Archive for September, 2007
Yes it is about time that I build a bridge. Not in a personal or relationship sense, but in a construction sense. We have a property that to date no-one has dared to develop because it has been “too hard”.
That phrase I hear all too often about how hard it is to drive around Auckland, buy a home, buy an investment, build a house, save money, give up smoking, {insert next random thing}.
Well as you all know great rewards are gained by those that persevere, don’t give up and say it is just too hard. So I am putting in the hard yards on a project that I have under due diligence in West Auckland. It is a 3 lot residential freehold subdivision and their is a creek running through it. This creek has freaked out a number of investors and now the property has been getting stale on the market for 3 months as those that saw it thought it was too hard.
All it needs is a bridge over it to unlock the equity of two dormant sections – sleeping financial giants. So I have learned today a lot about bridges and how cheap section + cheap section = big money.
Note that this is not the creek or bridge I am building. In the absence of my digital camera yesterday this is a nice place filler
Whether or not the agents have in this case done the best job they could have for their vendor client is another issue and not my primary concern, however we are the best offer that they have in front of them on paper at the moment. The thing is we are basically getting the land for the two sections for free, with our only special cost being to build a bridge over a less than one metre wide and 50cm deep creek with around a 8 metre span to avoid a 1 in 100 year flood plain.
The site is glorious in its simplicity. It has only been made “too hard” by people lacking vision and a solution. Remember that Section + Solution = profit and go out with a new string to your bow – be armed and dangerous.
Enjoy your weekends.
It’s been a very good weekend for me. As well as helping my folks at one of their rentals, my beloved rugby team Auckland beat Otago in the Air NZ Cup, did lots of filing (yup paperwork suffered in our house move early last month) and some financial planning and goal setting.
On Friday night after the rugby game, I starting compiling the information for today’s goal setting meeting. I looked at my share portfolios in NZ (hey there are some good NZ shares too for growth and cashflow), Australia and the US. Then to another 4 websites to get my managed funds, REITs and mutual funds.
Then the easy part to establish the equity in my trusts’ properties today, and the cashflows from them. And great news I have hit the million dollars in equity now , before I am 30 too. I am very happy about this, but am even more excited about the future as I increase my financial and Business knowledge to build my skills.
My goals
I want to have $500,000 in passive cashflow per year inside 10 years. To get this cashflow I will do this from residential property, commercial property, small business ownership (owning not operating), NZ and international direct share ownership as well as some managed and mutual funds. Yup pretty big thinking. About the same as getting a million dollars before I hit 30 when I was 25.
Other goals include starting my own family with my wife, spending more time with my wife, grandmother and parents, mastering large scale property development and teaching other people to be millionaire through Business, property and financial investment products, as I really thrive when teaching other people to succeed too.
“Unlike money, you can only spend time once – before it is forever gone.” David Whitburn
How am I going to do it
Thousands of small calculated steps as usual. By taking lots of small steps even though to some it may not look like I am doing much, it is glaringly obvious to me that I am, as I see the improvements in my life towards achieving my plan. I ask myself, who am I living life for – myself or other people?
What do you want?
The great news was I have hit one million in equity, a goal of mine I set aged 25 to hit before I was 30 years old. I thought I could do it at that time, but having less than $100,000 equity at the time and just a $65K per annum job as a solicitor, I knew it would be an uphill battle. And I knew that it would not come from savings as paying 39% tax on every dollar I earned, and at that time having cravings for gadgets and technology and travel, I knew that savings from my job wasn’t going to cut the mustard. So ask yourself what you want, and how you are going to achieve it. Phil Jones’ blog on financial planning is actual quite powerful with its 25 questions it seeks answers for:
- What wealth vehicles are you going to use to generate wealth?
- Real Estate
- Business
- Share Market
- Are you going to use one of those strategies or multiple?
- How will you allocate your time between the wealth strategies?
- Will you use leverage through loans?
- Will the loans be Interest Only, Principle & Interest, Table, or cashflow Mortgages?
