Archive for the ‘Property Trading’ Category
My book - in all leading bookstores this week
My book writing journey
I am delighted that my book Invest and Prosper With Property has been released into bookstores. I started writing the manuscript for this book in January 2010 with the purpose of answering my friends and family members questions on how to invest in property successfully. I wanted to do a good job, so I decided to give a broad coverage of all property investment topics. After several hundred hours of work had been invested I decided I would like to have it published so I didn’t just sell a few hundred copies or have to give them away. I made the decision to seek out the services of a professional publisher. My friend Amy Hamilton-Chadwick was a professional editor and she edited the manuscript and gave me excellent feedback to make it more readable. Then it was time to brief out my manuscript to publishers and having been told by so many people about how hard it is to get a big name publisher behind you I was expecting it to go the way of most of my offers on properties – rejected. This was a most pleasant surprise to me and full credit to Jan Riley of Random House who introduced me to the publishing team.
I was most impressed with the professionalism of Random House from the outset, with their large Auckland presence, an enviable list of best-selling books, and their reputation as one of the very best non-fiction publishers (as well as fiction publishers) in New Zealand, and worldwide. So I choose them and Random House have been excellent in distributing my work through bookstores nationwide.
Topics covered in my book
There are number of topics covered in my book as it is designed to function as manual for those wanting to invest in property or for those who already invest in property and wish to keep their knowledge up.
Chapter Line-up
- Why should I invest?
- Why should I invest in property?
- What do I need to know to get started?
- Could I really become seriously rich?
- Should I buy commercial or residential property?
- What do I need to know to be a great investor?
- What kind of goals should I set for my success?
- What investment strategy is best for me?
- How to get a great deal
- How to find great properties
- How do I check out a property?
- How do I structure my property ownership?
- What do I do about paying tax or getting tax rebates?
- How can I find the money to invest in property?
- What is a revolving credit or offset account?
- Fixed vs Floating interest rates
- How can I save money on my mortgage?
- What type of loan is right for me?
- How to structure your loan
- What do I need to know about accounting and taxation?
- Depreciation: making it as simple as possible
- Renovate, redecorate and revalue
- What do I need to know about valuations?
- Keeping your investment safe
- Managing your property
- How to minimise the risks
- Don’t derail your own success
- How to prepare an offer
- Due diligence
- Education
- Useful websites
- Glossary
- Index
Sunday Star Times Book Review
Leading financial journalist Greg Ninness of the Sunday Star Times reviewed Invest and Prosper With Property in today’s business section:
OF ALL the useful advice contained in David Whitburn’s book Invest and Prosper With Property, one particular paragraph stands out. It is a section of the second chapter which asks if property investing will be hard work. ‘The short answer is yes’ the book says…
Whitburn now works as a property mentor and is the president of the Auckland Property Investors Association. The book draws on his experience, and of others he has seen succeed or fail, to provide a guide that should help investors avoid many common pitfalls and structure their activities in a way that will help them succeed.”
Where do I buy Invest and Prosper With Property?
Now this is available in all good bookstores nationwide with official release date being Friday 7 October 2011, but some bookstores have it already. This is also sold by a few international online bookstores including a couple of physical bookstores in Australia too. Very shortly the book will be for sale on www.investandprosper.co.nz.
I think it will be an excellent investment for anyone wanting to improve their knowledge on property investment at $37.99, so firmly recommend that you buy it. I also hope that you enjoy reading it as much as I enjoyed writing Invest and Prosper With Property.
David Whitburn – 2 October 2011
Some clients have emailed or texted me with positive feedback on my interview with Alastair Wilkinson for the 6pm TV3 News today on the Home Energy Rating Scheme as proposed by the NZ Green Building Council. This scheme seeks to rate houses out of 10, and it is hoped Vendors will get a rating to advertise their listing to prospective purchasers who can make an informed decision.
It is a voluntary scheme which had a big launch today. I don’t think this scheme will get massive traction as most houses will get a fail rating of 4 or below. This is because most houses are not new and built to the latest performance standards with ideal sun orientation, double glazing, and the highest ratings of underfloor, wall or ceiling insulation. So only the very newest homes with a big budget to spend to get the highest 9 or 10 ratings are likely to use this voluntary scheme.
