NZ 1st homebuyers are ScReWeD...

[wns]

quote:Originally posted by Halebop

WNS an average is the basic building block of benchmarking. Benchmarking is a basic building block of performance excellence. This is why I often comment on market "average" performance benchmarks like share indices. Knowing an average score is a key criteria for recognising, determining and emulating out performance. Something as simple as a control chart using a single standard deviation above average can help identify the out-performers.

Halebop, I agree with everything you've said here, and I use comparisons to the average all the time in my share-market investing.

What I was trying to say with what prompted your comment is that discounting a whole asset class (eg. residential property) as an investment option, because of its historic, inflation adjusted, maintenance adjusted AVERAGE returns isn't very empowering or profitable.

Looking at specific properties, specific market situations etc is what's profitable. There's always profitable bargains to be found.

quote:Originally posted by Halebop
Because with wraps you are taking operational and leverage risks, I'm not certain that knowing you might earn 40% is actually an acceptable risk / reward trade. What is the benchmark? For me it could be my own returns during this bull market phase. They have "averaged" above 40%pa without any leverage.

Posted by JoeKing...

Here is a real life example. He was 64, she was 56. and desperate to own their own home. Both worked, had good incomes but not enough savings history to satisfy the banks. I bought a modest 3 br house for $95k Rotorua,(used 100% bank finance (will explain how if anyone interested) fixed 3 yrs 6.8%) sold it to them $135 on a WRAP on $9k deposit (plus $12k gst refund) 9.5% int. 35yr term.
Their repayments $274 pw (the same house is rented today for $300pw) my outgoings $152 (P&I), cash surplus $122 pw. They completely refurbished the house, and resold 2 years later $195k. Added an inheritance to profit bought a couple of rentals as prices were rising Rotorua, used equity to buy nice home, rental incomes from 4 properties to pay for it, and send me a nice Xmas card and bottle single malt each year. Can't all be bad. Remember I had not paid one penny for this property gross profit $52,000 plus satisfaction of helping someone achieve their dream (priceless!) everybody wins.


JoeKing has none of his own money in the deal, therefore his return is infinite. There's a number of ways to structure these type of deals so that you have none or very little of your own money in the deal... or to get your money back very quickly.


In this particular deal, he gets their $9k deposit up front and a cash-flow profit of $122pw (x 52 weeks = $6344), so $15,644 back in the first year. I don't understand the GST part, that's different to what I experienced with the deals I was involved with.

Even if he was to put down a 10% deposit of $9.5k for his $95k purchase, and say $6k to cover closing costs (stamp duty, legals, mortgage insurance), he's gets all his money back in the first year, then $122pw profit until they refinance, at which point he gets his back-end profit which is something like $37k... $135k minus $9.5k deposit minus whatever their reduced the principal by (say few $k) minus $85.5k (his loan). For the particular deal detailed above, this happened within two years, which is fairly typical.

[b]
The average person would only need to have about 6 or 7 of these deals going and they would have their living expenses covered. Shrewd Crude (for example, since he started this topic) could pay

[Mick100]

quote:Originally posted by wns
[


The average person would only need to have about 6 or 7 of these deals going and they would have their living expenses covered. Shrewd Crude (for example, since he started this topic) could pay cash for his house if he did 5-10 of these deals. Worth considering in my opinion. But most people won't consider it, for such reasons as "property ON AVERAGE only goes up x% per year" - which is the point I was making in my last post.

Sounds great doesn't it
As someone else on this thread has already mentioned, these wrap deals are only going to work while nominal property values are increasing or at least holding steady. What happens if you have half a dozen wrap deals on the go and property values fall by 5 - 10%.
Remember your dealing with marginal borrowers who have very small deposits on the properties. If values decline you may find some of the people hand you back the keys and walk away. They don't have much to lose - only the meager deposit and your left with a 200 - 300,000 mortage and an empty house. - think about it.
.

