Archive for July, 2007
Some investors I am talking to are starting to panic, yet many others are rubbing their hands in glee, like me.
RBNZ puts OCR to 8.25%
The Interest rates are rising again – big deal. Come on you can’t tell me that you didn’t expect this to happen. Many economists are now wondering whether they are going to rise one more time or if the Official Cash Rate will stay at 8.25%. In my opinion whether the OCR stays the same for a while (eg 18 months) or goes up a little, perhaps another 25 basis points to 8.5% it really doesn’t matter.
Don’t just shut up shop and get consumed by the fear of greater Interest rates. I have said this before and will say it again, but when the going gets tough the tough get going.
Opportunities
That said if investors and property owners continue to feel the pinch, believe the media and anti property sentiment (eg adverts by asset rich fund managers and other lending institutions) then there will be bountiful deals ripe for the picking. I would advise having enough funds and resource on hand to take advantage of great deals that are liekly to have big chunks of equity and/or significant cashflow in them. deals that extremely seldomly came up over the past couple of years.
I really don’t care if the Interest rates go up much. I adopt a weighted Interest rate averaging strategy and trade properties to pay down my principal, to reduce my Interest expense. In addition I use revolving credit accounts wisely, as a buffer. It works really well for me.
Already the number of Mortgagee sales is going up and many over stretched investors and home owners are feeling the pinch with their fixed Interest rates coming up for review and being around 2% higher. Whilst it is obviously very sad that some people are faced with foreclosure, that is not the person offering to purchase their properties fault. You are helping them out – you may just save them tens of thousands of dollars from a real fire sale, and their credit rating being destroyed.
This represents opportunities for smart analytical investors – if you are not too highly leveraged, then be ready to take them.
Another good week, and fantastic weekend shaping up. I negotiated a super deal for a client 2 houses on the one title, supervised a do up for a client, and arranged a multitude of things for Fuzo’s contruction arm.
We have been doing a lot of research into what will make investors the most money at the moment, and think development is shining out as the leading strategy in today’s environment with such high interest rates and a likely market correction at some time shortly, which takes gloss of the long-term investment (buy & hold) strategy. Deals must be analysed on a case by case basis as to whether subdivision or minor dwellings are the best form of development for you.
The highlight of the week was undoubtedly the time I spent in New Plymouth as a guest of the Taranaki Property Investors’ Association (“TPIA”). I had not been to New Plymouth for 10 or 11 years so I really enjoyed the visit. The serenity of Mt Taranaki and the beautiful iron sand beaches, rolling hills and lush forests were showcased. It is a great place to live.
I was hosted by wonderful and generous clients Nicola and Greg Loft, and I really enjoyed staying at their beautiful farm. I was able to see some of their properties and was very impressed by their renovation systems and portfolio. Keep up the great work – I am sure you will.
TPIA
At TPIA I spoke on property development (of course) and the importance of diversification in an investors portfolio. I was impressed with the professionally run meeting TPIA held and impressed that over two-thirds of their membership attended on the night. TPIA has a good executive and are undergoing a metamorphosis and have a quality line up of speakers and events this year that the larger associations would be envious of.
Mixed Strategies
On the night I talked about how I got started into property investment, driving my granny to her rentals as when she lost her licence, I got mine. I stated the example of her property bought in 1955, a farm in Kohimarama purchased for just under $1,000 pounds, now worth nearly 2 million dollars.
I stated that the buy and hold strategy is fantastic – look at the example above. However to compliment the buy and hold strategy which builds your asset base – trading (eg from development to create equity) is a fantastic strategy.
Diversification
I touched upon the importance of diversification particularly for older investors. I mentionned that investing in the area you live in is great, however why not consider some diversification in the types of assets you old (eg flats, houses, land, commmercial) and in areas too. Why would you not invest in the top capital growth area in New Zealand over time, that is Auckland. I stated that younger investors are more likely to be able to have less diversification in their investment portfolio, yet older people (eg my 89 year old granny) are best not to have all their assets in one basket. So she has her eggs in over 50 baskets professionally managed – shares, managed funds, mutual funds, REITs, bonds, commercial paper, TDs, cash, forestry, mining, government stock etc.