I am worried that this may make a move towards compulsion of this Scheme a reality. The Green party would like this to happen. I don’t see the point of creating this industry. What is the harm in asking for an invoice to prove the level of insulation installed and the date of this. On some hosues you just know they will be cold in winter. For example they are clad with concrete block or tilt slab concrete walls, they face south or west, or have no underfloor or ceiling insulation. You can easily inspect underfloor insulation on most older houses as you can peak under the house. Remember to take a torch along to each property inspection you do as part of your due-diligence. There is nothing stopping you taking a ladder and peering into the manhole space at the ceiling insulation – otherwise you can get someone to do this for you. I have a couple of builders on tap that I pay a box of beer to do such inspections for me.
I will watch whether the home energy rating scheme takes off – I doubt it will for at least 5 years.
On Tuesday the 12th of April, international super investor Kevin Green lands in New Zealand. He is delivering a very special event in Auckland with leading education company NZ Wealth Mentor with two full days packed with practical strategies and tools delivered by a master of property investment, on Saturday 16th – Sunday 17th April 2011. Kevin is scheduled to be on TV One’s Close Up on Wednesday 13th April at 7:00pm talking live with Mark Sainsbury about this successes and thoughts on how you can improve your life as he did. Learn how Kevin went from being an unsuccessful dairy farmer to becoming one of the largest private landlords in the United Kingdom with almost 400 properties to his name worth around NZ$80 million in just over 12 years.
KEVIN GREEN: The BBC Secret Millionaire Star with nearly NZ$80 million portfolio
Here is Kevin Green on the BBC Secret Millionaire programme:
Kevin was star of the hit BBC series The Secret Millionaire. He is the largest Social Housing landlord in the UK and he runs one of the most successful lease options businesses in the world. His lease options strategy to success is definitely worth the ticket investment. His other specialty is asset stripping and he will explain how he made his first $250,000 using this strategy, and much more more so you can profit from this method too.
Kevin Green’s Property Profit Strategies event is all about giving you an easy to follow action plan to improve your cashflow. This event is sold out apart from the Auckland Property Investors’ Association special ticket allotment. However there is a wait list for tickets as we had a number of booking from Christchurch prior to the devastating February 22nd earthquake, and if anyone can’t make it NZ Wealth Mentor is issuing full refunds if you are unwilling or unable to attend, which could free up a ticket for you. In addition there is a small chance APIA members will not take up their allotment, so please don’t call me about this, just simply go to the booking page and click the put me on the waitlist button immediately. 
So whilst the sold out signs are up, there may be a few tickets given to those on the wait list, so please don’t give up as we are doing our best to accommodate everyone. Leave you name, email address and phone number and we will contact you if a ticket becomes available.
Kevin Green at APIA
Finally Kevin Green is talking to the Auckland Property Investors’ Association on Tuesday 12th April. What can you learn in just 55 minutes? Quite a lot. This will give you a taste of what Kevin Green and NZ Wealth Mentor are about. We have sponsored this meeting and have 50 tickets that we negotiated with APIA as a special allotment for the Kevin Green event. So come to APIA to hear from the investor with the largest residential property investment portfolio that we have ever had present to our members since APIA’s inception in 1995.
On a stunning summer’s day yesterday at the well appointed Exhibition Hall in Waipuna Conference Centre, overlooking the Panmure lagoon, I was the keynote presenter at Property Masterclass run by NZ Wealth Mentor.
David Leon - Property Masterclass Master of Ceremonies on 27 November 2010
I covered a lot of topics as the keynote presenter, and those attending particularly enjoyed my take on the market, drawing attention to where we are at in this current stage of the property cycle and my predictions for the future in terms of the various Auckland sub-markets. I gave a thorough analysis of all of the key market drivers, showing and interpreting graphs from the economics and research of the major trading banks, Reserve Bank of New Zealand, Statistics New Zealand, Quotable Value and the Real Estate Institute.
