15 percent yielding properties – interested?

hi Markpatric,

> Hi Mini, one question, you guessed it, why don`t you buy them!,

well actually the first three I found were three ‘spares’ – when I was looking for myself. The ones i initially posted a while back. November, i think.

>surely you
> could purchase these at the drop of a hat,

The ‘speed’ I’m going at is that i’m buying one every three months, following the ‘dave’ model from property secrets revealed – an oldie, but a goodie. It’s simple, and i get it.

So far, so good, I’m on track, and I aim to purchase another one by end of April, to be on track. but I’m kind of addicted to cruising the deals, and now that I have a couple of people I’m looking for (prior to this thread) there seems a point in keeping on looking even if not for me.

Out of the recent deals, I found one in January and decided I shouldn’t get it, but I really really wanted it, such a great deal, so I put a contract on it anyway and passed the deal on to my parents, the next best thing! of course i didn’t charge them a commission!!

> they are free houses and like you
> said the more the better, past debates and all things considered this is a
> fair question.

If Steve McKnight et al hadn’t written a book extolling the virtues of +ve CF properties and how it means you can continue to keep buying and never max out, because you can always easily service the debt plus have a bit more as a buffer, there wouldn’t BE any demand for CF+ve properties because people wouldn’t even know what they are. they would just buy _ve geared properties 10k from their house after they finally get 10 years worth of equity in their house, just like they’ve always done and wonder how the hell these rich people manage to buy multiple properties. (i.e. 0-135.)

I can’t tell you why I haven’t bought 27 yet without giving personal information out which I would sure as likely tell you in person or on the phone but don’t feel like going into right now. But just know, I will be doing all that leveraging stuff in a couple of months when the requisite planets of my life are lined up.

> Recently I read an article regarding Auckland tenancies which would put a
> major scare into anyone investing in NZ.

‘Auckland tenancies’ does not equal ‘investing in NZ’.
I’m looking for 15 percent yielding properties – well and truly +ve and then some. Not possibly negatively geared ones that might have capital gain one day when the next boom comes around. May as well buy right here if you want that.

> In a nutshell, it said rents are dropping by huge amounts due to “fussy”
> tenants and places remaining vacant for long periods.

I’ve personally only had rises not drops in rent, but then again i don’t own property in Auckland.

> With so many investing there in these CF+ properties already, wouldn`t this
> translate to the same problem in any area, but especially the cheaper higher
> yeild areas?.

To be honest, I have not noticed that happening, yet, but I am always looking out for it. The way to mitigate that risk is to only try and find (for other people) places a bit higher quality i.e. better decor, better house, closer to town, or with something that means they will have tenants even when the dumps down the road don’t.

That’s why I am saying 15 percent not 20. Because you can get 20.
but if you are happy with 15 you can get a better place.

> If this were happening in a city such as Auckland couldn`t that be a bit of a
> gauge for the rest of NZ?,

i don’t know. It’s a bit like asking if Sydney is a bit of a gauge for the rest of Australia.

There’s a lot to that ‘rest’.

I think that if you bought a 200k place in Auckland giving you a 9 percent yield (not bad for a city, I guess) and you were vacant for a bit or had to put the rent down then that could be bad.

but even a whopping 8 weeks vacancy on a 15 percent yielding place only means you dropped to a 13 percent yield for the year. you see the higher yields are much more forgiving and really you don’t have to have the fear factor of ‘what if the market this, what if interest rates that’, which you do with the lower yields.

diggler,

> Caveat Emptor
> I personally inspected many of these 40k houses in New Zealand recently (South
> island) and yes the yield are very high. 15-20%

when you say ‘these’, you don’t mean mine because I don’t look in the South Island. 3/4 of NZ choose to live in the north island, and that’s my main reason. more people, more towns, closer together. more growth.

> Most of these properties have serious problems and queit frankly you wouldnt
> want your dog living in them. Im talking about 20-25k worth of repairs to fix.
> Minimum. Absolute trash tenants they attract.It aint worth it.
> Who would want to be a landlord of hovels!