I guess to be a bit deep in relation to your investing, I leave you with this thought: Wherever you go, you are there.
(ie. you choose your destination)
The last couple of weeks have been a busy time. I’ve been overseeing some of the renovation of my home and also on a rental of ours after tenants left, continuing to project manage infill developments for Fuzo clients and playing an integral part in the professionalism of the Auckland Property Investors’ Association Incorporated (APIA).
Renovating
Great fun from the teamwork, getting the family to help out. At one stage we had 11 people on the project, so that was fantastic. The most interesting thing I learned was when we stripped 3 layers of wallpaper in the living room and dining room, we found that the walls were not straight. So I got a straight-edge and found in fact they were out by 10mm in a couple of places. Not good at all. So a “few” hours wasted in the wallpaper stripping, as we want the house to look great so no more gib in those rooms.
Lesson learned is to get a straight edge. On older houses I would recommend replacing the gib particularly is wallpaper is on it, as gib itself is inexpensive and it is far cheaper (assuming you have no ‘free’ labour) to stop the join in the gib, rather than apply a full skim coat of plaster ready for paint (or wallpaper) finish.
Tenants left a house of ours last week too. Unfortunately the house is tiring now, so time for little plastering, a lot of painting and a modernised bathroom and toilet to maximise our rent.
Developing
My wife and I are having a great year and a lot of fun with renovating and development. In fact, so much so that we are on the look out now for another subdivisable central Auckland property to buy, renovate and sell the existing house, and build a FUZO subdivision new home on the backyard to again create Massive equity.
I enjoyed spending time with a couple of magnificient property investors in Nicola and Greg Loft last week. We toured their Auckland properties, monitored progress of a renovation of theirs, and went on a road trip and had a fantastic seafood lunch at Swashbucklers. Yummy. Some fantastic food and company.
APIA
APIA is in the process of professionalising itself at the moment. About 20 months ago we employed a CEO. This has helped as we have been a volunteer organisation, largely championed by the legendary Andrew King – a tireless worker and influential lobbier and networker in property investment circles. Sadly after 7 years of being the Chairman and President of APIA, Andrew is resigning. I have a really enjoyed working with Andrew and am sad to see him leave the role, but I know that he will still be a passionate APIA supporter. So we will be electing a new President in the next couple of months.
In the meantime I have been elected by the APIA Board as their interim Chairman. I am really enjoying the corporate governance side of this role. My Dad has been enjoying being a company director (mostly) over the past couple of decades so luckily I like this too, and can count on him for support when tough issues need to be discussed.
This year the APIA Board has had a couple of issues of conflict that I cannot go into for professional reasons. They are getting resolved though. This makes for big changes in APIA, but by having job descriptions, and performance expectations and monitoring we will achieve fantastic results for our members. Gone will be the days of being a passenger with APIA, whether on the Board, or in any role. This will be very exciting for all APIA members to see. I know it will acheive alignment of the Board and all staff to the APIA Constitutional objectives, and from there the platform should be laid to grow our membership and have a greater array of services to members.
Author and speaker Martin Hawes is presenting at APIA tonight. We look forward to him sharing his thoughts on planning for the retirement years, a variety of asset classes and property investment strategies to succeed with. Hope to see as many of you there as possible tonight – guest tickets $40, if you become a member your $40 is refunded. Go to www.apia.org.nz for details on how to join and the benefits you receive from being an APIA member. Love to see you there.
PS: With some dubious weather lately what an amazing wimbledon final Federer vs Nadal – so close, by the Fed-express did it again at Wimbledon for 5 in a row there. Next year Rafa!