Well what can you say about 2011. Put aside the natural disasters and the global turmoil and I guess it is business as usual. But you can’t put any of those things aside as they have changed the landscape geographically and economically for us all.
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It has certainly been life changing for me personally with government changes ending my NZ business, finally found the ultimate cash flow solution and discovered I had a criminal business partner all in 12 short months!
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I hope that 2012 is going to be better than 2011. That is what I hope, but not what I think. More on that below.
Anyway if you are reading this then you are still breathing so let’s start by being thankful for that OK?
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PROPERTY UPDATE BY DEAN LETFUS
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In spite of what the media would say there is little change in our property markets. Certain suburbs are getting mad money but they are all areas that we would not be in as investors. The usual investor markets nationwide continue to lack value but offer reasonable yield.
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My overriding concern for NZ investors right now is the temptation to buy properties based on current interest rates. What I mean is that a lot of “C” grade stock looks quite attractive right now because of low interest rates. Now by all means use interest rates to your advantage but don’t go buying rural or slum areas because the numbers look good right now. There are 2 reasons for this:
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1. Inflation is coming, interest rates will increase. Now if you can lock rates in for long enough you will be insulated but otherwise that investment could become a noose.
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2. The second reason is that we are unlikely to see any boom or big recovery in the lower end of the market for a loooooooong time. This recession is driving people to cities looking for work and job security. We will see the trend of better areas increasing in value escalate I believe as home buyers and investors look to grab better quality at lower prices. This will bring more quality rental stock into the market and the lower end will sit there doing nothing, possibly for many years. This is already happening in some cities I am in. Properties that had 100% occupancy are now struggling to get the phone ringing because they can rent or buy in a white collar area for the same or less. Don’t underestimate the last 3 years of hell and the impact that is having on our renting/buying culture. Keep out of the crap end of the market for the next 5 years or so.
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The other shift that affects us is that the government bodies have simply run over any opposition and we now have precedent set in law making most trading illegal. In fact almost any activity we would consider normal involves looking over your shoulder. This is most sad but nobody is left trying to fight the machine now. Many of us have moved offshore where traders aren’t treated like criminals but in NZ, it is mostly lights out.
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USA UPDATE
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The USA continues to be a lifesaver for many looking for cashflow and low cost entry in to the investment market. We have our own
clients results to back up what we researched now and it truly is a retirement solution for many.
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In fact 12 months further on and it is without doubt the market to consider if you just want to retire young(er). We are forever learning more about this market and adjusting our strategies and info to handle the moving landscape that is the USA.
Overall though we are very happy with the portfolios we are building there for clients and just wish we had found this solution earlier. We are working in 3 main cities and 3 years in we now know the critical factors to consider before jumping in to this market. There is lots of money to be made and cashflow to be achieved in the US market but it is also very easy to get it very wrong.
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The biggest lesson we have learned is that you can’t believe what you are told, you (mostly) can’t trust anybody you are dealing with and as non Americans we will never understand how they think and how they do business. For some reason the real estate industry in the US is chocka full of incompetence, laziness and businesses with no concept of customer service.
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Unlike many companies we have persevered long enough to find some people we do trust and in that process have taken over most of the US based work that the suppliers should provide and taken the processes over ourselves to make sure our clients get looked after. Whilst we operate in Phoenix, Atlanta and Memphis we have found companies in Phoenix and Atlanta to suffer from greatly from the above mentioned issues.
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In Memphis we continue to work with Jim Reedy of Memphis Investment Properties. He has truly been amazing to work with and we have a long proven history of his performance with our clients now. I would have to say he is the only person I completely trust in this business and that is why we continue to promote Memphis as our city of choice. The fundamentals of their market are excellent but having a property supplier and property manager you can actually rely on is worth its weight in gold.
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To give you an idea of why we love Jim so much he has on several occasions topped up actual rents to estimated rents on a property that had been tenanted after clients closing. Similarly if issues have arisen with a property after closing Jim has fixed them even though it was impossible to know where the real fault lay. In one case he even bought a property back off a client and refunded their closing costs and put them into a better property after finding the property unreliable as a rental.
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Nobody, nobody does that sort of thing in the US. Jim does it for our clients whenever it is necessary. You can’t replace his 35 years of experience and a proven record of reliability and honesty easily. So we don’t intend to try!
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As the US market continues to be so volatile property management is everything and mitigating risk is also important. I have been discussing this issue with Jim for a year and one of the things I have observed with my clients and my own investing is that the multiple tenancy strategy minimises risk. I like duplexes in the US market as it is better to have 1/2 a property vacant than 100% income loss. Jim is now targeting high quality duplexes for my clients as they have good appreciation if they are good sizes and insulate you against the odd vacancy. He recently secured a small parcel from a local bank of exceptional duplexes all in the same immediate area. The numbers on them are very similar, here is an example.