When you say 40K it all depends on where you are looking as to what you can get. In Sydney, it wouldn’t buy you a carpark. In a NZ town, it might buy you four flats which *if rented* could fetch you a total of $270 per week. No bull. Actually, it was less – it was 35k. Who’s pass on a 40 percent return? Me. Why? Because a return is only a return if it’s rented.
This was one of the kind deals I passed on (in the days when I was looking only for myself) because i didn’t like the look of the place or the tenant i thought it might attract. And guess what, the list price was only 35K so IF you’d done a bit of work and tidied them up you may have got your 40 percent return anyway.

And, that town with the 35k flats has had a heap of capital growth because it’s coastal.

> But the joke is stupid investors from Australia are buying them sight unseen.
It’s only stupid if you don’t do due diligence, i.e. building report, LIM, rental assessment.

> Multiple bids as soon it is listed.
The trick is to find the ones that aren’t listed yet.
hehe, but that would be giving away trade secrets

> Maybe you could play the greater fool theory by buying them. Maybe, maybe not.

due diligence is the only answer.

> Dont be seduced by high yields. 9 times out of 10 their is a catch.
The catch is traditionally ‘little or no capital gain’. however even that theory has been blown out of the water recently, which is why there aren’t many CF=ve’s in Aus at the moment.

Also, you want to be right, because otherwise, if you were wrong, and there was no catch, you’d feel silly that you’d missed out on such a no-brainer, right?

I am sooooooo glad that +ve CF isn’t for everyone and that the entire population of Australia hasn’t gone zooming over to NZ to pick up some +ve CF deals. Because you know what will happen then? CF deals will run out, but and CG will happen. Hey, could be worse to get CG in a country with no CG tax, huh?

MarkyMark,

good question,

> Hi Mini,
> As long as I can do my own due diligence so that I can get satisfied with the
> deal, area, property etc then sounds like a great idea. I’m interested. One
> thing would this be exclusively NZ? or Aussie as well??

not Aussie at this stage. I can’t quite see clients going for it –

Blacktown: $370K
Apartment needing TLC! Capitalise NOW on the fact that nobody in their right minds would want to buy this dog of an apartment. that’s why it’s so cheap!
Terrible design and already dated. Save tax!! and negative gear! Suit the highly paid executive with more money than sense! Strata apartment in Blacktown, no views. high strata fees. Difficulty in getting tenant due to glut of properties on market and high-crime area. Hard-to-find property (get a map!) A stunning 5 percent yield! Possibility of price drops in next year.
Combined with interest rate increases, the future looks bright to have even better negative gearing potential next year! Forecast for 2005: negative growth 8 percent, total loss $35,000 Possibility of lease-back, income guaranteed until 2009 @ 4.5 percent. beat the taxman! get a chattels valuation and ‘lose’ even more money on-paper!
Bird-dog fee only $4995!

> The other thing is this section,
> And if there was a contract on the place, so you couldn’t be gazumped? And
> that you could still pull out if your builder’s report or conditions were not
> met, but you’d only lose the bird-dog fee?

The way that ESC work is they already do the valuation (and can you trust it when the ‘vendor’ does it?) but if you want to do a builder’s report you do it before you put a contract on it. If you did a builder;s report and you were waiting for the outcome someone could still gazump the property from you.

The way I do it (for myself) is that I put a contract on it and then get it looked at. That was you have ten days to do the due diligence and decide and nobody can steal it.

> I’m wondering if it would be fair to still charge the full bird-dog fee if the
> building came back bad?

But then the bird dog did their job already, so they should be paid.

A bird dogger find deals that fit a certain criteria. it doesn’t necessarily mean you will ‘like the look of’ the house, want to be best friend with the tenants, have no maintenance to do, or that the house would be structurally sound. There are certain things you can see, sure, like by looking at the roof or the paint job, the interior, but others you can’t.

Other times it comes down to the individual. On one builder’s report it came back ‘some concrete tiles have slipped on the ridges and hips and need repairing. However there is no evidence of any leaks at this time.’

So if it was me I wouldn’t do anything until the tenants say ‘the roof is leaking’. But that’s me. Someone else would decide it’s enough to pull out. (However if the roof *was* leaking and you needed to repair it straight away that might be a reason to pull out of the sale.) That’s up to the individual decision to respond to the information they uncover (council documents is another source) and where the bird-dog’s responsibility ends, i think.

However the bird-dog has recently been very tricky in (together with bird-dog’s lawyer) in assisting clients in inserting clauses into the offer which can end up with a further discount to the purchaser if the house is not what the vendor says it is – clauses to which the vendors have agreed.)

