ooh, I like this fast reply business. It’s fast!

i calculate the gross yield (rental income divided by purchase price) and then the net yield (less annual costs such as vacancy, repairs, management, rates, and insurance.)

In the price range and areas i have bought in, it’s been that 20 percent gross works out to 10 percent in the hand.

factoring in borrowing, you figure that if you are getting 10 percent and paying 8 percent to borrow, that your margin/profit is 2 percent of the purchase price. Not bad if you are lucky enough to finance the whole thing from existing equity. And quite good too if all you had to put in was the deposit and closing costs. (cash on cash return.)

In the end i wouldn’t bother with a supposed cashflow positive property unless it was yielding 10 percent after costs, because if it isn’t twice as good as a term deposit considering the work and risk involved, why bother? And i wouldn’t be buying property hoping for capital gain at the supposed top of a property boom either.

I think the people who have done well with positive cashflow properties are the ones that haven’t settled for lame yields. Too many people call 10 percent gross yielding properties ‘cashflow positive’ but if borrowing is 7-8 percent, 2 percent isn’t often enough to cover the costs of owning the property. i reckon a lot of people forget about the holding costs when calculating their potential returns. Don’t be in denial about them. i reckon when doing your number-crunching, overestimate what the costs will be and then be pleasantly surprised, rather than the other way around.

cheers-
mini

Hi there,

we’ve had this discussion before, but I don’t get how it’s possible to buy ‘under market value’ because as the accepted buyer you *are* the market, and you are paying as low as you can get, while the vendor is holding out for as much as they can get (both parties being realistic to the point in time and knowing a sale in the hand is worth two in the bush.)

cheers-
mini

PS

7 percent discount is fine, but how do you know it’s a good deal at that price, or still overpriced? IMO ‘asking prices’ compared to what the house is worth fluctuate wildly depending on a number of things, and if you get one that is already reasonable for a further discount, then wahey. if you paid 7 percent less for something that was overpriced, you still might have paid too much. it all depends on whether someone wants it really badly more than you. if they do, let them have it. They’re emotional, and you’re an investor.

steve,

congrats on the beachfront for 35K, was that recently?

Personally I have a vibe for Wanganui. Still enough people left to get tenants, jobs, pretty, cute. Water. but it’s hard to recommend it to other people because it *does* have a declining population. Best thing is to go there. just fly freedomair.co.nz into palmerston north and drive over. not far. about an hour I think or less maybe. freedomair is owned by Air NZ so quite legit airline.

*shrieks*
Yeah susielangmaid (who used to post on the forums quite a while back) and co, I met up with when i was in wanganui, amazing people and I can vouch for their most excellent workmanship and characters. Not to mention experience (isn’t it their 17th house????)

cheers-
mini

!!! heeheee

well there’s two kinds of posts I do here, one is ‘hey, i can answer that question or offer something on the subject’ and the other is ‘wow! this person couldn’t disagree with me more!’
*cracking knuckles to get started*

debating makes me really figure out my stance. I guess in a way it’s my favourite, a good debate. I am not really like that at all in real life. I tend to let more confident people that have louder voices shout me down. but on the forums, I can be not only more confident, but smarter perhaps, because I can think about it properly rather than the stress and emotions that would fly around if this was a dinner party conversation. on the forum in a way it’s just mind to mind and i kinda like a bit of that now and again.

Also, the *really* interesting thing is that when anyone strongly strongly disagrees, they usually have a reason, which kind of filters everything they say. and you can often figure out what that is. I enjoy trying to do that, too.
I reckon michael R is possibly on a much bigger scale than lil’ old Minimogul, possibly has some clients he has to make $$$ for in a short time, and trading (selling) is a way to do that. this is from reading between the lines – and I might be totally wrong. he hasn’t got back to reply yet.

yes it’s all quite fascinating, really.
cheers-
mini

“Not everyone is intelligent/educated enough to know when they’re being conned. Not everyone realises there is no simple formula for success”

agree with the first part. That’s why it’s soooo important to question, question – until you understand.