In another segment on stage I talked about how we as investors are running a property business and the fact that we have to wear a number of hats. One of the leading property educators in the United Kingdom Gill Fielding talked about the importance of being skilled in a number of different disciplines wear you have a number of buckets to control or hats to wear. I love this analogy so I talked about the various hats we have to wear as property investors in terms of the CEO hat – managing everything in our business; CFO hat checking our bank statements, keeping accounts, monitoring the financial performance of our portfolio, paying taxes, Renovations/Maintenance hat – looking at how we maintain our very valuable assets and renovating to increase our cashflow and equity; Legal hat – when doing due diligence on properties, looking at legislation changes and ownership structures; and Property Management hat on – where you have to manage your tenants or your property manager, to ensure you minimise vacancies, charge market rent and collect your rent and take the appropriate action when tenants are not behaving, I also covered ownership structures, including the key changes in light of LAQCs losing their potency in that they lose the ability to offset losses against personally earned income. The new tax structure the Look Through Company (“LTC”) was introduced too, with Chartered Accountant and my colleague from Deloitte Tax many years ago Amanda Macdonald (Tasman Tax and Accounting Services based in Albany) also presented on this topic being the tax and accounting expert she is.
Finally I gave covered my opinions on US tax deeds and liens that have been promoted in New Zealand heavily over the past couple of years, and I covered the good, the bad and the ugly things about lease options, giving an example of the massive win-win situation created in my last lease option deal that resulted in my tenant buyers settling the property and giving me a giant hug as they achieved their dream of being home owners in New Zealand, as well as the sheer joy of meeting their goal. I also enjoyed presenting on the strategies I am using in today’s market and covered my revamped and intense mentoring programme where I take my mentoring clients out to do deals with me. I have some new clients from this event and am looking forward to training them shortly.
Other speakers
Senior Resource Management lawyer Andrew Braggins talked about the spatial plan for Auckland the Supercity, which highlit the growth areas in the Auckland region, major infrastructure and planning thoughts from the head planner and CEO at Auckland Council, who are in Andrew’s network. This presentation was enjoyed by attendees who were impressed with Andrew’s knowledge and communication skills, as he enlightened them about the hot spots in Auckland.
Andrew also briefly covered how to dispute council fees, levies and contributions both under the Building Act (including seeking a determination from the Department of Building & Housing) and also the Resource Management Act (including a judical review application he recently did on a property he rents out).
Jan Galloway then gave a masterclass in property management, including listing out the issues in relation to the Residential Tenancies Amendment Act with the fines for unlawful acts by Landlords and Tenants all covered – luckily these were included in the comprehensive bound manual we gave our event attendees.
Renovations expert Mark Trafford told attendees about a number of ways not to do renovations in a photo driven presentation.
Gary Hey, a director and shareholder of large mortgage broking firm, Mortgage People, then address the property cycle from a finance perspective. He talked about how lenders’ criteria are changing and it is much easier to get finance for property now (compared to say 6 months, 1 and 2 years ago).
On Saturday the 27th of November 2010 I will be the keynote presenter at NZ Property Masterclass – a full day seminar at Waipuna Hotel & Conference Centre in Mt Wellington, Auckland (near Sylvia Park on the edge of the Panmure Basin), with standard tickets at just $29, and gold tickets at $98.
Improve your financial knowledge, get updated on the current market and learn what strategies I am using for wealth creation for the remainder of this year and in 2011.
My topics covered
Come hear me present live at NZ Property Masterclass event, where I will be talking about:
- Loss Attributing Qualifying Companies (“LAQCs”) being abolished and introducing the new tax structure, the Look Through Company (“LTC”)
- a Market Update with my opinions on where the market is heading for 2011 backed up by graphs and facts
- the untold truth about US Tax Deeds and Liens to follow up from my popular blog in March
- the good, the bad and the ugly with Lease Options, and a number of lease option promoters
- how you can create wealth in 2011, using the strategies I am successfully using on NZ properties in the current market.
Also included in the low $29 ticket price is access to 5 other fantastic speakers.
Your other speakers
Speaker #2: ANDREW BRAGGINS LL.B, BSc - Buddle Findlay
1. Local government, environment & resource management, litigation and dispute resolution expert
2. Andrew advises a range of clients, including developers, network utility operators, local authorities and financiers
3. Andrew has an in-depth insight into how local authorities work, having spent 3 years as a local government in-house council, and acting for many councils
4. Member of the Resource Management Law Association & Water NZ
5. Barrister & Solicitor of the High Court of New Zealand
Learn all you need to know about how to deal with councils, the structure of the new Supercity and the Supercity’s impact on you as a property investor.