[Mick100]

Another thing you should think about wns;
What JK is talking about has worked well in the past 5 yrs - I don't doubt that JK has been very successful at pulling off these wrap deals.
Unfortunately, just because something has worked well in the past, that's is no garantee that it will work in the future - ask JK what he's doing today - is he still doing these wrap deals?

It's a bit like reading a buffett book - you find out what worked for buffett five yrs ago but you don't find out what he's doing today or what his plans are for tomorrow.
I read my last buffett book in 2003 (i think) and it had a whole chapter on the reasons why Warren does not invest in commodities - guess what - in 2003 buffett was investing in commodities (oil)

I'm interested in what people are doing today - not these stories of unbounded success from the past.
.

[Halebop]

WNS we all understand the math. JK is operating a property business. He is not a "first home buyer". He does however have a vested interest in first home buyers buying first homes. The "average" statistics show that first (and beyond) home buying is not particularly profitable. In direct contrast to property wisdom espoused here, home owning is most profitable without a mortgage and the "average" 12%+ cost of capital. While interest rates now are well below that average, rental "savings" have also fallen markedly.

If you want to make a business of buying property, cool. A business can be made out of any product. But property is not a free ride or a sure way to wealth for either "operators" or 1st home buyers. Infinite returns can only be achieved with leverage (and infinite returns are a statistical illusion - there is still an absolute number involved and a limit on how much can be borrowed). Leverage only works in a rising market. And debt costs money.

I've come close to buying an owner occupied home several times. Around 2001 although it was a close piece of math, it was a fairly neutral transaction and I almost convinced myself to buy because the market was obviously due a bit of a rise. Comparing from the bull market period of 2003+ the cost of that rise (to me) would have been 650+ % of share market gains and reduced flexibility to go where and do what I feel like (Thanks to a conservative stance my returns this year are tracking a little over 20% and might actually be beaten by the "average").

The irony is that now I can afford to buy something without a mortgage it makes far more sense. My 4% (ish) rental yield gain plus inflation adjusted appreciation after capex and expenses of maybe 1.5% puts property much closer to the average real performance of equities (my main problem is I'd expect to beat the average performance of equities or I should otherwise have someone else doing it for me). The driver to buy in the end will be an emotional one I'm certain. And maybe like everyone else I'll kid myself on what a great investment it makes...

[JoeKing]

quote:Originally posted by Mick100


Another thing you should think about wns;
What JK is talking about has worked well in the past 5 yrs - I don't doubt that JK has been very successful at pulling off these wrap deals.
Unfortunately, just because something has worked well in the past, that's is no garantee that it will work in the future - ask JK what he's doing today - is he still doing these wrap deals?
...
....I'm interested in what people are doing today - not these stories of unbounded success from the past.

Mick, I am not doing any WRAP, or any other deals deals today, except selling 2 no longer needed properties. I have them listed on trademe fyi.
http://www.trademe.co.nz/Browse/List...px?id=83189009
http://www.trademe.co.nz/Browse/List...px?id=83162732
We are selling the apartment because we have bought the 3 b/r one next level up (1 mil cash) and the section (paid $70k cash r.v. now $120) because we have no intention of doing anything with it and it is just sitting there growing long rank grass- a fire hazard.
Now back to the subject.
Vendor finance deals have been around forever. In the years pre-80's when finance was hard to get, nearly every real estate deal involved 1st-2nd 3rd, sometimes even 4 or 5 mortgages. As the number of mortgages increased so too did interest rates as mortgage holders security lessened. In many cases "vendor finance", where the vendor agreed to "leave so much in" at a predetermined rate, or even zero rate, till the Purchaser was able to refinance (usually agains capital gain), was necessary to get the deal completed.
Today finance is a lot easier to get but 99% of property deals still involve the purchaser borrowing money from somewhere. If for some reason the purchaser is unable to get bank finance and the vendor has the ability to borrow the money, then lend it to the purchaser and charge a mutually agreed upon increased rate for the use of his credit why not?? The bank holds the mortgage so it is covered, the vendor holds the title so he is covered, the Purchaser is happy to pay a little premium to get what he wants... everyone wins. Very simple! until some of the clever Dicks that write on these threads complicate things and get tangled in technicalities :-((
There is no reason vendor finance deals will not work at any time! Finance is finance irrespective of who provides it.

