Forum Replies Created
Mel/Mcollins
The US is a very fickle – and in many States, over-inflated market at this time. Especially in California which has reached its peak in many locations.
In my opinion, the cost to acquire property in the US – using AUD, taking taxes etc into account, versus yield, would be high risk at this time unless you have a very good understanding of US real estate trends, State laws etc.
What we consider the best location for real estate investment, in terms of low risk/high yields [not a common equation] is at your very door step – New Zealand.
— Michael
mcollins
I understand http://www.ziprealty.com is a good site for locating investment properties.
— Michael
BeerBoy/Gavin
We deal in a number of commercial transactions/loans between the US and Australia/New Zealand and I am unaware of any US financial institution that will lend funds offshore – in terms of personal/home equity loans.
If you are a commercial interest with a track record in the United States, the capital is secured, and you or the entity’s directors are permanent residents, then there are ways to raise capital for offshore investment. However, the cost of borrowing these funds will generally be on par with offshore interest rates.
Toystory – I would be interested to know where you are getting a line of credit at 3.75%?
— Michael
MM,
“I think you’ll find that most of the richest people in the world hold their assets in real estate.”
— As I have said from the beginning of this so-called debate [which I will admit I now find quite amusing – not in a derogatory sense] buy and hold is a strategy that can be implemented on occasion – it is not necessarily the best option. The point of contention being, how long does an investor retain the property before it leads to opportunity cost – in fiscal terms. You have suggested never selling. Based on my experience, most of the richest people out there do not abide by your strategy.
“there are certain investments available to him [RK] that are not available to the ‘average investor’ – or newbie, and in the US they have the SEC to monitor these kind of bigger bucks deals”
— Correct. The investor must qualify, which is based on income over a defined period, and have a minimum net worth.
“so let me rephrase that so it’s quite clear what i was asking, this time without any attempts at rehetoric (which seemed to go over your head)”
— As I pointed out, I am not a yank. I picked up on your “rehetoric”.
“I’d like to know about the ‘several strategies’ which you consider define ‘sell’ apart from cash out, liquidate.”
— I am not going to outline the strategies we use aside from a relatively simple set of rules which are the foundation for building wealth in real estate. 1. control 2. OPM 3. sell/maximize profit
“Stop splitting hairs! ‘Not significant’ means ‘a small part of the equation’ in normal english.”
— In my position “normal english” can be very costly.
“Furthermore buy and holding for the long term (7 years plus) means you tend to ride out those humps”
— This approach is as speculative as those used by a “trader” or “speculator”.
“I don’t want to trade a full time life for a full time job as a property trader/developer/deal doer.”
— Everyone has a different definition of a “full time life”.
“The argument against holding means you sell, pay CGT, buy in at the same point in the market, do your thing (renovate/develop) and then sell, repeat formula.”
— If this was the way it worked, I would be out of business.
“Your gain just got diluted with CGT and RE agent’s fees.”
— Incorrect re: diluted by taxes, and we do not use RE Agents.
“You must agree that if people’s aims are to grow their portfolios from 3 to 20 or from 0- 135. then holding is involved.”
— Yes, I agree. The question being, is this the most profitable strategy – use of capital, equity, institutional funds, time and opportunity.
“For some people, ‘retirement’ means continuing to do what they love, but not having to for income.”
— Retirement can be a time at any stage in life when others continue what you have built. In effect, you are not restricted to living off income, because you continue to build wealth.
“so the detective in me wonders if you are selling shares sort of like DDR does in his property investing company, (or in some other SEC high-powered way)”
— Having reviewed one of DDR’s so-called investment proposals my response to any investor would be “caveat emptor”. As far as I am aware, Dolph has never conducted an SEC level transaction.
“you think you are giving much better deals/returns to your clients than DDR is”
— Let’s just say we abide by securities regulations and deliver higher yields than DDR offers.
“but he’s much more famous”
— “Fame” is for those who are here today, gone tomorrow.
“the books and seminars have leveraged him into this ‘trust me, folks’ position, and that irks you cause you don’t think he’s doing that good a job for his investors.”
— Yes, he is a very good salesman. Otherwise, I am aware of people at a high level who were very disappointed with the way their investment was managed. I personally have no issue with Dolph, and simply advise every investor to conduct sufficient due diligence before investing capital in any transaction.