- Will you try to eliminate debt before investing?
- How long will you focus on debt reduction?
- What are your wealth goals, are they specifically defined time and dollar value goals?
- Is the long term strategy to be debt free or have a large portfolio that has lower debt to value ratios?
- Are you planning to live off cashflow? If so how much do you need and whats the plan to get there?
- How are you planning for tax?
- Are you using all possible strategies to reduce your tax?
- What is your asset plan, do you need to adjust it?
- Are you working together with your partner or in parallel to them?
- Do you have separate bank accounts or joint ones?
- Do you have a prenup? If not what happens if separation happens?
- Do you have a will? Have you updated it recently? Does it reflect your current wishes? Will it guide your children correctly and limit their ability to blow the inheritance when they are young?
- Do you have life insurance? Who and where does it pay?
- Do you have medical insurance?
- Do you need income protection insurance or rental protection insurance?
- How are you planning to assist your children?
- What is the strategy for a crisis?
- Are you going to invest in NZ and overseas, in your town and around the country?
- What makes a good investment, how will you recognise one?
- If you invest in shares are they growth stocks or dividend ones? Whats your entry strategy, what’s your exit strategy?
Do yourself a favour and answer the questions to analyse what your financial framework is – and make your plan from it.
How did I get started?
A lot of people that know me have asked why I invest in shares and managed funds. To answer this question I need to take you back in time to when I was at University. But back at Auckland University in 1997 I reflected on what I had done the year before. In 1996 I had studied my butt off doing both Law intermediate and Med intermediate. I worked hard enough and guess I had enough intellectual firepower to get the grades that year to do either. I choose to stay in Auckland, where I had $50/week accommodation, thanks to Mum and Dad, I was 2 bus stages away from Uni, had more friends in Auckland, Auckland is internationally regarded as the country’s best University, and I had a $10/hour job at Deloitte (Big 4 accounting firm). Like most students I had a lot of time up my sleeves, even though I did a Law Degree and Batchelor of Science degree at the same time. Yes, I am geek, but I am proud of it.
I got into the social scene and political scene at Uni, making lots of friends and literally many hundreds of acquaintances. Wine Tasting Club, Tramping Club, Tennis Club, Indoor Soccer Uni Team, Chemistry Student Representative, Auckland University Law Students Society, Founder of the Croquet Club, Young National Party, etc. And you know what – they were all poor students. In fact it became the metaphor – everyone just thought that since they were students they were poor and that is ok. Well here’s the thing, I thought this was a load of rubbish. I got sick of people saying “I am poor because I am a student.”
So I thought about ways I got be a ‘wealthy student’. A lot of people don’t know but students actually get a whole heap of benefits from leverage. We could get student loans from the government easily with no income testing or research into the likely chance of payback into the loan (eg. why oh why do hip hop dance and twilight golf courses qualify for student loans – I will save that for another blog). Banks were offering students Interest-free loans of $500 to $3,000. So I had 5 bank accounts with Interest free overdrafts at one stage.
Event management company
With another well networked friend (who is now a legendary commercial construction project manager in the UK) we set up an Event Management Company and having run friends parties, big 21st birthdays and student parties we ventured into the commercial market getting clients like Housing New Zealand, the Navy, Deloitte and doing joint ventures with Auckland University Alumni, Law Students Society and then ventured into spec events. We got 91ZM on board with a $25,000 sponsorship pack in of radio advertising and puchase of tickets from us. We had the great people at Lion Nathan sold into our proposals that we would knock out in a couple of hours over a beer appealing the the Emerging Drinkers market – a term we coined and milked. Yes we had thousands of dollars in free beer for including Lion’s name on the ads that we didn’t have to pay for. In fact it got better as the Akld Uni Students Asscn (AUSA) paid for our printing and ads in their infamous but widely circulated free magazine Craccum. Those were the glory days and I made tens of thousands of dollars whilst studying at Uni. It really wasn’t that hard.
