that if you take money out of your home equity, you still have to pay the cost of borrowing that money, so essentially you are still gearing up which will affect your cashflow position (negatively) and is more risky.

One very conservative way to invest in property while the market is so hot, is to put enough cash down so the property covers its costs even on a principal and interest loan. Have it on a 25 year table mortage (so its paid off in 25 years), then REGARDLESS of what the property market is doing in regards to capital gain, in 25 years time you will own the property outright, and the entire rent will be yours to do what you want with (minus tax), plus you shouldnt have to put a sent of your own money into it each week. Only downside is you will have to wait 25 years and you will tie up alot of capital in a very dormant investment. Admitedly your growth will be slow, and you probably wont be retiring on a superyacht, but for conservative types with access to cash who dont want to take over the world, it definitely works ok.

Hope this is of some interest.

Good luck!

Ragards,

Sauce [}:)]

P.S. I would say Olly Newlands - The Rascals Guide to Property Investment is IMO a decent read for anyone interested in property investment.

Matty, if you are living in Japan for 2 years you should without a doubt, register as non-resident tax status through the IRD and AIL status with the IRD via your chosen financial institution. Deposit funds in fixed term deposits in NZ where you will enjoy net returns of around 7% currently (tax 1.5% non-assesable in NZ i.e. interest earned does not appear on your NZ tax return). When you repatriate you will be in a very strong position to apply negotiating leverage. Also check out the ability to borrow in Japan to fund a NZ property purchase and if applicable how to hedge any exchange shifts, by example funds can be obtained from banks such as ANZ in Singapore currently to buy NZ property at 3% over 3 years - don't know about Japan. As a far as rental agents I recommend Quinovoc - they are like rental nazi's working the landlords side.

Sauce is making sense, ....and Olly Newlands book is a decent read re property investment, also a bit of a laugh - you don't have to take life seriously all the time.

Thanks very much for your responses they have all been taken `on board`

Its very difficuilt getting a clear picture of where the market is going from the on-line news media. Most people seem to have some sort of agenda to what they are writing or presenting about. There`s nothing like getting some tips from people who are actually in there doing it.

It seems like were getting into a bit of a transition period with the property cycle. All i can do i guess is kick back and wait to see what happens in the next 1-2yrs while im over here(could even be here longer depending on how my teams goes).

I guess after a few months there will be a clearer indication of where we are going. Regardless im getting in there in the next 2-3 years and giving it a shot. Especially if i get the right kind of property and deposit and thus be able to have a positive cashflow from the investment then, i figure im in a no lose situation where someone is paying 12-15,000 dollars off my investment every year while im waiting for the market to come back up.

Also, thanks for the book reccomendations. They have gone straight on the Visa....

R2, thanks for those tips. Myself and my wife have been kind of hoarding money over here waiting for the right time to send it home as the exchange rate has dropped from Y60/NZ$1 to Y75/NZ$1 since we have been here. Its an absolute killer.

Sauce...cheers, your post is worth $$$$

Thanks... Matt

Yeah the stats out today confirm property Armageddon shonuff. BWAHAHAHA :D:D:D Asshats.

Like Matty, I too am a resident of Japan and so I am able to borrow money from Japanese banks at low interest rates to buy property in NZ. I have recently secured a 25 year loan for US $120,000 (NZ$162,000) at 1.68% (not fixed). I have to put up 40% (NZ$108,000) of the value of the property myself. If I put up no more than 40%, I could buy a house worth about NZ $270,000.

The interest repayments would be (NZ$162,000 @ 1.68%) $2721 per year. If I get about 7% rental yield ($20,000) and have to spend a third of this on rates, insurance, management fees, etc. ($6,700) then I should be up about $13,300 per year not counting capital gain.

If the capital gain is 3% per year ($8,100) then my yearly profit is $21,400, which would mean my investment of $108,000 is returning 20% per year.

I have not included any one off costs of purchasing a house as I have no idea what they are. I would greatly appreciate any comments on my estimates. Are a 7% yield, a 3% capital gain, and a third of the rent being consumed by rates etc. realistic?