Speaker #3: JAN GALLOWAY BA Cert. Crim (Criminology) - Corinthian Management
1. Principal Corinthian Property Management
2. Over 25 years as a property manager
3. Multi-millionaire property investor
4. Managed a leading central auckland property management division
5. Auckland Property Investors Association Board Secretary
6. Multiple award winner (property management related)
Jan knows all you ever needed to know about tenancies and the issues that arise from them.
Speaker #4: MARK TRAFFORD - Owner of Renovate to Profit
1. Principal of Renovate to Profit and Maintain to Profit
2. Renovating properties for over 20 years!
3. Accomplished Property Investor
4. Regular Contributor to Property Investor Magazine
5. Sought after speaker
Mark is an excellent property investors knows everything there is to know about renovating properties having done many dozens of properties. He is an excellent project manager with unparalleled networks of quality tradespeople. Join us and learn more about creating wealth through smart renovations!
Speaker #5: GARY HEY BCom - Mortgage People
1. Owner and Director of Mortgage People, a leading Auckland based mortgage broking firm
2. Bachelor of Commerce, member of the NZ Mortgage Brokers’ Association
3. Commercial, Industrial and Residential developments advisor as well as residential investment properties financing expert
4. Sought after speaker having a background in education
The banks and other major lenders criteria are changing and it is easier to get finance for property now. Gary loves finding funding for your deals. Bring on your best questions forward and he and his team will be there to assist you.
Overview of key topics covered during the day
1. The current market cycle – using current & historic data to identify our current position & determine where, when & how to purchase your next property deal
2. LAQCs & LTCs & what it means to your investment portfolio
3. Practical strategies to increase your rent easily in the current market
4. Hot strategies for 2011 – the strategies NZ Wealth Mentor’s principals and mentoring are using to make money from NZ property today, and how you can meet your financial goals in 2011
5. Understanding the new paradigm for obtaining finance – How to get banks to lend you $$
6. Where are the best strategies to use in 2011?
7. The untold truth about US Tax Liens & Lease Options – what you must know before you ever think of investing on them.
We will discuss all the current hot topics so that you can leave the event well informed and ready to invest successfully.
2 Ticket Options
There are standard tickets priced at just $29 which don’t include lunch or any extra. The Gold Tickets however are priced at $98 and these include a delicious buffet lunch in a private room with David Whitburn and many of your presenters. You also get a portfolio review and wealth plan by NZ Wealth Mentor’s head of property mentoring and Auckland Property Investors’ Association President, David Whitburn, to help you set and reach your financial dreams.
So are you going for GOLD???
In NZ Wealth Mentor we want to make sure you get all your financial goals. If you book online before November 20th we will also include our “Financial Mastery Success Plan” in the ticket price. Financial Mastery Success Plan is designed to look at your financial situation today to build a brighter future. It retails at $175 and you will get it for free as a part of this time constrained offer (3 days to go). Make sure you don’t miss out and book your gold seat (select from the menu) for NZ Property Masterclass today.
Saturday 29 May 2010
8:30am start to 6pm finish (registrations from 8am)
Parnell Jubilee Hall, 545 Parnell Road, Parnell, Auckland
The 2010 Annual Budget has just been presented and it implements the largest tax reforms New Zealand has seen in 25 years. To arm you with the knowledge and tools to succeed in light of the Budget and in today’s market, the not-for-profit Auckland Property Investors’ Association (APIA) have a 1 day seminar BUDGET BUSTER 2010 – Strategies for Today’s Market with tickets at just $49.
The speakers include multiple best-selling Author and NZ Property Investors’ Federation Vice President Andrew King, who provides a State of the Property Investment Nation address, then sets the theme for both newer investors and more experienced investors with substantial portfolios. APIA’s Treasurer & Chartered Accountant Ann Loudon has the all important topic of tax changes to go through, particularly in light of the depreciation changes and the taxation treatment of LAQCs to have to become aligned to Limited Liability Partnerships. APIA’s Honorary Solicitor & Property Lawyer Tony Steindle then talks about structures, including the legal aspects of the Limited Liability Partnership, and APIA Vice President, Property Mentor & Trust Lawyer David Whitburn talks about what to buy in today’s market, how to buy it and how to analyse just what is a good deal or not. APIA President & former NZ Mortgage Broker of the Year Sue Tierney then talks about finance in light of the turbulent global financial crisis we are in, particularly with the highly indebted European Union countries and the relevance of this to New Zealand. ANZ Mobile Mortgage Manager Vanessa Murch then covers off financing in New Zealand, including why fixed interest rates are so high in comparison to floating loan rates and just how we get our loans approved. In case this wasn’t enough content, we provide further value to you in relation to tenancy management with APIA Board Manager and Principal of leading boutique Property Management Firm Corinthian Limited Jan Galloway, presenting on how you should manage your property to get the best tenants and lowest vacancy rates. This is combined with a presentation by Tenancy Practice Lawyer Scotney Williams, giving his expert advice on the Residential Tenancies Act including recent times and also proposals to reform parts of it.