Some people still thought I was a wanker because I had money, but I can assure that all of those events went off. The only damage done was to the museum having to open an hour and a half late after an absolutely amazing Law School Students Ball. We had an ancient greek theme, and all you can eat and drink for $55. It sold out within 2 hours at the fire capacity of 450 people. Lion Nathan made the day with Champagne on arrival and a wide variety of beer and wine on tap. The Spit Roast Catering Company was magic with the all important stomach lining. Unfortunately a few dozen plates broke and the floor was covered by an inch of alcohol by 2am. Despite a Massive clean up – the museum couldn’t open in time. We got letters from the Museum and their lawyers. Not what a 21 year old wants to see.
| “Obstacles are those frightening things that become visible when we take our eyes off our goals.” Henry Ford |
Whilst most people would be freaked out, and luckily having great access to the legal system and parents friends including QCs, judges and top law firm partners – this, like most litigation didn’t phase me much. I keep going until I left Uni. However with the change to full time work I took my eye of the ball and goal, and got hyped into the personal development as a wage slave. I joined a share Club (non-pooled) at Deloitte and put tens of thousands into direct share investments and a couple of managed funds. I did this for nearly 3 years full time until I saw the light and started my foray into property in late 2002.
At that time my US Shares were decimated. They including Nokia, Coca Cola and alas some bio tech companies bought in 1999. I got greedy and suckered into the end of the a Massive bust in the US sharemarket, and got slammed by the double whammy of the NZ dollar going from 39US cents to $1 NZD to 72US cents : $1 NZD. Lesson learned.
So I didn’t pull that money out. I saved $7,000NZD and got a kiwibank home loan for $135,000 (and $1,500 low equity fee capitalised into the loan) to fund the puchase price of a Manurewa property. I did the renovations in the weekend and evenings during the week when I could escape from my big office at Russell McVeagh in the Vero Building. I figured out the capital gains I got were going up 8 times faster than my salary, and for one 6th the time during the renovation. By working hard as an employee lawyer I was actually costing myself money! Stupid eh! So I bought a second property, quit my job never to return and made similarly great money!
The rest is history. I guess that what I do now is living history for me and my wife, and I am really enjoying life. I know my next million will come a lot quicker than the 29 years it has taken to get this first million, and I will have fun along the way making it.
News today is Bridget has done an amazing job on our garden over the past couple of days. Box hedging, brustics fencing done and cabbage trees and a variety of other small shrubs planted. I was stoked I didn’t get home too much later as the sun was setting, so I could see the impact. What a Massive day she and her Mum had. It is great having them transform the outside, after Bridget and I got our team to transform the inside of our house.
Otherwise my toy arrived in time for the rugby world cup. I am a massive rugby fan, so I figure why not watch it in style. For I bought a new 55in LCD TVand it rocks! I have balanced this as Bridget doesn’t like rugby much, so been busy buying lots and lots of DVDs lately too. Visual pleasure.
News just to hand is that NZ has demolished Kenya in the ICC 20/20 International Cricket Tournament – the shortest game of 20/20 international cricket ever, with Kenya being rolled for jsut 73 including 6 ducks and 4 wickets for 7 runs for Mark Gillespie – magic.
Work tomorrow sees a Massive push to finish three jobs, and due diligence on an exciting development in beautiful Taranaki and on a couple of sections in central Auckland.
APIA Keynote Monthly Meeting Last Night
What a special night we had at APIA. Dr Don Brash addressed us and provided some highly advanced macroeconomic analysis and warned us about some house price reductions in certain cases (watch out apartment investors), the effect of New Zealanders being net spenders and not net savers, and John Banks told us some stories about his propertyand Business investments and talked about ineptitude in the Akld City Council. I had the opportunity to briefly talk to them both – so I took it. They are fascinating men and indeed great friends. They also share positions on the Board of Huljich Wealth Management (www.huljich.co.nz).