Mick... the reason I am not doing any more (WRAP) deals?
1. As you have read (probably several times ) elsewhere I set out to prove to me that I could make $1 mil. in property starting with just $20k equity in our own home. (note NO! money!)in 3 years. Honestly it was so easy!!!! the challenge was met and so...
edit: I have absolutely no doubt whatsoever, I or anyone with a fraction of a brain could do the same thing today, next year or, unless there are some real drastic changes in world economy in 10 years time.
2. I moved onto my next challenge to make $1 mil on share market in 3 years starting with $40k. (Again I borrowed against equity then paid back the borrowed amount, so I have actually used none of my own money). In a little over 2 years my portfolio is worth (opening ASX ths morning) over $450k. I will even copy my portfolio page for you doubting Thomases. ref. copy of screen below.

Code Qty Cost Price Cost Value Mkt Price Mkt Value Unrealised P/L Mkt Value (NZD) Unrealised P/L (NZD) % of Portfolio
PPP.NZX 16,000 15 2,400.00 17.5 2,800.00 400.00 2,800.00 400.00 16.7% 0.62%
[movements]
NZX Subtotal 2,800.00 400.00 16.7% 0.62%
AGM.ASX 80,000 51.563 41,250.00 68.5 54,800.00 13,550.00 61,010.91 15,085.73 32.8% 13.47%
[movements]
AGS.ASX 102,445 72.203 73,968.58 226 231,525.70 157,557.12 257,766.31 175,414.30 213% 56.9%
[movements]
BOW.ASX 40,000 25.5 10,200.00 17 6,800.00 -3,400.00

[Mick100]

quote:Originally posted by JoeKing

There is no reason vendor finance deals will not work at any time! Finance is finance irrespective of who provides it.

[I remember an uncle of mine sold a block of land (40 ha) off the back of his farm at a very good price back in the 80s, providing vendor finance - land prices subsequently declined - the purcher got into financial difficulty - in the end my uncle's family got only a fraction of the agreed price for their land

Mick... the reason I am not doing any more (WRAP) deals?
1. As you have read (probably several times ) elsewhere I set out to prove to me that I could make $1 mil. in property starting with just $20k equity in our own home. (note NO! money!)in 3 years. Honestly it was so easy!!!! the challenge was met and so...

If I had such a winning formula that's going to provide me with infinite returns I would stick with it - I wouldn't be looking for new challenges - unless I thought that my winning formula had passed it's "used by date"
2. I moved onto my next challenge to make $1 mil on share market in 3 years starting with $40k. (Again I borrowed against equity then paid back the borrowed amount, so I have actually used none of my own money). In a little over 2 years my portfolio is worth (opening ASX ths morning) over $450k. I will even copy my portfolio page for you doubting Thomases. ref. copy of screen below.

Why did you need to borrow 40k to start a share portfolio when you have a multi million dollar property portfolio



Yep, nearly half way, and I have absolutely no doubt that I will reach my goal.

Why stop at a million - are you afaid your luck is going to run out. I must admit that I had my share of good luck too when I moved into commodities - the important point here, being, that I am aware that some of my success was due simply to good luck, not my exceptional ability to pick shares
I do get a little frustrated reading some of the drivvle in these forums, and seeing that many of the hopefuls that come here looking for good advice get side tracked by losers.
Winners are winners, no matter what they set out to achieve. Its all attitude.