So don’t delay, BOOK YOUR TICKET for Saturday 29th May at the Parnell Jubilee Hall by emailing admin@apia.org.nz now.
It’s been a great last couple of days. Had a great dinner and leaving party for a friend I have known all my life (since our parents are great friends). The All Blacks won convincingly vs France 61-10 (although superstar Ali Williams’ jaw may not agree quite so much). And Rafael Nadal one of the greatest ever tennis players on clay beat world #1 Roger Federer in the French Open Final ==> what a game.
We are closing in on a mega trade deal at the moment. You will know my belief that in todays market to thrive that you need to create the deal. So we are seeking to solve another person’s problems.
DIY Superstar wannabes
The problem the vendors have is that they wanted to improve their home, but didn’t want to follow the rules, or know the rules. You need a building consent under the Building Act 2004 whenever you do structural work to a house.
They have put in some extra windows, stairs, ranchslider and a kids playhouse high up off the ground with no handrails. Sadly for them their jealous neighbour dobbed them into the council and the council investigated and found the work required a permit and they have therefore done illegal building work. They then got a letter from the council giving them 6 weeks to remedy this (ie restore it to what it was permitted to be). They did not oblige and even told the inspectors that they have improved it so much any council would be foolish to prosecute, or they will call Fair Go. Well they did this and Fair Go was not interested funnily enough. Unfortunately for them they have been issued a notice to fix giving them 4 week to remedy this or else – be forced to (by a court order). Don’t comply, then the house may be shutdown.
So since they spent their money on an illegal thing (unpermitted reno) they have run out of money to restore it. So these DIY wannabes have failed and because they did not know the rules they are sacrificing many tens of thousands of equity to us (the highest offerers on their property). It needs to be sold before it becomes a big problem, we will simply spend the $7-8k to get it fixed, then build a minor dwelling there too.
So the house goes to auction. We like auctions for non-standard properties as the fact it is different scares most people. There is far less competition and seldom a decent bid. Also on Saturday you will recall in Auckland that we had some tremendous downpours in the afternoon, and the cold southerly didn’t help bring the punters along to the open home.
So we were the only bidders and true to form were below the vendors. So our agents are in the final stages of crunching a mega deal at the moment.
Most prospective buyers don’t like things with a twist. It is “too hard”, “too cold”, “too wet”, or “too scary” or insert any other excuse why not to buy a property to make you $100K in 9 months.
The morals of the story are:
1) Don’t brag too much to your neighbours
2) Knowledge is power – if doing structural or any building work, speak to a qualified builder or architect
3) Go to auctions when it is a miserable day or the property is not a standard one
There are some great deals out there if you persist and know what you are looking for.
Post-Script:
Auckland based property developer/investor/trader/mentor Sean Wood got fined $30,000 in June 2008 for unconsented building works. Sean Wood’s company City Link Properties was granted a building consent based on plans to extend an existing house. The company submitted a plan to build an upstairs bedroom with ensuite and a four car garage. Instead five rooms were built upstairs and part of the garage was turned into a living area – leaving room for only two cars. Manukau City Council Compliance and Enforcement Manager Kevin Jackson says he is pleased with the sentencing as the building work was over and above what was originally submitted:
People can’t put in one set of plans to the council then do something completely different and hope to get away with it. I am disappointed that this was an experienced property developer who knew the rules but chose to break them.”
Source: Manukau City Council website and New Zealand Herald
Sean Wood’s court fine will not doubt get more attention from frequently negative and ostensibly insecure people like Peter Aranyi that have a desire to criticise other education providers repeatedly, in an flawed attempt to set themselves apart. Therefore it appears a bit strange that Sean didn’t strive to comply as he had a lot of time and chances for this not to go to court.
