Forum Archive Index - May 2001

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

Roy
I agree with all your points, but remember you don't get something for
nothing. Your points suggest that the baby boomers may decide to rent rather
than own (which is logical), it still makes a great rental market for
property investors. The property investor will not buy a property and rent
it to a baby boomer if they don't get a reasonable return on their dollar
(supply and demand). 

As a property investor, you do have to work out whether you are buying for
capital gains or cash flow (or both). Most properties fall into one of the
categories. The average ¾ bedroom home is not very good at the cash flow
thing, but flats generally will be better. So when buying a ¾ bedroom home,
one will look to the rent to cover the expenses of ownership. This is
normally offset with a significant "tax break". This is one of the reasons
it is more expensive to own your own home, because you cannot claim the
expense against your income.

The only money I put into my rental properties is payment on the principle
amount of the loan, which directly increases my Net Worth. I would not buy
if I had to pay any other expenses. So that being the case, at 100% finance
I pay nothing, but reap the "small" capital gain each year (3-4%) on the
banks money. If I buy well, and buy in a "growth area" where people want to
live (like you Baby Boomers), then I can expect a better than average return
on capital (5-10%).

So the sums look like this: $200,000 3 bed home = $10,000 return at 5%
capital gain per annum. My return on investment is great considering I have
put down only the cost associated with the purchase (lawyer, valuation fees
~$1,500).

So, I hope more people choose to rent like yourself and your friends.

Regards
Malcolm (disc own property......well the bank does)




                -----Original Message-----
                From:   Roy [mailto:baldman@internet-auditor.com]
                Sent:   Friday, 18 May 2001 12:13
                To:     sharechat@sharechat.co.nz
                Subject:        Re: RE: [sharechat] Residential property
again

                Malcolm,

                Needless to say both you and Max have a point IMHO.
                Depends how you are looking at residential investment.

                Yes the 3/4 bedrooms will be excess to requirement for  US
BABY boomers.
                Yes lots of us  will be selling.
                However most of my compatriots are not buying smaller but
renting!
                Why do I (and they) rent?
                a) Its cheaper than owning (don't forget to take in the cost
of capital, 
                maintenance, rates & insurance) the later of course a
deductible.
                b) No worries about maintenance etc etc (my rent even covers
the Gardener!)
                c) If I want to go try living someplace else I have the
flexibility to move 
                in a very short time with no financial penalty. (ie no real
estate agents 
                fees etc etc)
                d) In a low inflation regime leverageing on a non income
producing property
                is a nonsense.(ie I pay more in interest on the mortgage
than rent on a 
                house & get bugger all capital appreciation
                e) House construction produces more houses each year than is
required (note 
                net population figures of adult ie house owning population)
                f) By the way most of us rent a 3 bedroom house for the
economics. 
                Office/Hobby room plus something for
guests/visitors/returning offspring etc.

                As you say an interesting discussion.

                PS By the way two friends who are well respected Financial
Advisors have 
                joined me in renting for many of the reasons above.





                Max Interesting theory,
                  however.....you say "the percentage of the population over
the age of 60 
                will double "....... from what 2% to 4%, 5% to 10%. This may
not be as 
                significant as you suggest. "the cash needs of an elderly
population often 
                make them 'motivated vendors'"..... I disagree. They haven't
been saving 
                all their lives to suddenly decide to sell in such a hurry
as they sell 
                under market value. "These cheap houses are also going to
negatively impact 
                the rental market as this is the market that will suddenly
be able to 
                purchase." So you say there will be a whole new group of
purchasers out 
                there...you can't have it both ways. Supply and demand will
keep the prices 
                up. A couple of other points to consider. People have to
live somewhere. 
                Whether we rent or own we all need roofs over our heads. The
market will 
                never change that fact. Housing will not disappear because
some chartist or 
                fundamentalist says "it's not a good buy". Immigration has
been given the 
                green light to increase by 60%. I read in the IT news that
10,000 new 
                immigrates will be granted residency because the IT sector
is 
                under-supplied with skilled resource. Back in 1987 the NZSE
40 was over 
                4000, it is now only half that. I wonder what the return is
on the average 
                3 bedroom home, if purchased back in 87. Food for thought
Regards
                Malcolm
                "I Trade therefore I am"
                Zen Trader philosophy

                Roy


        
----------------------------------------------------------------------------
                http://www.sharechat.co.nz/          New Zealand's home for
market investors
        
----------------------------------------------------------------------------
                To remove yourself from this list, please use the form at
                http://www.sharechat.co.nz/forum.shtml.


----------------------------------------------------------------------------
http://www.sharechat.co.nz/          New Zealand's home for market investors
----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/forum.shtml.