Archive for July, 2012
Passing of a legend
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I have always said there are only 2 books that every person on the planet needs to read. The forst is the Bible and the second is Dr Coveys 7 habits. I have read anything I have ever found of his and his ability to communicate sound principles in a n understandable and implementable way is second to none. In fact my favourite book of his is an old one I found in a second hand store called “Putting firsth things first” (or something very close to that).
So it was very sad to hear of his death last week, particularly as it was due to a bicycle accident not just wearing out. Dr Covey was 80 so had a reasonable innings I guess but I am sure he had more to say.
A reminder that none of us can be certain of when our number is up.
He certainly lived his own motto: live, love, laugh, leave a legacy.
If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean
PS: The next Cashflow Tour is happening in October, check it out HERE
Ignorance is all too common
Posted by: | CommentsI couldn’t stop laughing this morning reading the Herald article HERE about investing in the USA. It wasn’t the article per se that was funny but the incredibly ill informed comments by David. It is so common in NZ for people to just bag something they know nothing about and his comments certainly prove that.
And of course what the Herald doesn’t say is that because he runs a mentoring programme in New Zealand he needs people to invest there, not overseas or he can’t make any money out of them 
.
So just for the sake of some facts let’s respond to his comments and give you the truth instead!
1. ”I have heard horror stories of tenant issues with bad attitudes prevalent in the highest yielding areas in the US with very high unemployment, where paying rent is seen as voluntary,”
This shows a complete ignorance of the US market. There are no highest yielding areas in the USA. There are good and bad areas and streets, just like New Zealand. The only cities I can think of that he might mean are Detroit and Las Vegas and you would have to be insane to be investing in either of those cities anyway right now so they are no indicator of US investment.
This makes as much sense as saying we should leave New Zealand because we read about 2 murders this year so the place must be so dangerous.
2. “There are poor property management practices in the US – they are not as good as Kiwi property managers in general.
This is my favourite. It is patent nonsense. Given the nature of American society the average property management company in America is light years ahead of New Zealand. A lot of them are bent so finding honest property managers is critical but the average property management company we deal with has well over a thousand managements and run their companies like an army. If PM’s were as bad in the US as they are in New Zealand there would be squatters in every nook and cranny all over America. ( NOTE: Us computer systems are a bit backward but this is nothing to do with their management practices)
3. “What happens in the US is that if your tenant falls through the steps and injures themselves then you could face a whopping great lawsuit.”
Well this is at least close to being almost true. In theory you could get sued as a landlord in the USA but only if you are set up incorrectly and have the wrong sort of insurance. Providing you are structured correctly in the USA and have your property managers on your insurance policy then your risk of this is as good as zero. My main property manager has been in business for 35 years and has had exactly ZERO court cases by tenants.
4. “Then there is an exchange rate risk that could heavily erode returns.”
The NZ dollar is at unprecedented levels against the worlds reserve currency. There is a 99.999999% “risk” of the kiwi and OZ dollars falling against the greenback creating a non taxable currency GAIN. Nothing else to say
So there you go, the Herald once again proving any comment is as good as actual information.
If you’d like some actual facts about the US market please watch one of my recent webinars HERE or email me and let’s talk one on one about the pro’s and cons.
Or even better join us and find out for yourself on our next Cashflow Tour
If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean
PS: The next Cashflow Tour is happening in October, check it out HERE
Is anything safe as houses?
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I guess we are learning from the last 4 years that the only certainty in investing is uncertainty. In New Zealand and OZ we are a pretty resilient bunch and I am surprised, almost alarmed at the positive sentiment being expressed by many investors I talk to currently. I say alarmed only because I know how much trouble I got into through a rapid unpredictable movement in the market and lending changes and I see many people potentially setting themselves up for a similar horror story right now.
I guess I don’t see an end to the worlds woes yet and so we have to assume that our own economy will remain at risk.
And if it is at risk then we must be conservative with our investing regardless of how gung ho we might feel.