It has been a great weekend. More typically perfect Auckland weather. Some fantastic exercise yesterday with my East Coast Bays Soccer Team (even though we lost). Time to look at an excellent property investment strategy for those who don’t like solely running marathons (ie. very long-term buy & hold property investment).
What is the Wealth Wheel?
I am wanting to shed light on the Wealth Wheel as I have been emailed about it and posted in previous blogs about it. Basically in today’s market to continue investing you need to adapt to having the correct investment strategies for the market. We have already discussed that you owe it to your to keep investing as if you don’t you will fall into old traps of making excuses as to why not invest in property or even worse at all. Most people do nothing as that is easy, but in return they get nothing.
So buying and adding value to property is key. Selling this value realises equity that I know you all want to have. Basically you trade equity for cashflow. The Wealth Wheel does this through property trading and/or development where we create equity by smart development and construction. We take a property with land on it and create value. The Wealth Wheel is where you buy/build and sell a certain number of properties and from the profits reinvest these into a property that you buy and hold. So you mix sprinting (trading) with marathon running (buy & hold very long-term investment).
Particularly with interest rates rising it is no secret that it is harder to get bank loans at the moment. So the traditional buy/hold strategy is not working for many people. As a result by trading 3 or so properties and putting the profits from the trades into a buy/hold, you are investing and building your portfolio in a sustainable way. This way you get a conservatively geared property with positive cashflow per tax as you have reduced the debt (loans) on it significantly.
Example
One quiet achieving client has been busy in the past 18 months. A husband and wife team, they have purchased and developed 4 properties with us in this time. All 4 properties have had minor dwellings built on them in the Auckland region by Fuzo. Whilst I need to learn how to post graphics eg Excel spreadsheet please bare with me as I try to type it without losing you in the numbers (and bad formatting). The strategy is great even if the formatting doesn’t come out right!!
Deal 1 – MD traded
Purchase price $275,500
Project expensives on MD $149,212
Sale Price (less commissions) $485,000
Net profit $60,288
Tax to pay (as per client supplied figures) ($17,584)
After tax profit $42,704
Deal 2 – MD traded
Purchase price $332,000
Project expensives on MD $158,375
Sale Price (less commissions) $555,000
Net profit $64,625
Tax to pay (as per client supplied figures) ($18,660)
After tax profit $45,965
Deal 3 – traded
Purchase price $317,500
Project expenses on MD (close est.) $152,000
Sale Price (less commissions) $510,000
Net profit $40,500
Tax to pay (as per client supplied estimate) ($11,694)
After tax profit $28,806
Deal 4 – MD Keep as buy/hold long term investment
Purchase price $345,000
Project expensives on MD $150,000
Registered Valuation $540,000
Net profit on this deal only $45,000
The three trades netted $117,475 in after tax profits. Not bad when both were still working! This shows the value of time and expertise leverage. The profits were then all put into reducing the loan on the buy/hold property(deal 4).
This had the desired effect of reducing the Interest costs and making the investment pre tax cashflow positive was Massive equity in it:
The resulting buy/hold property
Equity: $261,475
Cashflow: $10,777 per annum (pre tax positive cashflow using 9.0% interest rate)
Ie. just over $200 cashflow per week per tax positive cashflow – WOW!
Who wants to get pre tax positive cashflow now? My hands are both up! Surely we all do though. Positive cashflow is what we eventually retire on. If you think KiwiSaver is going to save you – think back to what previous governments have done to these compulsory savings regimes. You need to look after yourself and not merely be yet another person struggling to enjoy their hopefully lengthy retirement years.
The Wealth Wheel has generated Massive equity and cashflow for our investors. A property with a done up house on it, and a brand new minor dwelling. Low maintenance, great depreciation expense with the too getting loading on the new building (minor dwelling) and as with all minor dwelling projects the land is already owned so you can depreciate everything.
Conclusion
It really isn’t that hard. I think sometimes people make investing out to be a lot harder than it really is. Outsource everything you are not entirely comfortable with to experts. Tap into the knowledge of specialists and look for ways you can keep progressing. Stop looking at reasons why not to invest – change your methods and open your mind. This is the time to trade to invest.
