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SFH’s = single family homes
Although somewhat higher priced than most regions, Queenstown and Wanaka are recommended as the two most profitable locations – land/SFH’s when available are valued significantly higher than other regions in New Zealand, therefore an apartment
may be preferential.Alternatively, in terms of SFH’s, Dunedin and Nelson are locations worth researching.
Deposit Bonds: http://www.depositbond.co.nz
I will post another topic explaining “Renouncable Sales Contracts”.
— Michael
There is a generally an up-front deposit [10-15% of the purchase price] which is staged throughout the sales and construction phases.
The following example is based on a 10 percent staged deposit:
– $5,000-10,000 down payment on signing the Purchase Agreement.
– a second installment increasing the total deposit paid to 5 percent of the purchase price – due 21 days after signing the Purchase Agreement.
– a final installment increasing the total deposit paid to 10 percent of the purchase price – due on or before the fifth working day after the date the developer notifies the purchaser that all consents have been granted.
[The final installment may also be subject to the developer reaching a minimum sales target]
Deposit payments are held in an interest bearing trust account. If any of the terms and conditions outlined in the Purchase Agreement are not satisfied, the deposit plus interest accrued is/can be refunded.
The balance of the purchase price is due on the settlement date – which is either the fifth working day after the date the Certificate of Practical Completion is issued or, the fifth working day after the date the purchaser [or puchasers lawyer] receives a copy of the Certificate of Title.
If you are a savvy investor who knows the market, acquiring OTP can be very profitable with a minimal investment.
For example, upon signing the purchase agreement the buyer takes “control” of the property i.e. with a $5,000-10,000 down payment.
The buyer then has the option of finding another buyer prior to the second or third installment dates, or settlement date, and assigning the contract for a profit.
The risk increases when the buyer either does not have interested parties lined up prior to signing the purchase agreement, or he/she is not confident there is sufficient demand for the property at a higher valuation – prior to the installment/settlement date.
— Michael
Queenstown is a unique location where demand is expected to exceed supply for some time – in terms of high-density land and the high-end residential market.
Unfortunately, as is the case in Auckland, there has been an ubundance of sub-standard development in Queenstown in the past couple of years which is likely to impact the lower end of the market in the near future – which will open the door to opportunity.
— Michael
This article is likely to be a catalyst for investment opportunities in the Auckland region.
In terms of the housing sector, this adjustment was expected. The same could be said about the abundance of low-cost “show-box units” developed in Auckland in recent years.
However, I do not feel this trend will have a severe impact on apartment developments at the higher end of the market.
Although this segment may see a short-term adjustment in capital gains, there still remains a shortage of high-end apartments – which should still attract tenants willing to pay higher rates for quality and on-site amenities.
I am not personally involved in any developments in Auckland – my views are based on research we conduct in this market.
I wanted to reiterate a couple of points noted in an earlier post which people should adhere too when considering the Auckland market:
The key is conducting sufficient due diligence and ensuring the developer adheres to strict quality controls, which will ensure your investment continues to appreciate in value – and remains tenanted.
Visit the location. When buying in a CBD you should not purchase OTP without visting the location.
And investigate other developments in Auckland – compare costs, location, tenant rates, etc which will assist in the decision making process.
— Michael
“..he finds investments in NZ for yanks (i think) and is an expat Kiwi”
Partially correct. As it appears you [Mini] have been interested in knowing my background, I will provide a general overview.
I am in fact an ex-pat Kiwi who has resided in the United States since 1989. I have been involved in equity-based investment throughout this period, with a predominant interest in technology and real estate.
In the past couple of years I have focused solely on real estate investment and development. We don’t find investments for American’s in New Zealand as such – but we are a venture capital group which raises private equity capital in the United States through a select group of investors.
These funds subsidize projects we conduct in international locations that demonstrate the highest ROR during a predetermined holding period. At this time New Zealand is considered the most profitable market although we do have interests in Australia and other locations.
We specialize in high-end apartment and multi-use developments and target a niche group of buyers who are considered a value-add – this strategy in itself can increase the property’s revenue potential.