The major problem I see is a fall in the value of the NZ dollar. As the loan has to be repaid in yen a big fall could really eat into my profits from this investment. Given that the $NZ is at record highs ( US$ 0.74) a big fall is probably the most likely scenario. I have 6 months to decide whether to go ahead with the loan. Should I go ahead with it?

All comments welcome.

yes by all means do,my partner has a 2 bedroom house in nelson(in the city on the hills,it has distant sea views in 4 places,redecorated in 2003)she paid $210750 for it in aug 2003,gv is $210000,its currently rented as weve moved to tauranga and managed by quinovic(they take 8.5% comission of the $260 a week rent)you can have it for $235000

Thanks for the kind offer Danchop but at that price the yield is only 5.7%. I would also prefer to buy in Auckland so my dad can manage it.

thats cool,dont know what auckland yields are but we are currently renting in tauranga for $270 a week and the landlords paid $389000 for the property 2 months ago

we also have a property in beachlands(auckland)brought 3 years ago for $220000 rented for $360 a week,so thats a good yield but if you brought the property today it would probably be worth a little bit more than the $220000:D

RMBBrave: This strategy could work wonders but has some tangible risks. Japan is the perfect country to research a company called EIE. Worth looking at some history before you make your move.

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quote:Originally posted by Halebop

RMBBrave: This strategy could work wonders but has some tangible risks. Japan is the perfect country to research a company called EIE. Worth looking at some history before you make your move.

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This EIE ?

Shinsei to settle 'fraudulent' sale of resort property

Shinsei Bank said Monday it has agreed to pay 21.8 billion yen in damages to a failed resort developer to settle a legal dispute over sales of the developer's properties by the bank's predecessor.
In March, EIE International Corp. sued Shinsei Bank, formerly Long-Term Credit Bank of Japan, at a court in Saipan, seeking compensation for what it called "fraudulent" sales of its overseas properties in the 1990s.

LTCB, nationalized in 1998, was the main creditor bank for EIE International.

Shinsei Bank said the accord does not mean the bank has admitted responsibility.

The bank said it decided to pay because it does not want the case to drag on and eventually increase its personnel and other costs.

After making the payment to EIE International, Shinsei Bank will request reimbursement of 17.4 billion yen from Deposit Insurance Corp. under a contract it signed with the government-backed entity in 2000, the bank said.

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quote:Originally posted by danchop

we also have a property in beachlands(auckland)brought 3 years ago for $220000 rented for $360 a week,so thats a good yield but if you brought the property today it would probably be worth a little bit more than the $220000:D

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No, not bad at all - 8.5%.

But, I'd be looking for something closer to $270,000.

what im trying to say rmbrave is the current prices property is selling for over here, i think its very hard to get good rental yields,most are probably buying on the capital gain appreciation hopes and i mean hopes with a big H

Danchop,

After a quick search in Saturday's Herald, I found the following properties - all currently tenanted.

Glenfield 530pw $499,000 5.5%
Avondale 495pw $359,000 7.2%
Mt Albert 345pw $262,000 6.8%
Manurewa 200pw $135,000 7.7%
Mt Albert 450pw $355,000 6.6%

4 Flats 42640-47840pa $595,000 7.1% - 8.0%

During the negotiation process I'm sure you could knock a few thousand off and the yields would be even better.

exactly rmbrave,that kind of gross % return is not what i would call an investment,i had rentals back in the 90s earning between 15-20%,its just not enough unless your banking on good capital gain,you can get 7%p/a in a common bank here,and i dont know what the properties are like you have mentioned,but a dodgey type property attracts dodgey tenants throwing your yield out the window,have a look at "renters" shown here on tv

I agree that these yields are not very high for people who are borrowing from a NZ bank at 7%.

Did you read my initial post carefully? I would borrow 60% of the purchase price of a property from a Japanese bank at 1.68%.

If the capital gain is 3% pa then I estimate I will get a 20% return on MY (as opposed to the banks) money.