I loved the story of the Queen Street footpath upgrade from John Banks. It has gone well over time and over $20 million of the initial budget. They did both sides of the footpath at the same time which has hurt Queen Street retailers badly. And now the water mains under these hugely expensive footpaths are leaking! The lefties that run Auckland City Council do not treat ratepayer/council money as their own and this shows with numerous other projects. Who here knows if Auckland City ratpayers are meant to pick up the tab for the Eden Park upgarde for the Rugby World Cup IRB requirements?
John Banks will be getting my vote and I highly recommend all eligible voters in these local government elections vote, and vote Banks to open the books, cut stupid spending and give the central government a hard time.
The Minister of Excessive Regulation, Clayton Cosgrove, is proposing a number of changes to the current Building Code. “A new Code will shape our future buildings and how they perform, ranging from how energy efficient they are through to how they stand up to natural hazards,” says the Minister.
Fresh of the heels of a new Building Act and amendments to raise the standards for timber treatment, weather tightness details and a raft of other things that make building new houses and renovating them more expensive, they want more!
CO² emissions and energy efficiency will suddenly become important. So get ready to add more to your budgets for new renovation / building projects. Double glazed windows, more expensive building wraps and insulation is looking likely.
What’s happening
The Department of Building and Housing has released a discussion document proposing changes to the Building Code (see www.dbh.govt.nz) that will impact property investors. These include changes to make houses more energy efficient, minimising CO² emissions from houses and introducing new performance standards for houses. Unfortunately this will further increase the cost of constructing new homes, adding thousands to new building prices.
From a technical perspective, the current New Zealand Building Code is the First Schedule to the Building Regulations 1992. It comprises 35 clauses containing technical requirements and two clauses of general provisions.
The Building Act 2004 sets out the law on building work. Building work means work for the construction, alteration, demolition or removal of a building. All building work – both the design and construction of new buildings and the upgrading of existing buildings – must comply with the Building Code. ‘Buildings’ include housing, community facilities, commercial and industrial structures, outbuildings and structures such as bridges, platforms and dams.
The current Building Code sets out performance standards that buildings must meet, for example, it specifies how strong an earthquake a building must be able to withstand, or how much natural light there should be in a bedroom. It covers aspects of buildings such as fire safety, access, moisture control, durability, services and facilities. The Building Code is performance-based and has been since 1992.
My thoughts
Similarly to what I told NZ property Magazine, some of the changes such as temperature settings on hot water cylinders to prevent scalding and earthquake proofing, are common sense. However whilst it may be “nice” to have buildings a little bit warmer and producing less of a carbon footprint – I can’t help but see Massive problems and further unwanted cost increases.
There will be extra costs for architects and engineers to draft for the energy performance and technical changes to make building tougher, as well as for council to police these – ie. more council fees, again! In addition there will be more costs to construct these.
These extra costs will stop some investors, developers, and/or builders from going ahead with their projects, and will dilute returns. Therefore these costs will be passed onto tenants in many cases through increased rents to hit desired return levels, and having projects not go ahead will broadly speaking mean less supply, same demand – so UPWard price pressure.
Try building a new house in a remote town like Mataura of 85sqm. That building will likely cost you minimum of $110K in the cheapest nastiest compliant cladding excluding council and development professional fees. Yet existing 85sqm houses on similar sized sections you can already buy for less than $110K including the land! This is hardly going to encourage new buildings to cater for the population influx NZ is expecting. In addition house relocations are going to be significantly tougher and more expensive if this code is approved and enacted.
Not what the Government is aiming for in terms of addressing the “Affordability Crisis”, and making life easier for the first home buyer. But that is the cost of buying votes from the Green Party to secure a majority Government. I really don’t like MMP.
SUBMIT NOW – time to have your say
I am submitting for FUZO (www.fuzo.co.nz), myself and leading a strong panel from the Auckland property Investors’ association. I have contacted the Minister’s office and got much information from them, in addition to that on their www.dbh.govt.nz website.