I know the kind of houses that are *usually* structurally sound because they were so well-built, that are always a pretty good bet, but even then you can never really tell until you get the BR.

out of five houses I’ve had building inspected, one I pulled out of (work done that the price reflected hadn’t been done properly, rising damp, rotten stumps) and four i went ahead with (dumps, but structurally sound.)

Out of three properties recently bird-dogged the purchaser went ahead with all of them after builder’s reports.

other clients prefer to go and inspect in person, but their time is not wasted as they already have the houses tied up with a contract.

> Sounds great Mini, but you said 8 weeks would be worse case as far as
> vacancy?, how do you assume it won`t be 30 weeks?

no I didn’t mean that, i meant that a 15 percent yielding property even with an 8 week vacancy ( a lot – and why? There’s no need for long vacancies. It just means your property is overpriced for what it is and tenants are getting better deals elsewhere.) you would still make a 12 percent return for the year on a property that had a 15 percent yield.

if you buy a property with existing tenant it tells you the house is priced right for the market for what you get. if you don’t price it right you will get vacancy. The way you get an idea of rental demand in the area is by talking to a rental manager *not* selling you the property.
Also a sitting tenant tells you exactly what market rent is worst case, because sometimes sitting tenants are paying below market rent.
Also there’s recent data for the area off the web which is publicly accessible.
All offers I put in (for myself or others) have clauses to do with tenant due diligence if I am buying a property with existing tenant, and if bird-dogging these properties would be tied up with these clauses already in. Not to mention other DD clauses such as subject to satisfctory LIM report, subject to satisfactory BR, and some others.

> More than a few have said NZ R/E is in a similar position to what Aussie was 2
> yrs ago but I don`t believe that to be the case, but I am no expert on NZ.

who really knows. That’s why CF+ve fast-tracks you out of that whole crystal ball gamble thing.

> As far as buying sight unseen….that is something I would NEVER do.
fair enough
So the option is always to go see the house. Knowing it’s yours if you want it.

> but then you said prices would go up????

What I said was that the theory is that where you get yields you don’t get CG. But that has been proven to be (happily) not true, as investors in Aus i.e. westan and NZ (i.e. me) will tell you

>prices may drop
> to the point you can`t give houses away,

You are just missing the point of CF+ve which means it is easy to hold a property, it won’t cost you, it will make you. And then, why would you give away an investment which is returning you 15 percent? Why wouldn’t you hold it and use the cash to either support your lower yielding investments or your lifestyle, or accumulate to buy more RE?

>as soon as it becomes known

becomes known? You mean by the media?
are they investors? their average audience member has ZERO investment properties. So what do they know, I mean, *really*?
Does the average viewer of such programmes know how to calculate the rental yield of an investment, and are they aware of the differences in CF and NG and what NG *relies on * to work?

>investors
> are bailing due to lack of tenants and minimal if any gains, in fact I`ll bet
> 12 months ago these ones you are buying were.

If an investor bails through lack of tenants, then they were charging too much rent. You can’t just necessarily buy a 7 percent yielding property and put the rent up to try and make it a 10 percenter if the market won’t wear it. And if you are geared up to the eyeballs and have vacancy, you have to dump. That couldn’t be further from the kind of property I am talking about.

> Also I understand that when you bring your money back to OZ you DO pay tax!.
‘Bringing the money back’ means you are still thinking like a CG person, buying low, selling high. I am thinking you buy a CF+ve property at 15 percent *now* which should return you 16 percent a year later.

> Steves idea was great before the boom, but he didn`t invent it, it is basic
> knowledge to anyone experienced, in fact I never went along with -CF ideas.

I noticed.
Steve has managed to buy 135 properties in 3.5 years (and who knows how many since.) So it obviously works. But statistically, there are 9 not CF+ve properties for every one that is, so it’s not surprising that there are many many more people that can’t get it, don’t see how it works, doubt it, are scared of it, etc, because it’s all they know, from most of the people around them not to mention their own experiences.

> Good luck with it but personally I would buy in Tassie before NZ.
I wouldn’t personally for quite a few reasons. But I know many successful CF investors have done well there. of course prices have gone mad recently so i wouldn’t buy there now for CG OR for yields, but there will be opportunities there again I am sure.
>
> MarkyMark [40 posts]
> ÊPosted 07/02/2004, 10:31:08
> Hi Mini,
> I just want to get this clear.
> – You or your associate sources a property in NZ

yep

> – You contact me and give me exactly what details?