You see the great depression created an entire generation of different people. More fiscally responsible, more averse to debt, more careful generally speaking. Yet the current situation, which is just as bad, seems to be teaching most of us nothing much at all. And that is scary don’t you think?
My investing rules and strategies are forever changed after the last 4 years. Prior to the GFC my simplified paraphrased rules were:
Buy 20% below value and only gear to 80% of that purchase price
Use banks to create leverage to increase your wealth
Buy cash flow where you can but high capital growth property was the real key to success.
Use trading to create deposits to buy more houses
Stick to areas you know.
And there’s nothing inherently bad about those rules. I made a great deal of money out of them in a short space of time.
But the current crisis has taught me that you either need to recycle your risk in short time frames by being in and out of markets so you don’t remain exposed OR have different rules that keep you safer.
So now my main rules would be:
1. Cashflow is King, every deal, even if it a trade must be significantly cash positive PRETAX.
2. Buy mimimum 50% below replacement build cost.
3. Only use non recourse lending or vendor finance. If any other security than the asset is required then don’t take the deal.
4. Get debt free as fast as you possibly can.
5. Go where the deals are geographically. Get educated but don’t ignore a market because it is unknown or far away. This limits my ability to achieve financial freedom
Now I’m not saying my new rules are “right” or “better”. My sole point is I have changed a lot. And yet I see so many investors starting to act like things are back to normal.
This frankly scares me for their sake. Business as usual combined with some incredibly bad “luck” in a couple of areas pretty much wiped me out once. That will never happen again because I have changed.
So what about you my friends, have you disaster proofed your investing rules yet?
Do it, do it now!!
If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean
PS: The next Cashflow Tour is happening in October, check it out HERE
Because it’s the law!
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Thanks Paul for a timely reminder of the world we live in
1. Law of Mechanical Repair -After your hands become coated with grease, your nose will begin to itch and you’ll have to pee.
2. Law of Gravity - Any tool, nut, bolt, screw, when dropped, will roll to the least accessible corner.
3. Law of Probability - The probability of being watched is directly proportional to the stupidity of your act.
4. Law of Random Numbers - If you dial a wrong number, you never get a busy signal and someone always answers.
6. Variation Law - If you change lines (or traffic lanes), the one you were in will always move faster than the one you are in now (works every time).
7. Law of the Bath - When the body is fully immersed in water, the telephone rings.
8. Law of Close Encounters - The probability of meeting someone you know increases dramatically when you are with someone you don’t want to be seen with.
9. Law of the Result - When you try to prove to someone that a machine won’t work, it will.
10. Law of Biomechanics - The severity of the itch is inversely proportional to the reach.
11.. Law of the Theater & Stadium - At any event, the people whose seats are furthest from the aisle, always arrive last. They are the ones who will leave their seats several times to go for food, beer, or the toilet and who leave early before the end of the performance or the game is over. The folks in the aisle seats come early, never move once, have long gangly legs or big bellies and stay to the bitter end of the performance. The aisle people also are very surly folk.
12. The Coffee Law - As soon as you sit down to a cup of hot coffee, your boss will ask you to do something which will last until the coffee is cold.
13. Murphy’s Law of Lockers - If there are only 2 people in a locker room, they will have adjacent lockers.
14. Law of Physical Surfaces - The chances of an open-faced jam sandwich landing face down on a floor, are directly correlated to the newness and cost of the carpet or rug.
15.Law of Logical Argument - Anything is possible if you don’t know what you are talking about.
16. Brown’s Law of Physical Appearance - If the clothes fit, they’re ugly.
17. Oliver’s Law of Public Speaking - A closed mouth gathers no feet.
18. Wilson’s Law of Commercial Marketing Strategy- As soon as you find a product that you really like, they will stop making it.
19. Doctors’ Law - If you don’t feel well, make an appointment to go to the doctor, by the time you get there you’ll feel better.. But don’t make an appointment, and you’ll stay sick.