As noted in a prior discussion with you, my interest in this forum is to provide comments and opinion which I hope assists members. I also follow closely the members views and opinion in terms of strategies and market conditions – which can be valuable information.
— Michael
What are the deposit and default payment terms – in general, and the rent review period?
The Body Corporate Fee [$1800] is about average for this type of development in the Auckland CBD – fees can range between $1000 to $3000 per annum, subject to the number of apartments and on-site amenities.
The weekly projected rent [$400] is also on par for a quality 1-2 bedroom taking on-site facilities into account.
As for proximity to the University, this can be advantageous due to the number of foreign students attending the University – who are known to pay in the vicinity of $400 or more a week.
However, do not rely on students. If this is a higher-end development the developer/property management will be seeking professionals, and may stipulate rental conditions i.e. quiet enjoyment, which are restrictive on students.
As for the sales representative being clearly “hung-over”, if I were the buyer/investor, this would be unacceptable as it can indicate the standard of professionalism Conrad Properties adheres too. If I discovered one of our sales people conducted a meeting in this capacity, he/she would be seeking alternate employment.
— Michael
The following link provides access to information that should answer your questions.
“make the same amount if you leave it in the bank and whistle a happy tune?”
Real estate offers the potential for capital gains, where money sitting in a bank is confined to capital reduction i.e. inflation, fees and adjustments – and opportunity cost.
If a bank offers ~4.5% per annum, you must then discount inflation i.e. ~2.5% + fees and adjustments ~0.5% – resulting in a possible return of ~1.5%.
This scenario will vary upon the amount invested in savings and the savings plan, but taking into account the fiscal benefits of real estate investment versus holding in a bank, real estate should be the preferred option – given sufficient due diligence and access to capital.
— Michael
“I note with interest that the US economy is picking up and not even the Mad Cow scare has caused it to change course from its current bull run (in fact I read that Americans are now eating more beef!)”
There are many political objectives sustaining the US economy at this time, brought on by the up-coming election. An example being the “Mad Cow” scare which the media quickly discounted – which is very unlike the US media.
The adverse effect this issue could have had on the US [and potentially global] economy is significant, and could have compromied the current President’s chances of re-election.
Aside from this speculation, I do not specialize in SFH’s, however the economic influences and investment principles apply [to real estate investment] across the board.
It would appear Australia is closely following trends in the United States. I do not feel currency will play a significant factor in where the SFH sector is heading – from an investors perspective. And with interest rates likely to rise [subject to inflation], this in itself can lead to opportunities.
Although attractive interest rates have increased sales trends/valuations, these rates have also resulted in an increase in borrowing and home equity loans – personal debt that many will not sustain.
As a result, an adjustment is expected which will likely see valuations decrease for a period of time – due to people being forced to sell/downgrade their homes in order to meet debt obligations.
Those who currently own SFH’s and have factored in a rise in interest rates should not feel the impact. Capital gains may decrease in some instances, but this should be short-term.
This “predicted” adjustment should soon enable those with equity, or available funds, to acquire holdings at considerably less than today’s valuations – and benefit accordingly in the next 3-5 years.
In summary, I would recommend holding for the next couple of years [don’t follow expected “doom and gloom” trends] and prepare to capitalize on the opportunities that should soon present themselves.
— Michael
The deferred option in the United States is a “1031 Tax Deferred Exchange” which is not available in Australia.
Further information as follows:
http://www.irs.gov/businesses/small/industries/article/0,,id=98491,00.html
— Michael
“Do you have anything to do with Conrad properties?”
No.
“Personally I would not touch an inner city apartment”
I would not touch SFH’s – I find there is more money to be made in multi-use/apartment developments.
We all have our preferences.
“I cant see how the lord of the rings effects real estate prices in NZ.”
These movies are introducing people to New Zealand and what it has to offer, in terms of unsurpassed scenery and isolated locations.
It has always been, and will continue to be, a common trend for real estate prices to be effected by movies that feature desireable locations – this medium is simply another form of marketing.