“Is your company available for the average person to invest in, or do you have to be a certain level of investor to qualify?”
— No. You must qualify under SEC regulations.
“Can you tell us the name of the company, and does it have a web site?”
— I started monitoring this forum to gauge where/when/how/why people are investing in Australasia, and their objective views on market conditions – reasearch you might say. At times I provide comments which I hope benefit people. This is the extent of my interest in this forum, therefore I prefer anonymity.
Best of luck in your endeavors.
— Michael
Guccigal
If you have experience in the development process, in terms of selling/acquiring holdings OTP, then I would recommend investigating projects in New Zealand where apartments in particular are being turned over several times before construction is completed. Many buyers originate in Australia.
However, as picja1 suggested, land would likely be the better and more profitable option. It would also be less risky.
Kay Henry – an upfront deposit of 10-15% is becoming the standard when acquiring OTP. For example, we require a 15% deposit [in Australia/New Zealand] which is retained if the buyer does not settle, as is any shortfall/costs we incur onselling the property to another buyer.
— Michael
“I am not saying that buy and hold is the only strategy to make money in real estate.”
.. This is where the discussion started, your reference to the “richest people are the ones who buy and hold”, in my personal opinion is incorrect, in terms of your definition of “hold” being never to sell.
“you can’t be bothered writing a book teaching me the basics.”
.. When did I ever suggest I would write a book.
“Experts who try and sell novices into investment schemes”
.. The investors we work with must qualify under strict SEC rules, I am not interested in promoting “investment schemes”.
“are you an investor investing your own money, or do you employ ‘specialists’ to invest it for you?”
.. Profits I gain from various transactions are directed into ongoing investments, I employ a team to manage these funds, and our clients contributions.
“huh? Am I being naive”
.. It appears that way.
“So you don’t think that capital gain over ten years is ‘significant’.”
.. Did I say it was not significant? I did say it was a small part of the equation. Ensuring the risk factors do not compromise an investment is more important than speculating on capital gain – which to a greater extent is out of ones control.
“It would make me think you might be a developer.???”
.. I said at the very outset that I am a developer. Although we do invest externally and retain property as a strategic investment, hence stating at the outset that buy and hold is an option to consider – taking many factors into consideration.
“Eventually you can stop purchasing and just live off the income.”.. Why be satisfied simply living off income.
“why not? He’s [Dolph] into buying properties with a twist and adding value. He’s into leverage. can you clarify what DDR does that you would ‘never adhere to’?”
.. You should direct that question to people who have invested in his projects.
“He’s doing really really well!”
.. As I said, he is a very good salesman.
The remainder of your response references someone elses comments, which as noted, I do not agree with in its entirety.
— Michael
MM
It is not that I cannot be bothered debating this subject, I simply do not have the time to provide leasons in the fundamentals of real estate investment.
Regarding DeRoos, I do know him, but would never adhere to his strategies – not that I deal in SFH’s anyway. He is however a very good salesman. Blind leading the blind several associates have suggested.
Take what you will from my comments, but I can assure you I do not need to complain, argue, or however you put it, to feel better about investment decisions. My input was intended to provide insight for those who can benefit from it, not attract meaningless debate.
And finally, to end this discussion, who ever said I was a “yank”! These forums can be quite comical when you have no idea who you’re conversing with.
— Michael
MM
Following is a post taken from the site I referred too. The writer is a successful real estate investor, RE attorney and is the author of a couple of books on RE investment.
I would not necessarily agree with all of what he say’s because the decision to hold or sell should be on a case-by-case basis, and subject to the period the owner intends retaining the asset and other fiscal and economic factors.
This post does however provide an argument for why buy and hold is not necessarily the best option.
I’ve studied buy-and-hold investment models for fifteen years. The mathematics of them are inherently flawed. Over time you can’t make money faster than inflation or the percentage increase in population even if you pick the best area and the best property and both of those are difficult to do.Do the math on any investment property over a ten, twenty, thirty, fifty year or whatever period and you come to the same conclusion.
Use some common sense. On a real estate investment, it is quite easy to make 30% in the first year after a quick rehab or improvement. Do you think you can make 30% year after year on the same property? When do you think your yield gravitates towards the median gain of all other similarly situated properties? It has to, it is unavoidable.
