Making a small fortune in NZ Real Estate…

Hi,

I’m inclined to agree with Rob. I can certainly remember the dark days of loan-calls from the early 1990’s.

However, recently looking through some of my loan agreements on investment property (for the book) I can’t see any clause that allows the bank to recall a loan that is not in default.

Having said that, the LA does give the lender the pwer to look through the property and has to approve tenants etc. Practically this never happens, but I guees it could be a clause relied upon to suggest a default situation.

Still, Bill’s warning (although a little like Chicken Little) does hold merit. I too am worried that investors are rushing to NZ like the gold prospectors of yesteryear.

Rob’s comments about due diligence are very well made. I add that offshore investing is always more risky as control is more remote. There are plenty of opportunities, but never allow greed to override commonsense.

Nice to hear from you again Bill.

Regards,

Steve McKnight

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Remember that success comes from doing things differently.
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Bill,

I have a few issues with some current trends in RE borrowing. One is the ease with which people can get a 100% or 105% loan these days. I think there is a trend towards people being higher and higher geared- wanting to increase their gearing above 80% or 90%. I wonder what will happen if IR’s rise (and they are bound to at some stage- but my prediction is not for a while- say another 5 months).

Another trend is the use of LMI. I think – given the current conditions of a flattening market- that it is a waste of money- because it will not be covered by CG- over the next couple of years. Of course, in a rising market, the above two strategies- 105% loans, and LMI- are reasonable choices.

I am more a turtle in the RE game. I have kept the same strategies for as long as I’ve been looking at RE (which is only 7 years). I have learned so much more than I knew then, but I still work on the same fundamentals. I don’t do high risk, I want to keep working in my job, so that I can maintain my properties if sometrhing goes wrong and the bottom falls out of the tenancy market, for example.

Speaking of tenancy, I think that IP’s with tenancy desirability is going to become a very strong fundamental in this flatter market. Can our IP’s keep their tenants in what may become a more competitive market? As the market changes, some tenants may move to other towns (such as happened in places like much of the south coast during the 1990’s- people on work projects- tradies- had no work and would just shiftand leave to where the jobs were. Think about a flatter market- it means less IP’s being built, less market activity in general- that can have consequences all over the place. If a few of our tenants up and leave… will we still have the money in our bank accounts to cover a few rents?

Bill, one of my strategies has ALWAYS been to have a job to back up my RE investing. I feel that with a job, I can survive interest rate increases, a tightening tenancy market, falling property prices- whatever!

I’m going to be in RE for the long haul- despite any market conditions… but I’ll still keep working, so that I can’t lose the shirt off my back if things go wrong.

And yes, prices have certainly cooled- but we always knew they would. But Bill, I don’t see that as an issue. If prices increase, the investor wins out with CG. Sell up a few and enjoy the fruits of the investment. If prices decrease, one can afford to buy up again. The market can’t lose- for me- because I see the positive from both outcomes.

kay henry

“NZ is attractive because Aussie is stuffed R/E wise until about 2007. A loss is a loss NZ or Aussie.”

Being an overseas investor who knows many foreign investors with an interest in New Zealand [and Australian] real estate, the trend toward investing in New Zealand is clearly no longer linked to the Australian market.

Investment decisions stem from “awareness” which has been far less prevalent in the past.

New Zealand’s unique scenery, low population density, low/moderate valuations, advanced infrastructure, and being considered a “safe haven” – combined with awareness, have positioned this country as a more prominent investment location than Australia and many other countries, which is not expected to change in the foreseeable future.

[Steve] “Rob’s comments about due diligence are very well made.”

Am I missing something here? Aside from negative banter there is certainly no substantiated reference to due diligence or otherwise.

— Michael

Hi Bill and all and sundry

I guess the level of ‘risk’ one is prepared to take will vary for all of us, but I don’t know that I am rushing in to set myself up for a firesale and loss of shirt in NZ.

Many of us buying in NZ are taking the time to research areas and issues as diligently as we ever did in Australia.

Thanks for your thoughts Bill. You are one of those naysayers I constantly think in my mind: “I am not going to listen to that, I am going out to do my best – and in doing that I will sleep at night”. So, your negativity here, just helps me to realise that I am strong enough to take a position in spite of others opposition.

To date I have purchased several properties in NZ. All of them will be selfsustaining with interest rate rises and rent falls. There is a big buffer built in.

Like Westan, I will be considering selling after July 1 in Australia to ease up on my debt here and free up cash to continue in NZ. There are some great places to buy in NZ – I would love to live there myself.

Keep up the arguments Bill. They fuel my opposition, and that helps me stay focussed!!