I am unable to watch "renters" on TV as I live in Japan. What is it about?

Quote:

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quote:Originally posted by rmbbrave

This EIE ?

Shinsei to settle 'fraudulent' sale of resort property...

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Thats the one. You'll need to look back further though. That settlement is a pale shadow of the former EIE.

i realise your in a different situation with borrowings % over there,so that helps a lot,"renters" is just another reality type show shown here that follows about 3 property managers around namely auck/hamilton and the states some renters have the properties in,at the moment the renter has all the rights so get a bad one and it turns into a nightmare,and generalising a $270000 house in auckland may land you with these such people,not something i would like to land my father into to deal with,i would look elsewhere even to the westcoast of the south island eg westport/greymouth/reefton houses fetching $180-$200 week rent but the house is about $100000-$125000 and demand is there for rentals as the mines are coming back,you may think the area sucks for capital gain but a year ago these same houses were $50000-$60000,beleve me even though property managers take a % its well worth the less stress,and you dont get the tenants who f%^k the whole place up for you by turning it into a lab for meth making which is happening more and more

Quote:

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quote:Originally posted by danchop

thats cool,dont know what auckland yields are

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I have seen some properties showing yields as low as 4% - gross!

STAINLESSSTEELRAT, You paint a pretty grim picture of 4pc yeild but lets suppose that is what you end up with. How bad an investment is that?. Property is a long term investment so we must take a medium to long term approach. The price of a property long term increases in value by 10pc pa on average. So your property with a 10pc deposit will show taking into account capital gain a very healthy return comparing to depositing the money in an interest only account. The easiest way to riches is with property with an interest only loan and the largest loan you can get. What most people dont understand is the small ammount of your own money invested for the largest capital gain which is 10pc pa over the last thirty years. You borrow the money buy the factory or house that increases in value at 10pc rent it out and count on the rent as paying it off or almost and you sit on a 10pc capital gain on a property 90pc more than your deposit. If anyone is in doubt then stay poor who cares. It happened fifty years ago twenty years ago today tomorrow. The easiest way to make money is property but like everything else do your homework. macdunk

Duncan,

I'm not so sure about this average 10% capital gain per year.

I have a book by Jan Somers and Dolf de Roos which states Capital growth in NZ has averaged 10% per year for the last 100 years, and in England 10% for the last 1000 years. (page 9)

I have no faith in their figures because if a house increased in value at 10% a year and cost 1 cent in 1086 (Domesday Book) it would cost $7 x 10 to the power of 35, a 1000 years later . (The US GDP per year is $9 x 10 to the power of 12.)

On the same page they reckon shares have returned 6% over the last 100 years but in Making Money on the NZ Sharemarket page 66, Newman and Briggs say returns have been 16.7% from 1957 to 1998.

RMBBRAVE, the point you miss is you get that gain on a $300000 dollar house on a $30000 DEPOST. With $30000 in a bank deposit how much will you make in comparison. The capital gain on your first year is 100pc on your thirty thousand less the cost of the difference between the rent and the mortgage. Most deals the rent covers the repayments otherwise you paid to much in the first place. If your initial deposit cant make at least 50pc pa then you are doing it wrong. beats shares. macdunk

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quote:Originally posted by duncan macgregor

RMBBRAVE, the point you miss is you get that gain on a $300000 dollar house on a $30000 DEPOST. With $30000 in a bank deposit how much will you make in comparison. The capital gain on your first year is 100pc on your thirty thousand less the cost of the difference between the rent and the mortgage. Most deals the rent covers the repayments otherwise you paid to much in the first place. If your initial deposit cant make at least 50pc pa then you are doing it wrong. beats shares. macdunk

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I understand what you are saying Duncan, but I think when most people talk of "10% capital gain per year" they are talking about the total value of the property not the profit made on their deposit.

I realize that you are very experienced in investing in property and I would very much appreciate your comments on the following situation.