The second part, i don’t agree with. i think there is a simple formula (for wealth).

it’s – eliminate consumer debt (‘doodads’)
spend less than you earn, and invest the surplus in income producing assets which hold their value i.e.stocks and bonds, building businesses, or real estate (RE being the ‘safest’ in my opinion.) Then, leverage the assets to acquire more assets.

this is basically what they are all saying – from John Burley, to Kiyosaki, to Anita Bell, etc etc

So simple. And the ones who aren’t doing well aren’t adhering to that simplicity, in one way or another – even if they have high paying jobs.

cheers-
Mini

> I will add that I have a successful real estate investment and development
> group, based in the United States,

there’s that ‘i thought you were a yank’ thing again

>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,

Look. I am not saying that buy and hold is the only strategy to make money in real estate. There are other ways. I had some friends who are on to their 17th property, but they only own two – one they live in and one they are ‘doing their thing’ with. That is a lot of hard graft and grind, and sure they cashed out each time and lived on the proceeds, but it’s a full time JOB – if you don’t work, you don’t get paid. I see Buy and Hold as a true *investment* strategy, but unlike negatively geared properties, it is replicable without keeping the person either a) working b) broke in the meantime. My friends are the kind of people that I know wished they had been able to hold onto some of those 17 properties along the way – ‘they wold be worth XYZ now’….

> demonstrate a higher ROI than the models we adhere too.
how high?
>This is not rocket
> science, it reflects a simple understanding of real estate investment outside
> the parameters you may be use too.
‘used to’.

Don’t just try and bamboozle me with big words, suggesting that it would be too tricky for me to understand, and then tell me you ‘can’t be bothered writing a book teaching me the basics. well, just assume I have the basics down, (cause I have that book – hehe) just tell me about these supposed parameters you’re so outside?

Experts who try and sell novices into investment schemes (whether bona-fide or bogus) find it’s in their interest to keep their potential customers dumb, baffle them with lots of ‘stuff’and take their money and invest it for them. I mean, they’re the experts! hey, is that what your company does? you say your company
“employs specialists to implement investment strategies and build wealth in our portfolio” – I mean, are you an investor investing your own money, or do you employ ‘specialists’ to invest it for you? Or what?

> My point was, there are many factors to take into consideration when deciding
> to hold versus sell [“sell” defining several strategies].

huh? Am I being naive to think that ‘sell’ means ‘sell’ – as in, cash out, liquidate – and anything other is ‘hold’???

>On some occasions
> retaining a property may make sense,

Phew!!!! You had me worried there for a while.

> markets generally
> appreciate over a period i.e. 10 years, is a small part of the equation.

So you don’t think that capital gain over ten years is ‘significant’. Hmmm. Interesting. And you’re not into yields and buying and holding and collecting rent. So what *are* you doing to make money from real estate?
It would make me think you might be a developer.???

>The
> richest people I am aware of are not those who buy and hold specifically, they
> know how to leverage their investments,

exactly, and a ‘held’ investment which generates income while itself gaining value (even though you think that’s a small part of the equation) means you have serviceability and ever increasing equity for future investments with which to ‘leverage’ into further purchases. Eventually you can stop purchasing and just live off the income.

>which does not often mean holding for
> an extended period.

OK, you really need to explain what you are doing if not holding.

> Rest assured I will not come “whinging” to you because I wished I hadn’t sold,
> “dude”.

“ok”, then, “dude”,

> 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?

no, but the 20 percent rental yield tends to get even better with time.
Who cares about the capital gain? OK, let’s say we do have some capital gain. Value it, and refinance it to buy more income producing assets.

>When do you think your yield
> gravitates towards the median gain of all other similarly situated properties?
> It has to, it is unavoidable.

huh?
> 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.

rough figures – property purchased in 1991 for $5000 (rural NZ town) then renting for $20 per week now would be worth 50K and renting for $120 per week. Make up a curve to get from $20 to the current $120 and work out how much money you would have got each year, increasing every year, from 1991 until now.
it’s stupendous, something like a 600 percent return on your investment, even if you had finance for the original 5000 back in 1991.

This is an actual case that someone was talking about one one of the threads now in the treasure chest.

> Again, use some more common sense.
I am!! And a calculator! And I’m telling you that buy and hold makes mathematical sense to me, as well as being the most time-leveraging strategy out of all of them – not to mention, no capital gains tax!!

>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.

I agree that buildings depreciate, but land appreciates. Land is forever, and buildings are for xyz amount of years (depending on how old they were when you bought them.)

I live in an 800K house. The ‘improvements’ (i.e. the house) is depreciating like mad, it’s already 100 years old and you’d want to pull it down at some point, and rebuild. Because it’s the land which has overtaken the house value – the land would be 3/4 of the property’s value, without a doubt. But the present owners probably bought this property in the 80’s for, like, 230K or so. But by selling at any point, they wouldn’t now have all this equity that they could use. – lets’ say, revalue the property, pull out half to buy some income-producing properties and half to build, build new units or whatever, get property revalued, pull out capital to buy more cashflow producing assets, repeat formula – all the time income producing buy and holds are being used to service the growth of the portfolio.
> 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

yep yep – that’s what my friends on their 17th property do – and it’s a full time job. Valid, but not an investment as such – because if you don’t work, you don’t get paid.