Cheers
CD

CastleDreamer

I live in Queenstown NZ and am still very positive about property in the south.I think older established homes are cheap here in many places compared to the high cost of building a new one.
Building materials other than timber are nearly double the price in Otago/Southland than in Brisbane.Sub contractors here are charging the earth,eg tilers get $65/m2 to lay floor tiles,$100/m2 for wall tiles, gibstoppers are charging anywere from $9 to $16/m2 for stopping only, cost my mate to plumb a 240/m2 house $18 000 and i could keep going.
All this tells me new homes and units off the plan are overpriced and that is were the high risk is so don’t get sucked into a new unit in Auckland or Queenstown.
Beware of many older homes here as well, do not buy without visually inspecting the place.The south is cold and in many places very wet, condensation is a major problem and many older homes do not have proper insulation which as a friend found out can cost a fortune to bring up to standard if you want to lower your heating costs.Also NZers are great DIYs and any man and his dog can call himself a builder here so you don’t know what has been done to the place over the yrs.
I have been buying some commercial property in Invercargill,12% yield on purchase price.( great returns but don’t expect much CG as prices have leveled out for sure)An example though of nearly making a huge mistake was a set of 4 shops which were all vacant with 4 units above all rented out on the main drag in Invercargill, now of right you would assume commercial zoning esp. with shops either side,now with an agent telling me how with a little work he’ll get me all leased out in no time and the place would return on cost 17%(units above paid the interest,shops were the cream)Fantastic i thought,it was ONLY when i went into council and pulled the file did i discover the agent had not told me due to the shops being vacant through a zoning review that I needed Publically notified consent as well as a lot of other crap, needless to say i walked away.
Nz is a great place to invest for cashflow+ properties just be here when you buy so you don’t end up with a lemon.
Well it’s snowing and i’m off for a day of snowboarding,seeya.

Hi Westan
Yip Dee st it is.
Did you see the Sunday and 20/20 programs a few weeks back predicting doom and gloom for the NZ property market ?I had a friend in real estate say it cost him a sale from scared off investers.
For those who saw either programs you have to wonder on those guys motives, could it be that the wealthy invester in Auckland was promoting his new book which just happened to hit the shelf a couple of days later and is all about what to do to prepare for the next crash.
As for the property developer in Wanaka warning people off there and showing a house he had to sell cheap, inplying he was getting out now, well i heard he sold that way back and yes he got less than he wanted but the market was still surging ahead so his true reason to sell is unknown.This is a fella that heads a company that’s made millions in subdivisions in the area.Could it be that land available to subdivide is a little to dear now and certain cashed up groups would love to see a market correction.
Yes there is going to be a leveling off and a slight correction, you don’t need to be Einstein to see that but it’s wrong when so called experts use scare tactics on two national tv channels to frighten people for their own benefit.

Hi all

Nice one Leigh, just for the record of the 11 properties i still own in oz the ones in adelaide, Horsham, stawell, st arnaud has risen , Morwell has stayed the same and i don’t know about Hamilton.

Queenstowner i agree with your comments (by the way i’m in Queenstown in a couple of weeks for school holidays) the whole thing with the 20/20 story and olley Newland’s book was that NZ follows Aussie and now the markets in aussie are stuffed and everyone has lost 20% on their properties and people are going broke, so nz will follow in a few months time. Funny i don’t hear that the Melbounre and Sydney markets are in freefall. Please someone back home (in oz) correct me if i’m wrong. The word i’m recieving is – yes most properties have dropped slightly in price and there are certainly less buyers but some properties are still going up. I know in Victoria in regional areas prices have been rising in a slowing market.

Bye for now
westan

Sell your IP’s at positive geared prices, guys :o) how much rent are they getting westan, Del? $100 a week? I’ll buy ’em up at 50k [biggrin]

Bill, some prices have fallen, I believe. But why panic? An investor buys at fallen prices, and sells when prices rise- there’s no genius in that, but it also means one should never panic. Buy well (cheap), and sell well (exxy). Really- how could anyone lose? Well, some people do… they buy exxy (top of the market panic buy) and sell cheap (bottom of the market panic sell). That’s pretty sad, but it’s just a misplaced view of the economics of RE.

Bill, I bought 3 places since august last year. One of them rose by 30% within 2 months (new bank val) and another, bought at Xmas rose 20% from a bank val done in may. The one I recently bought is, in my opinion, such good value, that I’ll just have to wait and see about CG for the future. But basically, with the purchase of those IP’s, I made the equivalent of my wages in a couple of months.

Even if the market crashes by 40%, are people going to panic and rush out and sell? Investors *won’t* because they’ll just see it as a part of the bigger cycle.

kay henry

Hey Leigh

I’ve spent a lot of time with Bill, and I will vouch for the fact that he is very positive…. generally. However, he is negative on real estate at the moment, and Wraps also as we well know. I’ve had words with him several times about how negative he is on the forums….. So much so that when his brother and I discuss buying real estate, we don’t invite him[biggrin]

On other ventures we’re looking at, he is absolutely great. To be honest, I don’t think he has time to look at real estate at the moment, and IMO is a bit sick of it having been a RE Agency owner for a couple of decades…..

Cheers
Mel