Picture or pictures – rates, rent, GV, land in sq m and what kind of title (freehold? leasohold? crosslease?)

the address, the town, the yield before and after costs (aiming for 10 percent after costs so that property can be 100 financed and still break even.)

I would never dare to suggest that mentoring is part of bird-dogging, but
to cut a long story short, the only way of knowing that a prospective customer has a great contract on a property in which they have all the clauses they need to protect them, that it is worded correctly and they still have an out if they discover something about the property they don’t like during the DD phase – is if I put the contract in, with my lawyer’s advice.

>etcThis is probably the most
> important question.
> – I am then able to do an inspection myself

you totally can. I put 10 days in my personal offers but i think for bid-dogging I’d put in 15 working days to do the DD allowing for a few days for people to think about the deals.

>and if I think it looks suitable
> to me I put in a contract

Well, let’s say at the time I offer the deal, either myself or my partner (I really must introduce you guys, he’s been behind the scenes letting me do all the talking here) will have a contract on it.

if you decide you might want it, but you want to take a look and do DD before you get it, you’d want to have the contract assigned to you first, so that if you like it, it’s yours.

if you did the DD and inspection before the contract was assigned to you there would always be the chance that someone else might want it, and you’d already booked your airfares and/or the building inspector…then i would be in an awkward positiong of having the ‘someone else’ say to me ‘well does he want it or not? Because i want it and I want you to assign the contract to me’ – at which point the bird-dog fee would change hands, but the person with the contract still doesn’t have to buy the house (they don’t know until they do the DD) but it’s their deal if they do.

> – At this point I am now committed to the bird dog fee

yep. I mean you could do it the other way around, like you have to do it that way round (your way) with ESC properties. Once you want it, it’s unconditional. My way I think is a heap less risky and the way I buy properties myself. contract first, then DD.

> – I do a building inspection. If it comes back good I go forward and pay you
> and purchase the property etc
> – If it goes bad I pay your bird dog fee and walk away

yeah, kinda (now i’m confused!)

> Have I missed anything?
> Also what is Dave’s property secrets thingy that you were talking about in
> your last post

It’s this old product called ‘property secrets revealed’ which they don’t sell any more. it’s fantastic. like a mini seminar in a folder, and CDs.
basically dave’s method is a buy and hold strategy. You buy (only CF+ve properties) a property every three months, channelling the surplus CF into closing costs and deposits for more properties. This goes faster in NZ because buying costs are less – no stamp duty!! then when you have 20 properties (5 years) you put all the CF into paying them down for 5 years, ending up with 20 properties freehold in ten years. you can extend the buying phase of course as long as you want.

As long as you can find CF+ve properties which after costs break even, it doesn’t matter about what interest rates are doing.

At the moment, if borrowing is 7-8 percent and your property makes you 10 percent after costs, that’s cool. Later on if interest rates rise to 10 percent you’d need say 17 percent yields (maybe) to achieve this.

But because of rents tending to rise indexed with inflation, it works.
If you don’t believe me, read Dolf de Roos’s book, where he borrowed his deposit at credit card interest rates and borrowed the rest at 27 percent and STILL made positive cashflow, because of course if interest rates were that high, who’d buy property? Hardly anybody;. which is why prices were low and rents were stratospheric. I get it!

cheers-
mini

> I’m terribly hung over this morning so please excuse if I’ve asked a stupid
> question here.
> Thanks

hi Bruce,

finance is not a part of what bird-dogs do IMO. All the people I’ve bird-dogged for have organised finance before they purchased (such as LOC on Aussie property) and made cash offers.

If you do find there’s a foreign exchange problem because of Aus. finance on NZ property, then you could always change to finance in NZ after the fact which is what most people that I know who have bought NZ IPs have done anyway.

If you want disposability don’t buy property full-stop.
it’s not the thing you’d want to have to sell because you need the cash. You’d want to sell when you want to sell, if you get what I mean, not cause you have to.

As a buy and hold kind of person I kind of never get why people sell their investments anyway. If they are negatively geared and they’ve just gone up heaps and may go down soon, then I get it. But I don’t get why I might want to sell my performing investments unless someone made a crazy offer.