What Is Best To Buy?

[Winston001]

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]

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]

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]

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]

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]

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]

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]

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]

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]

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