>than buying a
> property and holding it for years or decades for market appreciation

no no no no no no
*whistles happy tune * –
market appreciation is almost irrelevant when you are getting a 20 percent rental return on your purchase price in year one, which is almost certain to get better over the years, even factoring in holding costs!!!

> It is not that I cannot be bothered debating this subject, I simply do not
> have the time

good, that means you’ll let me have the last word then!! hee heeeeeeeeee!!!

> to provide leasons in the fundamentals of real estate
> investment.

ew,,,,,,,
Mr Busy Teacher,

I soooooo don’t want to learn from you. Call me a hippy, but I just don’t get a vibe for you.

> Regarding DeRoos, I do know him, but would never adhere to his strategies –

why not? He’s 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’?

> not that I deal in SFH’s anyway.
single family homes?
So does that mean you are into commercial property, or commercial residential property? Which you buy, do up and flog, or develop?
(because you aren’t holding….)

>Blind
> leading the blind several associates have suggested.

huh??! He’s doing really really well! I don’t get why you think he is ‘blind’.

> My input was intended to provide insight for those who can benefit
> from it, not attract meaningless debate.

It’s only meaningless because you’ve disagreed but not given anything away about why. What you do, how it works, a numbers comparison.
Ok, you’re too busy to be a ‘teacher’, but you have enough time to write that you’re too busy. So what are you actually getting out of the forums?

> All I was wanting folks was some info on investing overseas. It seems to
> have degenrated into a ‘buy and hold’ debate or buying in WA.

yeah, it was a buy and hold debate, but that’s just my personality, if I hear someone say something that I think is – erm – cryptic, dodgy, wrong,
or similar, I always challenge it. thank me later.

> Any chance we can get back to my original request, pretty please
objection over-ruled. like I said, thank me later.
Just know, Devo, that anything you have asked has been answered a zillion times before. There are certain questions such as ‘where do you find a cashflow positive property? What are the hot suburbs that i should buy?

and re: offshore, do I need a lawyer/accountant/structure/bank account/broker/etc/whatever.

Not that it’s bad to ask, it’s just that I’m a little less excited each time I hear the question, and a little more likely to wish that all newbies had read then entire forum before asking anything….

and in the end, I only post if I’m having fun, and I only write about stuff I know.

cheers-
Mini

“maybe you can find an appropriate book on this subject.”

ugh, maybe you can be a bit less patronising. If you wanted to give the impression you are a big-noting know-it-all yank, you’ve succeeded.

Anyway, it’s impossible to have a debate with someone who ‘can’t be bothered’.

I however may be able to be bothered to discuss your other points further, if I didn’t happen to be at an internet cafe at the beach with a heap of better things to do.

but just one last thought for now, the people who (in my humble experience) have grumbled the hardest arguing with the logic of ‘buy and almost never sell’ (which Dolf de Roos teaches, by the way, lest you don’t want to take *my* word for it- ) – are the ones that *did* sell and wish they hadn’t. Arguing is just a way of rationalising their mistake to make them feel better about it. So is that you Michael R?

that’s all very well, but sometimes when you buy is the time to renovate – i.e., the place is empty. After that you want a good tenant who’s going to live there for the rest of their lives giving you zero grief, and who you attracted by your brand newly renovated place.

“the owner was able to claim a total of $1.2 million in depreciation over that time.”

That’s a lovely story, but I doubt I would get the same benefits from my 10K reno on a 19K house…

*grin*

besides, who has 1.2 million worth of income that they need to offset with a few on=paper losses?
it’s all relative, innit!?????

i agree, the best way to avoid CGT is to buy and never sell!! Also offshore you get better yields. Aussie has got some of the crappest yields in the world, actually. I read that somewhere.

The richest people are the ones who buy and hold. The people with the most regret are ones who say ‘if only we hadn’t sold that property back then, because now it would be worth XYZ’ – forced into a sale because holding the property is making them broke. i.e. crap yields.

NZ isn’t the only great offshore place to invest, it’s just the closest- as close to me here in sydney as alice springs is, basically, and a whole lot closer than WA.

WA is lovely though. Investing in Mandurah and around there could be very good though, it’s going to be awesome, they are building a train line finished in 2007 and it will take 48minutes to perth – it also has lots more going for it, like the top regional area for employment, fast growing, etc etc

As for yallingup, what a divine place…

cheers-
mini

hi rachel
I’d also be interested to know what sort of deals you have and how much you are charging to flip, or else how you are doing it.

cheers-
mini