<h5>Like Matty, I too am a resident of Japan and so I am able to borrow money from Japanese banks at low interest rates to buy property in NZ. I have recently secured a 25 year loan for US $120,000 (NZ$162,000) at 1.68% (not fixed). I have to put up 40% (NZ$108,000) of the value of the property myself. If I put up no more than 40%, I could buy a house worth about NZ $270,000.

The interest repayments would be (NZ$162,000 @ 1.68%) $2721 per year. If I get about 7% rental yield ($20,000) and have to spend a third of this on rates, insurance, management fees, etc. ($6,700) then I should be up about $13,300 per year not counting capital gain.

If the capital gain is 3% per year ($8,100) then my yearly profit is $21,400, which would mean my investment of $108,000 is returning 20% per year.

I have not included any one off costs of purchasing a house as I have no idea what they are. I would greatly appreciate any comments on my estimates. Are a 7% yield, a 3% capital gain, and a third of the rent being consumed by rates etc. realistic?

The major problem I see is a fall in the value of the NZ dollar. As the loan has to be repaid in yen a big fall could really eat into my profits from this investment. Given that the $NZ is at record highs ( US$ 0.74) a big fall is probably the most likely scenario. I have 6 months to decide whether to go ahead with the loan. Should I go ahead with it?

All comments welcome.</h5>

rmbbrave

The reason you are only showing a 20% return is that your gearing is wrong. A 40% deposit is too much IMHO. 10% or 27k on a 270K property would be the norm.

At 40% deposit you may not be negative geared.

Your third on rates, insurance and fees could probably be lowered to about 4k.

My biggest concern would be your XR exposure, but weighed up with the extremely low interest rate it would be worth the risk. As the XR is cyclical, you would just have to time your exit.

Thanks very much for your comments Dinosaur,

The bank has set the 40% deposit so I can't change that. I am a non-resident for tax puposes in NZ so I only pay 2%. I don't even file a tax return so there are no tax advantages in this for me.

RMBBRAVE, A forty pc mortgage defeats the purpose. Never have rental properties over seas. I am not up with the play in international money play so wont comment. Keep your business where it is a hands on play or expect complications. The nz dollar will drop but then i think the yen will do the same because of china, but then as i said i am not playing that game, and might be comepletely wrong. macdunk

rmbbrave.... could you not hedge against your expected forex losses? I wouldn't have the first clue about how to do it, but I'm sure it can be done.

If you have assets in Jap and NZ, you are naturally hedged.

Undoubtedly Bling, but I think Rmbbrave is contemplating buying a house using cheap Japanese borrowing, and is concerned about losing money on the forex should the NZ$ reduce against the Yen. If the house purchase is a large part of his wealth he might be better considering a forward forex contract (or whatever its called)...

I did a similar thing a few years back, borrowed Euros (@NZ 46, int. rate 4%) for a NZ rental property (coastal & cost $150k [:p], gross yld 9%) that my brother keeps an eye on. Like your sitn. bank required 40% deposit which is fine if you are an overseas resident for tax purposes and can't claim NZ tax losses. In addition, should you return to NZ and wish to withdraw equity/increase gearing you can set up a Loss Attributing Qualifying Company (LAQC) for this purpose. See http://www.landlords.co.nz/article2254.html

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. If you can, I would also consider purchasing property in Australia where the downturn in the property market is more advanced, e.g. median house prices in Melbourne are cheaper than those in Auckland now I believe.

Edit - here is a graph to ponder a colleague of mine did a week back. It shows latest figures (2004q4) for NZL house price growth was strong relative to many countries, no suprises there. However, when house prices are measured relative to income growth since 1997 its at the bottom of the pack (followed by the US interestingly enough for the bears here). Of course this is not to say that house prices will remain rosy - levels and interest rates matter too and that is why I am less optimistic than the graph alone suggests. It does perhaps show though that the NZ upswing has not been as over-cooked as in some other countries, esp. the UK and Ireland.

http://xs21.xs.to/pics/05121/house_prices.gif

Great graph Skinny. Thanks for posting. I've been looking for something akin to this for the last couple of weeks.