Camelia Cove Street
The Property:
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And the numbers??
| Purchase Price |
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$73,900 |
| Closing costs |
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$1,500 |
| Total cash investment |
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$75,400 |
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| Monthly rent (income) |
$1,390 |
$16,680 |
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| Vacancy rate |
7.50% |
$1,251.00 |
| Management Fees |
8.00% |
$1,334.40 |
| Property tax rate |
3.00% |
$2,217.00 |
| Insurance |
$45 |
$540 |
| Maintenance |
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$1,000.00 |
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$6,342.40 |
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| Total Net Cashflow |
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$10,337.60 |
| Weekly Cashflow |
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$198.80 |
| Gross Yield on Investment |
22.12% |
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| Net Yield on Investment |
13.71% |
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In addition rent is guaranteed form closing date. Jim will pay the rent till it is tenanted. So if a genuine 13% net return with 60% financing is of interest to you or if you just want to know more about the US market I’d love to help.
(PS: As I was writing this I also got 2 more duplexes, one at 60K and one at 65K. They won’t last long so
EMAIL ME for pics and numbers. Plus there is the usual great selection of single family homes of course!)
(PPS: No time to detail it here but I now have Jims first lot of stock in Atlanta, substantial homes with good growth prospects and yields,
EMAIL me for more info :_)
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FINANCE AND MONEY MARKETS BY SCOTT MILLER
Welcome to 2012 as they say, but what does this mean for investors?
Finance:
The policy makers for New Zealand lenders continue to fine tune their products with an emphasis on improving current loan to value ratios and reducing fees, particularly LMI (Lenders Mortgage Insurance) fees. Since the beginning of 2011 we have seen a huge improvement in the minimum deposit required to purchase an owner occupied home. In fact in most cases the deposit required reduced for 20% to 5%. By the end of 2011 we saw deposit requirement for investment properties start to reduce. Unfortunately the reductions seen when purchasing an investment property were nowhere near as spectacular as buying a home for yourself.
What will we see in 2012?
There is not a lot of improvement left in the owner occupied market so I believe we will start to see policy around investment properties soften. In this regard I believe lenders will look to improve on their existing policies to capture the growing (albeit slowly) investor market.
Loan to value ratios has to be one of the big movers. As current policy stands (on a stand-alone purchase) it is miles behind its above mentioned counterpart. I have also found lenders are becoming less obsessed with requiring a hook on your family home to gain a respectably low LVR on a rental purchase. These won’t be the only changes in 2012, however I think they are the one most likely to be targeted by the lenders.
Interest Rates:
What can I say? Who would have believed interest rates would have stayed so low for so long in New Zealand. With the average 2 year rate in New Zealand being 8%, you can see we have had it good for a long time now. This looks set to continue with most chief economist forecasting a hold on the OCR (Official Cash Rate) for some months to come.
What’s the best strategy?
I am still of the opinion that a split mortgage is the way to go. Have a percentage of your mortgage on floating and the rest fixed. For large mortgages it may pay to split it 3 ways as this helps spread the risk of rolling over in a time of high interest rates. Please feel free to contact me by clicking here if you would like to discuss what’s best for your personal circumstances.
If you would like to do this yourself here are my thoughts– although the OCR is unlikely to change in the near-term, the longer term rates (2, 3, 4, 5 year rates) can go up or down without the OCR moving. With this in mind (and if you are currently on floating) always keep one eye on the longer term rates as it would be a shame to miss-out on some good pricing on a fixed term because all of your concentration was on floating rates.
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MINDSET SCIENCE
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“2011 will without a doubt go down as my worst year in many ways, although as I have said before our darkest days often bring the most growth. I don’t know if you have ever experienced being in a situation that is so bizarre, inexplicable and surreal that even though you know you are awake you think you must be dreaming?”
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I wrote that in my previous newsletter and it remains true today. Bad choices, dishonest partners and a never ending recession don’t make for a fun mix. I spent 3 years keeping things afloat waiting for some sort of recovery and actively pursuing other solutions to get “back on deck” as it were.
As I talked about at the recent NZPIF conference I have been waiting for the axes to fall but always look at the positives and lessons.
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I talked last month about the lessons I have learned so I won’t reiterate them again. The only new thing I learned in the last month would be that people, even many people you know and trust, often can’t be trusted. And most people don’t understand the meaning of friendship. I am thankful for the support of so many recently as a bunch of half truths and complete lies were floating around in the media about me.
But what was sad was the number of people who believed them. People I have known for many years who know me well.
People I have helped over and over and over again. It is a sad side of human nature that we will believe third hand lies over 5 years of personal experience.
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I dont get that or understand it at all. I have stood beside my friends in all weathers. Some who had even been attacking me I would love back. I believe this is what separates us from all other life forms. Our ability to choose to love, our capacity to discern, our commitment to relationships and friends.
So I don’t know what malaise affects some people so badly. I don’t mean journalists, they get paid to make up lies for a living, but normal people.
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The upside has been so many people who would never have otherwise contacted me doing so in support and for that I am most grateful. To know you have friends all round the world is a great feeling.
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And I have had an overwhelming volume of emails form people asking me to continue to share my journey with them as they are in similar situations. So I am not going anywhere, it is business as usual in terms of my blog and newsletters and my continued commitment to help anybody I can. The USA business is providing fabulous results for investors and I am able to spend more time doing what I love in Fiji serving those who can never repay you. Let’s hope this recession grinds itself out in the next 2 years and we can see some sort of “normal” return to life.
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As always Stay Inspired and Stay Safe, Dean and the Team.
Well what can you say about 2011. Put aside the natural disasters and the global turmoil and I guess it is business as usual. But you can’t put any of those things aside as they have changed the landscape geographically and economically for us all.