How do you earn spectacular gains holding property decade after decade? You can’t. All income properties will all appreciate at the same rate in a given area. The only way to earn high yields with rentals is to IMPROVE THEM and build equity yourself. Otherwise you are counting on marketwide appreciation and increases in rental income to make you money and how fast do you think that will compound? ONLY AS FAST AS OTHER SIMILARLY SITUATED PROPERTIES or in other words, at the market rates.
Again, use some more common sense. The longer you own a property, the higher your maintenance and repair costs. As a building gets older, it needs more work. It wears out and the owner needs to fix things to keep attracting tenants and maintain the current rental income. Which property is going to appreciate at a higher rate? The new property with a lower expense ratio for the owner or an older property with a higher expense ratio? Every dollar in added expense per month per unit using a cap rate of ten is $120 in lost equity PER YEAR.
It doesn’t matter how you look at this question. You can use theoretical mathematical models. You can use empirical statistical studies. You can just use plain common sense. The bottom line is you can make more money faster, with less risk, and earn higher yields buying properties, quickly improving them to add value, and selling them to pyramid your equity than buying a property and holding it for years or decades for market appreciation and gradual increases in rental income.
MiniMogul
I appreciate your so-called “debate”, but it would appear your experience, or understanding of alternate investment models and the tax/cost implications [or avoiding them] is limited.
Unfortunately I don’t have the time to outline the pro’s and con’s of buy and hold versus other investment strategies – maybe you can find an appropriate book on this subject.
I will add that I have a successful real estate investment and development group, based in the United States, which employs specialists to implement investment strategies and build wealth in our portfolio [domestic and foreign] – which has never been reliant on buy and hold, because it does not demonstrate a higher ROI than the models we adhere too. This is not rocket science, it reflects a simple understanding of real estate investment outside the parameters you may be use too.
My point was, there are many factors to take into consideration when deciding to hold versus sell [“sell” defining several strategies]. On some occasions retaining a property may make sense, but the fact that markets generally appreciate over a period i.e. 10 years, is a small part of the equation. The richest people I am aware of are not those who buy and hold specifically, they know how to leverage their investments, which does not often mean holding for an extended period.
Rest assured I will not come “whinging” to you because I wished I hadn’t sold, “dude”.
— Michael
MiniMogul
There are a number of factors in determining if the buy and hold strategy is the best. With all due respect, I would personally disagree with your comment “The richest people are the ones who buy and hold”. In fact there is an interesting discussion on this very topic at the following link;
http://realestateinvesting.com/cgi-bin/general/index.html
You are certainly correct that New Zealand is a great place to invest. We constantly monitor overseas markets for investment and development purposes, and our data has indicated for some time that New Zealand is the best real estate investment location at this time.
The “carrot” is a higher return on investment than what can be achieved in your own country, taking taxes etc into account.
In terms of tax advice, you should speak with a qualified accountant before investing off-shore – someone who understands both countries tax and foreign investment policies.
Although New Zealand does not have CGT, you will pay CGT when the profit is returned to Australia. Therefore it can be advantageous to leverage profits gained from the sale of property in New Zealand by acquiring more property. You will eventually pay CGT but in the meantime you are making use of these funds, and other tax incentives, to increase your overall return on investment.
— Michael
You mention the property “would sell for approximately $600,000”, but have not mentioned the valuation.
If the valuation exceeds the purchase price you may be in a position to consider a primary loan plus secondary [mezzanine] loan to finance the shortfall.
This would likely be conducted as a commercial transacation, and of course you would need to demonstrate how the borrowed funds will be serviced. An I/O [Interest Only] repayment scenario could possibly be negotiated to reduce the periodic payments.
There are ways to finance 100% or more, the key is minimizing the lenders risk and providing realistic numbers which clearly demonstrate how the loan will be paid back.
Another option could be seller [or vendor] financing, which would enable you to “control” the property without institutional funds. If the asking price is below market valuation you could potentially “flip” it, pay-off the vendor and walk away with the profit.
— Michael
Institutional lenders generally require some form of security in the country the loan originates.
Furthermore, it is likely you will need to be a resident, have an excellent credit history, and a solid track record with the lender.