As Robin Williams playing John Keating in the 1989 hit movie Dead Poets Society said “carpe diem, sieze the day.” Perhaps we too need to be ripping up the textbooks of buy/hold property investing as the boys in Keating class did to Dr. J. Evans Pritchard, Ph. D book on Understanding Poetry. We live in an ever changing world where the only constant is change. My question to you is – when will you make the changes you need to financially thrive?
It is no secret that a number of factors are making the property investment environment different to a couple of years ago, particularly:
- higher purchase prices
- higher interest rates
- higher council fees, contributions, rates and levies
- higher building compliance costs
However does that mean we do nothing? Or do we take notice of the situation and adapt to the market and change our approach to one that will succeed today.
In the immortal words of Billy Ocean: “When the going gets tough, the tough get going”.
It’s time to evolve
If you do nothing, since basic laws of nature apply, the result is that you get what you put in, ie. nothing out.
Therefore we need to realise that the buy/hold strategies of yesterday by themselves are not going to get us ahead in this market with challenging times ahead, and little pressure for rental growth over the next few years. We want to keep investing, as it is great to have assets working when we aren’t, however to compliment this buy-hold long-term strategy we need to trade properties and focus on equity to acheive our goals.
Equity is king
Whilst the importance of cashflow cannot be underestimated, as it pays for your R+M and the Interest expense to let you keep your property, equity is king. Equity allows you to pay down bad debts like hire purchase payments, personal loans, those naughty credit card purchases etc. By having equity in deals you can choose to trade them, and pay down profits into existing buy/holds to give you cashflow, or revalue and buy another.
Speaking to other successful investors that operate all around the country positive cashflow is all but gone on. Therefore it is time for us now to create the deal. Whether we get it from the market, by buying below value, renovating to add value, or developing to create equity – there are an abundance of properties that you can make many tens of thousands of dollars out of every day.
Perhaps you need to consider the Wealth Wheel where you buy/build/sell 3 properties and from the profits purchase a property with very low loan on it. The low loan means less interest expense for you and a positive cashflow property with bug equity in it. I have clients are doing very well with this strategy, but I emphasize that this is just one strategy available.
The last couple of weeks have been a real adrenalin rush. Fuzo’s finders have bought and sold a couple of fantastic minor dwellingable (new word we created) properties, we are doing many due diligence reviews on propertiesfor Fuzo clients to subdivide, and of course lots of great work for the Auckland Property Investors Association (“APIA”). I am a passionate member and on the Board of APIA, currently holding the position of Secretary. APIA provides a massive lobbying force, group to network with, access to local area and special property interest groups, the NZ Property Investor Magazine, discounts and of course monthly meetings with great topics and speakers. I think every property investor in Auckland would receive fantastic benefits from joining APIA. I have been working with Garth Melville (our Treasurer) on APIA’s submission of the Reform of the Associated Persons Rules (ie the tainting rules). Combining President Andrew King’s input with property investor statistics we compiled a fantastic submission. Other bloggers here have talked about this issue, so I will not thrash it – instead I will update you with what changes are made if any as soon as I know about it.
Initial reactions to new housing rules
We are seeing a number of Interesting things lately – eg. proposals to have double glazing of windows of all homes, stricter rules on insulation and a myriad of smaller things all designed to maximise heat prevention (which is great) but sadly this will raise the cost of new houses. And when people and the media complain of higher house prices, this will just take house prices that much further. In certain areas of New Zealand (eg parts of Southland) to build the cheapest possible permitted home you will have the situation of the house costing well over $1,000 per square metre to build, when the neighbouring older houses could be worth $500 per square metre. Building new houses will be that much tougher for many home owners, and indeed investors alike.
My advice – call an architect or development specialist before embarking on ANY structural building project, then get estimates of costs from them and reliable builders to know what your project costs is going to be. Too many people are thinking that their building will be just like the last one they did 4 years ago.
Newsflash: the rules have changed. The Building Act 2004 has come in, the Building Code is far far stricter and more expensive to comply with. Materials and labour costs have risen too, council fees are Massively up in some cases quadruple what they were 4 years ago! In addition some council now have new revenue streams (eg. development contributions) that they justify under the Local Government Act. So acknowledging that it is development and some variations are going to occur – make sure that you have a pretty firm idea on the numbers, to ensure that you can finance the project, then don’t delay, just do it.
As to what strategies I believe that you need to adopt for success today – this will come in tomorrow’s blog.