Forum Archive Index - May 2001

["Breadmore, Malcolm" <BreadmoM@anz.com>]

Andrew
 
I agree that the great returns of yester-year are no longer with us, but
investing in property is still a very favourable investment vehicle.
 
To answer your question, high gearing is still the way to go. Money from the
banks is very cheap at present and of course banks fall over themselves to
lead you money up to 70-80% of your security on investment property @ 7%.
 
Consider you have borrowed $1,000,000 from the bank to buy $1,000,000 of
investment property (using your home as collateral) and that investment
property only just returns a positive cash flow, covering all expenses.
 
Then that property goes up in value 2% over the inflation rate of 3-4 %.
(average is 10% since 400 AD, but lets be realistic today)
 
You make a capital gain of 5-6% on $1,000,000 = $50 - $60,000.
 
Now, how much did you pay for this investment.......nothing, you borrowed
the lot, not bad eh!
 
The important thing to remember to make this work is:
1. As with share trading, you need to buy the right properties. Not any old
one will do. Location, location, location
2. You must minimise your tax position, with a real knowledge of the system
(or have a good accountant). 
3. You must have a freehold home (or nearly)
4. A good chattel valuer. This maximises the tax return.
 
Yes there is risk, but some might say that "it's as safe as houses".
 
Malcolm
disc own rentals
 
 
 
 
 
 
 
 
 

-----Original Message-----
From: Andrew Dengel [mailto:adengel@clear.net.nz]
Sent: Monday, 7 May 2001 5:42
To: sharechat@sharechat.co.nz
Subject: Re: [sharechat] Residential Property


What to do? Show her the figures,or get someone she percieves to be
"important" (like your accountant) to show her the figures! NZ'ers have this
mind set about owning their own home, a generation or so ago that was great
as high inflation took care of the capital gain and the mortgage also, with
corresponding high wage increases. Not now - and not likely again for some
time.
Yields in most areas are low in private homes at present and it is a good
time to buy. But you should only buy if the feeling of tenure and putting
down roots is what you really crave and desire, if your long term goal is
welath creation invest elsewhere and rent. Property investment is still ok
if you can afford to buy multiple properties with low gearing, which most of
us can't. Please someone proove me wrong here?!
As for Martin Hawes, he has lost a lot of my respect, after years of
slagging off insurance schemes as being expensive etc etc and buying a home
is the ultimate he now pops up on TV advertising for - guess what?? - an
insurance company?? hmm go figure?!
 
Andrew

----- Original Message ----- 
From: Michael Gore <mailto:michgore@paradise.net.nz>  
To: sharechat@sharechat.co.nz <mailto:sharechat@sharechat.co.nz>  
Sent: Monday, May 07, 2001 10:59 AM
Subject: [sharechat] Residential Property


This is off topic so apologies in advance, but I'm sure someone in this
forum has knowledge of investing in residential property and I could use
some help. I've recently been reading "8 Secrets of Investment Success" by
Martin Hawes, a book of interest to market investors although not solely
about sharemarket investing. In this book, Mr. Hawes talks about valuing a
residential property investment. His equation goes like this: Take the
income from the property AFTER expenses (rates, insurance etc.), divide by
the yield in percent you expect the property to return, multiply by one
hundred and you have the property's value. For example, if the rental is
$20,000 and you expect a 9.5% yield, then 20,000 divided by 9.5 equals 2105
times 100 equals property's value of $210,500. This equation is preceded in
the book by a discussion about yields for property investment in which Mr.
Hawes states that yields fluctuate a little but over time are pretty
constant. He said yields might be as low as 8% for commercial property in
Auckland but that the market might require a higher yield, say 11%, if the
property were located in a place like Cricklewood (I think a fictional small
town he made up for the purpose of an example). OK so far so good, all
simple enough to understand, problem is my fiancée and I have been looking
at homes lately and I have noticed that the houses we have looked at in
Wellington, admittedly not very many yet, have come out at around 6-6.5%
yield when I do the equation on the asking price. For example looked at a
place in a Wellington suburb on the weekend asking price $150,000 recently
renting $220 per week according to the agent, currently unoccupied. Frankly
we were pushing it to believe it was renting at that much but even if it
was, yearly rental would be $11,440 minus say $1,500 for rates, insurance,
etc. (would be more than that surely) divide by yield of 9% times 100 equals
a generous valuation of approx. $110,000. So I wonder what's going on. Is it
that yields are unusually low at present? Have we only looked at overpriced
homes so far? Are they asking too much and we should put in a really cheeky
offer? Is Mr. Hawes talking only about professional investors and are they a
different animal from homebuyers, picking up only occasional real bargains?
Questions, questions! Well once again sorry as this is off topic but if
anyone can share some info with me, I would really appreciate it. Regards
Michael

P.S. read your comments about property Hugh. Interesting and scary and made
sense I must agree but when the wife-to-be has her heart set on owning her
own home, well what to do?


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