I'd love to see something like this that tracks performance for a decade or more if anyone is in the know?

No surprise to see so many baby-boomer economies in double figures. I might make this weeks pet project to discover information on inheritances. I wonder perhaps if the boomers are spending their parent's money as was anticipated by demographers in the 90's? Consumption seems out of wack with performance in a number of areas.

Thanks very much Skinny and Duncan,

You have certainly given me something to think about.

I have 1 rental property currently in NZ and generated a tax loss last year despite being non-resident, it is carred forward i.e. rental income less property costs.

I have invested in over 20 properties so far in my life and part way through learned to limit 1st mortgages to initial drawn value + 1 years interest ,just as a safety net(Banks always want to sign the mortgage well above the actual initial loan value to block your ability to secure additional funds from other lenders - not enough equity left unsecured to use).

Therefore you may be able to limit the JPN loan to it's value + 1 years interest, get a second mortgage in NZ for the 40% required and generate a tax loss offering part of your cash (proposed 40% equity) as security. Invest your proposed 40% equity which is cash at the bank at 6.95% and pay 2% RWT thereby clearing 6.81% on your equity and being in a fairly liquid position should you need it.

I can strongly advise against having currency exposure, from experience, if you do go ahead, as I am currently sitting on a 45% unrealised exchange loss on US funds invested originally from NZD to AUD to USD which need to come back by the same route. The actual shares are ahead again based on $+div. but based on exchange I'm down, luckly I don't have to pay anything and can just wait until the stars align.

I think you may find you can pay a little higher rate and nominate NZD for repayment on the JPN loan.

Maybe my cunning plan is flawed - if so I hope someone will tell me before its too late as I may just enact it myself.

Thanks very much R2,

Your plan is so cunning you could pin a tail on it and call it a weasel.

There are also a number of banks in NZ offering foreign currency mortgages, in the case of Japanese based investors interest rates would be 2.15%. Generally they'll accept borrowing between 70 - 80% of the security value.

If rates change markedly you could always re-finance locally (most lenders will provide lending up to 80% of a property's value for non-residents) and pay off the forex loan.

Quote:

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quote:Originally posted by Rogue1

There are also a number of banks in NZ offering foreign currency mortgages, in the case of Japanese based investors interest rates would be 2.15%. Generally they'll accept borrowing between 70 - 80% of the security value.

If rates change markedly you could always re-finance locally (most lenders will provide lending up to 80% of a property's value for non-residents) and pay off the forex loan.

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Now that I didn't know!

Do you pay the loan back in NZD or Yen?

I have several mortgages on some properties in Australia from a NZ Bank. They are in Australian Dollars so I repay the loans in Australian Dollars. The Interest rate is also based on Australian rates.

If you are a NZ resident you could be liable for yearly tax to pay/refunds on the unrealised exchange rate gains/losses if you don't get in the correct tax division as this type of loan is considered a Financial Arrangement under the NZ Accurals Regime. Division 1 works on an accural basis but if your financial arrangement is under 500K per tax payer (I think)you can nominate to be a Division 2 taxpayer which does not work on accurals. When you repay the mortgage the FX rate is taken into account regardless of what division you are under.

So, say when you took the Mortgage out the A/NZ FX rate was 0.92 and when you repaid the rate was 0.85 you can claim the FX loss in both countries.

A$200,000 mortgage @0.92 = NZ$217,391
A$200,000 mortgage @0.85 = NZ$235,294
That's a NZ$17,903 fX loss to claim.

As the security is in A$ it costs no more to repay the mortgage when you sell. The loss is not realised unless you bring the capital back to NZ at that rate.

Conversely if the rates went the other way you would have an unrealised FX gain on the mortgage if you repaid it and would be liable to pay tax on the FX gain in both countries, so timing is everything with these types of mortgages.

I have looked at the ASB's, the National Banks', the ANZ's, Westpac's, and the BNZ's home pages and found nothing about "foreign currency mortgages". I have also searched the ASB's, the ANZ's and the BNZ's home pages for "foreign currency mortgages" and found nothing.