— Michael
The market data we work with indicates capital gains on this type of development in the Auckland CBD should not be a concern – due partly to demand continuing to exceed supply.
As an example, increased construction costs are resulting in fewer projects, which is having an adverse effect on supply – which works in your favor.
As for Conrad Properties, they are one of the more prominant development companies in Auckland, with approximately 1100 apartments completed and another 1200 in the planning phase.
The key is conducting sufficient due diligence and ensuring the developer adheres to strict quality controls, which will ensure your investment continues to appreciate in value – and remains tenanted.
Visit the location. When buying in a CBD you should not purchase OTP without visting the location.
And investigate other developments in Auckland – compare costs, location, tenant rates, etc which will assist in the decision making process.
Contrary to markpatricks comments, there is still significant upside in the New Zealand real estate market – which is why it is our primary focus at this time.
Furthermore, you would be surprised how many inquiries we recieve from investors/buyers [in the US] whose enthusiasm for this market derives from the Lord of The Rings movie.
— Michael
I have touched on this subject, but in summary the United States housing market is in a similar moderate to downward trend as Australia.
The ROI Robert refers too was more prevalent 12-24 months ago, although like many markets [including Australia but more New Zealand] these deals still exist.
In my opinion, the strengthening AUD is not enough incentive to invest in the United States taking several factors into account, including; inability to secure financing unless a US resident/citizen, US professional fees [incl. attorney, accountant, property management], state/federal/foreign tax implications, time/opportunity cost associated with locating and maintaining a desireable property in the US, etc.
Furthermore, the cost to acquire and maintain a similar standard of property is significantly higher in the United States versus Australia.
I am not familiar with the emerging trend in Canada, but I can say the majority of investors I am associated with – who are seeking foreign opportunities, are presently focused on Australia and New Zealand.
— Michael
One of the most valid points in this discussion..
“seasoned investors don’t use average accountants, they use experts”
The same can be said for lawyers and every other advisor involved in the decision making process.
The old adage prevails.. spend money to make money. A simple rule of risk management.
— Michael
“If you have a good bank they will do a letter for you to say finance wasn’t approved, give that to the REA.”
Unless stipulated in the purchase agreement, you do not need to divulge any documents stating why you declined – subject to financing.
Your rights depend on the specific wording. Therefore the document should be prepared/reviewed by a qualified lawyer – risk management.
“minus a property inspection clause – part of negotiating a lower price on a highset house with undersized bearers.”
It is never worthwhile saving a few dollars when the liability/risk exceeds the cost saving.
“A building friend has already looked at it and believes the undersized beams won’t be an issue structurally.”
Is your friend willing to accept liability if the beams are not structurally sound or do not meet building codes – the next buyer is not likely to discount a structural inspection.
— Michael
It is a “1031 Tax Deferred Exchange”.
Further information as follows:
http://www.irs.gov/businesses/small/industries/article/0,,id=98491,00.html
Interesting questions from a 15 year old.
— Michael
The following are very good resources for anyone interested in real estate development. Although published in the US, the fundamentals apply in Australia/New Zealand.
You will likely find these books are less expensive ordering online from this outlet, than if purchased in Australia.
— Michael
Chan$,
There are a couple of reasons I do not attend seminars, primarily the fact that I do not deal in SFH’s.
I specialize in international equity-based investment funds and multi-use development – which has transpired over a number of years.
As noted, I do not disagree with seminars in their entirety, but I do stand by my belief that a profession in real estate [for someone starting out] requires a more structured and less “hyped” educational format.
— Michael
Pisces – I agree with your comments re: seminars, although I will admit I have never attended one – I have however spoken with many who have, and know a couple of the [so-called] “gurus”.
Seminars seem to provide encouragement and direction, and therefore benefit those seeking these attributes.
However, acquiring a substantiated understanding of real estate investment takes time, and in my opinion, a solid education – whether derived through studies, the “school of hard knocks”, or an experienced mentor.
— Michael