As an individual seeking finance your chances will be limited at most with the above qualifications.
If you are an established commercial entity with an offshore subsidiary [w/ minimum two year financial history] you may find a lender willing to discuss offshore finance if it does not conflict with government and/or regulatory restrictions.
— Michael
“So does that means if the investment properties are valued below those numbers, u don’t need consent from the government?”…
Yes. Approval is not required if the property valuation, area and location parameters do not exceed these stipulations.
PeterM
The company reference was to qualify my experience in working with people seeking capital for real estate projects.
Yes, we finance real estate developments, and as a developer, we also leverage institutional funds.
Although I appreciate your interest, my intention was not to solicit business, rather provide further insight for those interested in this discussion.
— Michael
An “overseas person” must obtain consent under the regulations to acquire or take “control” of “significant” assets in New Zealand. The significant assets relate to:
> Businesses or property worth more than $10 million
> land over 5 ha or worth more than $10 million
> certain sensitive land over 0.4 ha (e.g. on islands; containing or next to reserves, historic or heritage areas, the foreshore or lakes).Control is generally associated with an overseas person obtaining a 25% ownership or control interest in an asset.
The regulations are divided into parts. One part deals with significant non-land investment while a second deals with land investments.
PeterM
I myself have an investment/development company which finances relatively large real estate projects in Australasia.
My point being, more than often the so-called “developers” experience can be a small factor in the decision making process – in terms of lending capital. Risk is off-set by the experience of the “development team” as a whole – and the projects feasibility.
I would suggest the same could be said about most private finance companies. Of course, institutional lenders, such as banks, take a more conservative approach, but they too will not discount a loan based solely on one persons limited experience if the concept is feasible and qualified people are involved.
I do not wish to question your point of view, rather highlight [for people on this board] the fact that raising capital is not necessarily dependent upon an individuals experience.
— Michael
PeterM,
In response to your post, although experience is beneficial when entering real estate development, I personally know several savvy “developers” who entered the game with no experience, and simply hired competent representatives – i.e. project manager, architect, etc.
Sometimes it is not what you know, but how you leverage the experience of others. As an investor I will often put the “teams” experience ahead of the person with the idea – no matter what the individuals experience.
It would appear the costly mistakes you have outlined are more a lack of using competent people [and insurance], than knowing how a development works from start to finish.
In response to another post re: leveraging banks vs. OPM [Other People’s Money]. More than often wealth is generated through OPM, not banks. C2 summed this up “50/50 of 10% return on 5M is better than 100% of 10% return on 2M.”
— Michael [Washington DC]
I am a real estate investor in the United States [with interests in NZ and Aus] who knows people who have invested with Dolph Deroos. My recommendation is to be very cautious and conduct sufficient due dilligence before investing in one of his “ventures”. I do question the comments made re: a University at Gibbston Valley in Queenstown – very unlikely.
To further clarify, you are correct re: GST as it is applied to income derived from a rental property in NZ. However, in response to your original post which states “No GST is payable if buying residential property in NZ.”, my point was GST applies to the “sale” of residential and commercial property in NZ. Only if the commercial property is a “going concern”, is GST exempt.
Hope this is helpful.
quote:
Hi GuysIn reply to MichaelR I found this in one of my books-“Property Tax in New Zealand” written by Mark Withers.2002.
He states, “That for the investor, there is a signficant difference with regard to GST for those investing in residential property and those investing in commercial property.
Under the GST Act, residential rental property investment is an exempt activity for GST. This means that the investor will not be GST registered and effectively can ignore the effects of GST. However, the investor will be paying GST on costs incurred associated with his residential property investments.
For example, a property manager will charge GST on top of his 7.5% fee, and because the investor is unregistered for GST, he is unable to claim back the GST that he has been charged. However, as the GST represents a real cost o the investor it is claimed in his income tax return as part of the management expense.
With regard to commercial property, the threshold for GST registration is where the total rental income exceeds $40,000 as stated in the GST Act.p/47
With regard to traders in property, GST is a major and significant issue that must be fully understood.”p/48
I won’t go any further except to say that the residential buy and hold person is not liable for GST or income tax on the capital appreciation in the value of his investments.
I hope this may clear up any misconceptionsRegards