Rouge 1 or Dinosaur could you please tall me the names of any NZ banks that offer "foreign currency mortgages" and refer me to an internet address or give me the an email address of a bank employee whom I could contact for further information.

rmbbrave

Won't say who my bank is, but it is the wholesale arm of a major NZ bank. Even my Branch Manager of the same bank didn't know about it. You probably need to go through a mortgage broker to access it in the first instance.

[http://www.anz.com/japan/overview.asp]

This may help, Pioneer source loans from many banks, like Rabo etc, etc. although the interest rate will probably be that current in the country where you have your main security.
http://www.pioneermortgages.co.nz/default.aspx

[
<h5>Like Matty, I too am a resident of Japan and so I am able to borrow money from Japanese banks at low interest rates to buy property in NZ. I have recently secured a 25 year loan for US $120,000 (NZ$162,000) at 1.68% (not fixed). I have to put up 40% (NZ$108,000) of the value of the property myself. If I put up no more than 40%, I could buy a house worth about NZ $270,000.

The interest repayments would be (NZ$162,000 @ 1.68%) $2721 per year. If I get about 7% rental yield ($20,000) and have to spend a third of this on rates, insurance, management fees, etc. ($6,700) then I should be up about $13,300 per year not counting capital gain.

If the capital gain is 3% per year ($8,100) then my yearly profit is $21,400, which would mean my investment of $108,000 is returning 20% per year.

I have not included any one off costs of purchasing a house as I have no idea what they are. I would greatly appreciate any comments on my estimates. Are a 7% yield, a 3% capital gain, and a third of the rent being consumed by rates etc. realistic?

The major problem I see is a fall in the value of the NZ dollar. As the loan has to be repaid in yen a big fall could really eat into my profits from this investment. Given that the $NZ is at record highs ( US$ 0.74) a big fall is probably the most likely scenario. I have 6 months to decide whether to go ahead with the loan. Should I go ahead with it?

All comments welcome.</h5>

[/quote]


rmbbrave
I was interested to read your post. I too am from New Zealand but also a resident of Japan and considering obtaining a loan from a Japanese Bank to purchase more rental houses.

I would like to know a little bit more regarding the guidelines that the Japanese Banks require in order to qualify for a loan for NZ investement property. I know that they require a 40% deposit. Do they require you to be married to a Japanese citizen. I have worked in Japan for seven years and thus a resident but that is where my ties with Japan end.
Another question, you said you already secured a loan. if you decide to sell you inital property is your loan able to be transfered to a new property?
Any information would be most helpful.

sigian

All you really need is a good salary, preferably a stable one. An ALT's salary of 3.6 million a year is probably not enough.

The banks that provide these loans are not Japanese eg NAB, Lloyds in Honk Kong but you have to be earning money in Japan.

I don't know about transferring the loan to a new property.

rmbbrave.....is your lender in japan taking a mortage over the NZ property?

or are you raising the lending against an existing property in japan to make your purchase down here??..

You are correct in saying its almost impossible to find properties that have a positive cash flow.Thats due to the fact that rent increases havnt kept up with house price increases.10 years ago I purchased a 2 BRM rental in Ak for $73000 a reasonable price at the time.It was let for $180/week(a positive cashflow) & almost typical of the period.Being my first I was nervous about the purcase & with hindsight wished I had bought a few more.The property would now be worth $200000 & rent for $240/week.If only we had a crystal ball!

Good on you Ronaldo.
The numbers are different but the game is still the same. +ve cash flow solid well located dwelling will keep on keeping on.

cheers

Hi all,

Adding to the topic of foriegn currency home loans. Our family trust took out Hong Kong dollar mortagages on property in NZ and AU about mid 2002 when the NZD and AUD were at their lows. Last year neutralized the currency risk and by converting back some mortgages to NZD or AUD or converting NZD cash to HKD cash.

The reason we went into foreign currency mortages was that we believed that the NZD and AUD were very low and could not fall much further, also rental return versus interest rate was 10% to 2% so a 8% further fall would be covered by the yearly rental cashflow, also were earning HKD so was able to hedge the risk.