I recommend that you go to http://www.dbh.govt.nz/bcr-2007-consultation and read at least the summaries for yourself. Then decide on how these will impact you and submit for yourself on these points that Interest you.
Do nothing and the Government can then say their were not many submissions against this, so we are totally justified in costing you another 3-5% more for every house you build, and much more than that every renovation you do. Enough is enough – and if this isn’t the last straw for you after the introduction of development contributions by local government, the introduction of the Building Act 2004, changes to compliance documents of the building code, councils making more inspections and much tougher, charging for wastewater, now they are looking at CO² emissions and energy performance when many houses have been standing prior to World War II.
So – use the links to DBH and make your voice heard.
Pavarotti’s memories will live on
After 40 years of Lucianno Pavarotti performing opera and 71 years of life Lucianno Pavarotti passed away today. The sheer power the might tenor brought to Nessun Dorma (from Puccini’s Turandot) in the Soccer World Cup 1990 in Italy was enough to get me Interested in Opera. I started learning the guitar the following year and actually asked my parents to join them at Opera and Musicals after that. Whilst I love and prefer pop music, the magic of a night at the Opera canot be underestimated. The history of previous performers and mesmering voice with full orchestral accompaniment is so powerful. (Here’s Nessun Dorma live and made to be played loud – note go to http://www.youtube.com/watch?v=VATmgtmR5o4 if my 20 minutes of tinkering do not come to fruition and this doesn’t play smoothly first time)
Pavarotti also performed with U2 to sing Miss Sarajevo in 1995 that stormed the pop charts. He was a strong supporter of charities and a true superstar of Opera and indeed the music industry. RIP Lucianno.
Finance Companies going under
Yes many finance companies have gone under recently. Listening to some Newstalk ZB talkback on my drive arounds (I do a lot of driving checking properties under contract, meeting clients on site, development professionals and contractors etc) I am concerned that many people think finance companies collapsing mean the market is collapsing too.
That is not the case. The property market is not collapsing, and some commentators views that the market will fall by over 25% in the next year are sensationalist and over the top to say the least. Sure the boom times simply cannot continue as they are now too far ahead of the underlying fundamentals, but a NZ collapse is most unlikely to happen. Yes, some investors and home owners have over extended their borrowing and do not have sufficient non rental income sources to cover their Mortgage payment, or face having to sell their properties.
It is no secret that some property owners are finding things tough at the moment. I know an investor that had fixed 4 years ago $1 million of borrowing at 6.5% that is going to be refixed at 9.2%. Yes they need to get another $27,000 per year to cover this increase that hits them next month.
Questions I have been asked by investors include – what happens to the money I have borrowed from my finance company which is in receivership? Generally no issues here, your loan continues as is. The receivers may try to revive their struggling companies, however they are likely to sell their “book” (your loan is an asset to them) to a number of well heeled parties that may sniff a bargin. It may get taken over by another lender.
Will other finance companies fall? Yes they will. However the Securities commission has now stepped in and is seeking statements of finance companies health. Some that have not provided such statements to date and that their are rumours about, are on thin ice and summer is fast approaching.
What happens to my money I invested with Bridgecorp/LDC/PFS/Nathans finance etc? You may get it all back, but after receiver’s fees are paid (they are protected by law to be paid first, then secured creditors etc), you are likely to get back just a portion of what you invested, aka the Metropolis junk bonds from 2002. My advice is look for reputable providers that you can trust or invest in property via a listed managed fund (eg Macquarie Goodman property Trust, Kiwi income property Trust etc).
So don’t worry too much about these finance companies collapsing. The property market is not soaring up like it has in previous years – so lesser prepared people will be suffering more pain at the moment. Also NZ will not have the lending issues in the sub prime market such as what happened in the USA recently. The reason is the no financials self declared income products did not have the overly “keen” levels the lenders provided in the US – I am advised that one provider gave 100% finance with non financials and self declared income! In NZ no financials and self declared income products were at much lower levels (typically 60-80%).