I find it interesting that some people can so easily classify another person as either a winner or a loser ,ie, those that deal in property are winners and those that don't deal in property are losers. As you mentioned JK , 20 yrs ago you were broke - so someone gave you a break - someone didn't classify you as a loser and you were able to get back on your feet. Even a drug addict can turn their lives around - I'm not so quick to "Wright a person off". It wasn't so long ago that I could have been written off myself - in fact I'm sure I would have been by the likes of macdunk and yourself

It has been said before, but I will say it again:
There are 3 kinds of people.
1. Those that MAKE things happen
2. Those that WATCH things happen..
3. Those that just wonder what the fark happened...
You can put yourself in whatever group you chose. Irrespective of age, educational or social background. Cheers

I'v just finished a paper in development economics and I can assure you that social backround, cultural beliefs and values,and education levels have a huge impact on how people live their lives. Many of the worlds people cannot choose what they do with their lives.
Their lives are predetermined from the day they are born.

[JoeKing]

Geez Mick you sure have the uncanny ability to take any little thing and turn it into an arguement....
With negative thinking like you have, I would wonder how you get through each day.... lighten up man!
"Their lives are predetermined from the day they are born." If this is the kind of rubbish they teach you in your developement economics course I would strongly recommend a new tutor, or paper. And it is a complete contradiction to "Even a drug addict can turn their lives around " in your previous paragraph.
I am going out to talk to my cockatiel, he makes more sense....
Cheers
JK

[Mick100]

Yeah, a child born in Sub saharan africa today probably has less opportunities in life than a heroin addict living in NZ.

Anyway I would rather focus the disscussion on wrap deals and sharemarket dealings - neither of which were addressed by you in your previous post.
.

[JoeKing]

Mick
I think I have covered my experiences with both property (wraps) and share market dealings openly and honestly... ahem anyone else prepared to post their ACTUAL portfolio??? Or explain in detail how to put a vendor finance property deal together, information that wannabe property investers can spend $thousands to get? Both have been successfull to date.
All you have done is try and tear eveything I say to pieces and create silly arguements. If you think I am all bull that's fine but don't go screwing up the chances of some one else who could possibly benefit from the real life true experiences and information I am prepared to share. We have all heard of the half full half empty glass thing, but to be in the running you gotta have your glass with the hollow side UP! try it.
If you ever get a chance to see the DVD called "Darwins nightmare" get it. It is a classic example of what greed can do.
Cheers
JK

[Halebop]

quote:Originally posted by JoeKing

...ahem anyone else prepared to post their ACTUAL portfolio???

I did already, 100% cash ...and really who cares what you or I say we do or don't own?

quote:Originally posted by JoeKing

Or explain in detail how to put a vendor finance property deal together, information that wannabe property investers can spend $thousands to get?

We heard you. I knew it already without hearing you. Simply talking to friends in the property business gets you that for free too. The information is useful and with timing and effort can pay great dividends as it has so far with yourself. The angst seemed to arrive when myself and others pointed out that the strategy was not risk-less. That it really works best in a rising market so timing is important. Then all the name calling, winners versus losers and glass half empty slurs began. We all make decisions on incomplete information. That's the risk, challenge and even enjoyment of investing. But to shout someone down because they disagree is pretty small. Your counters to rational data have consisted of words like "bollocks" and intimating that heads were stuck in un-natural places.

quote:Originally posted by JoeKing

If you think I am all bull that's fine but don't go screwing up the chances of some one else who could possibly benefit from the real life true experiences and information I am prepared to share...

...All you have done is try and tear everything I say to pieces and create silly arguments...

Its very altruistic and without injecting any irony I don't doubt your sincerity. But without understanding a persons circumstances, without having traded your wrap business through a downturn, without balanced input that a debate in this thread creates, how useful is your information really? You could just as easily be arming someone with the courage to commit financial suicide.

That you freely share what you have learned is great. But I will do the same, sometimes on the same thread, sometimes with a different view-point. We all have our personal paradigms. I'm not risk adverse but I am debt adverse and I do carefully manage my risk through quality of decision making. Your advice is not useful to me. My advice is not useful to you. Someone else will find something in each of our views.