At moment we would be very adverse to making a bet on the currency either way as the interest saved could pale in comparison to the exchange rate losses, also planning to pull out of Hong Kong.

However if the mortgage is modest and you earnings are in the foreign currency of the mortgage any exchange rate losses are essentially hedged.

One word of caution this is very lucrative but is very sensitive to your currency positions and future cashflows. You need to know very well your future earnings / savings to know where you stand in terms of currency risk 1 to 3 years from now. We actually under-estimated our future HKD cash position when we converted back last year and overshot a neutral currencey risk position by NZD70,000!

Hi all,

Adding to the topic of foreign currency mortgages. Our family trust took out Hong Kong dollar mortagages on property in NZ and AU about mid 2002 when the NZD and AUD were at their lows. Last year we neutralized the currency risk by converting back some mortgages to NZD or AUD or converting NZD cash to HKD cash.

The reason we went into foreign currency mortages was that we believed that the NZD and AUD were very low and could not fall much further, also rental return versus interest rate was 10% to 2% so a 8% further fall would be covered by the yearly rental cashflow, also were earning HKD so was able to hedge the risk.

At moment we would be very adverse to making a bet on the currency either way as the interest saved could pale in comparison to the exchange rate losses, also planning to pull out of Hong Kong.

However if the mortgage is modest and your earnings are in the foreign currency of the mortgage any exchange rate losses are essentially hedged.

One word of caution this is very lucrative but is very sensitive to your currency positions and future cashflows. You need to know very well your future earnings / savings to know where you stand in terms of currency risk 1 to 3 years from now. We actually under-estimated our future HKD cash position when we converted back last year and overshot a neutral currency risk position by NZD70,000!

Another point, banks normally have a clause in the mortgage to make a margin call on a exchange rate loss! So you should only take out these mortgages if don't need the money and have the ready cash available to back it up.

About hedging with a futures contract, basically we found that the cost of the futures contract reflects the interest rate differential assuming no bias in the market for the exchange rate to change, i.e. not worth the cost, or else we could all get rish for no risk!

Is it still possible to find positive geared properties, or if so is this the rubbish that no one wants

Thanks for the common sense account DB, agree with your assesment totally. Currently settling another prop in NZ and sure as hell won't be financing it from offshore.

Tim, I think you're right and many Aucklanders will be living in them next year.

why does everyone want to be a landlord (single risky asset exposure to a single currency) in a country whose currency is about to dive? If I was in Japan I would take advantage of the non res status to some extent- ie if you wanted funds to buy a house on your return etc, but for long term growth nothing would beat a global shares portfolio. From an investment perspective everywhere else is looking a bit more attractive, NZ has had a great run, time to move on.

cinnabar, Good on you being a new poster welcome.Sorry but most NZ property owners have made at least 10 pc pa let me repeat that 10 pc pa that over the last fifty years plus rent. In my case the rent paid the mortgage so to go back to the sums my 10 pc on 100pc increased by 100pc every 10 years. i dont know you are probabely smarter than me, i will let you tell me why i am so rich and stupid. macdunk

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quote:Originally posted by duncan macgregor

i will let you tell me why i am so rich and stupid. macdunk

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You surprise me O Kilted One. I didn't know you were rich.

Yes, but yields are now very low, we seem to be approaching the top of a property cycle perhaps global shares will be better. You cannot borrow on shares like property.

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quote:Originally posted by Tim

Yes, but yields are now very low, we seem to be approaching the top of a property cycle perhaps global shares will be better. You cannot borrow on shares like property.

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Ahh but remember if you borrow on stock you are leveraging on a investment that is already quite often leveraged with borrowings and or a NTA less than the shareprice.

e.g. if you borrow 50% on a stock in a company that has a NTA that is 50% of the share price (that would be a fairly good conservative investment based on NTA backing) you may find that leverage investment to be not so safe in a 'modest ecomomic downturn'.