If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean
PS: The next Cashflow Tour is happening in October, check it out HERE
Someone needs to care
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I often find myself asking why am I in Fiji. It is such a hard place to live and the challenges never end. I know I can make a difference but it is good to be reminded of ones “why” every now and again. So this week in the TImes it was reported that one in 5 babies born in Fiji die. I can’t find any independent stats, in fact the official mortality rate is only 13 deaths per 1000 live births.
However I suspect this is a case of reality and reporting.
Given the poverty and disease here and my own observations there are a truck load more than 1.3% death rate. 20% sounds extraordinarily high but is more believable. And that reminds me why I am here trying ot make a difference.
Kids dying, people being mutilated because of diabetes, families devastated daily be early deaths etc. Someone has to care, and I do!.
So when you find something hard, remind yourself why you are doing it. And if you don’t have decent “why” then why ARE you doing it at all??
If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean
PS: The next Cashflow Tour is happening in October, check it out HERE
Killing with kindness
Posted by: | CommentsThe thing that breaks my heart almost daily here in Fiji is the unnecessary suffering and death caused by a lack of basic hygiene and medical knowledge.
I have a very close friend who I think is dying due to diabetes related issues. However it is so manageable and treatable if only they would take it seriously. He is currently in a wellness centre where they restrict your diet ruthlessly to give your kidneys and liver a chance to breathe and get your blood sugar down.
So yesterday his daughters snuck in a whole lot of fruit because he was hungry, not realising that this is like placing a loaded gun in his hand.
Fijians are such “foodies” that they do not understand the relationship to food and health at all. My friends wife already passed away at around 40 and both their daughters have major health problems already thanks largely to their diet.
To call this tragic is an understatement but I guess we all have blind spots don’t we. My friends consequences are major because of the particular nature of his “ignorance” but I equally have things I shouldn’t do that I do and things I don’t do due to lack of knowledge.
A sobering thought for us all I guess: “What am I doing that could be killing me?”
I am going to try and manage my friend back to some sort of health if his kidneys are not too far gone but I know keeping him away from sugar is going to be almost impossible .
Dean
New NZ Sale and Purchase Agreement
Posted by: | CommentsWe are now entering the 9th edition and there are plenty of changes again! Rather than reinvent the wheel here are the details directly from Andrew Dorrington specialist lawyers.
FOR ALL TRANSACTIONS:
Building report condition
A standard building report condition is introduced. Purchasers will select whether to include this building report condition. If selected, the purchaser must consider whether the report is satisfactory (being objective). They will have 10 working days. The report must be prepared in good faith by a suitably qualified building inspector in accordance with accepted principles and methods. If the purchaser avoids the agreement (because they are not satisfied with the report) then the vendor can insist they are given a copy. Purchasers may wish to consider writing their own condition, giving them more flexibility.
Vendor warranties
The vendor now warrants that the chattels are delivered to the purchaser in reasonable working order, where applicable, but in all other respects in their state of repair as at the date of the agreement, fair wear and tear accepted. This amendment is problematic. Vendors might want to delete the new wording. Otherwise arguments at settlement around chattels will be common place.
The warranty the vendor gives concerning building work they have done at the property has been slightly narrowed. The warranty that the works were completed in compliance with permits and consents has been narrowed “to the vendor’s knowledge”.
Where compliance schedules are required and the property being sold is part of a building the warranties are also narrowed to those matters within the vendor’s knowledge. However, for unit title property this represents the introduction of a new vendor warranty, that to the vendor’s knowledge there has been full compliance with the requirements of the compliance schedule, there is a current building warrant of fitness and the vendor is not aware of a reason which would prevent a building warrant of fitness from being issued.
Settlement/possession date
There is now just one date, the settlement date. Previously there was a separate possession and settlement date but this is hardly used anymore.
Nominees
Recognition is given to the fact that purchasers commonly use nominees. The description of the purchaser now includes the words “and/or nominee” by default. If a vendor does not want there to be a nomination then these words should be deleted. If there is a nomination the named purchaser remains responsible for the purchaser’s obligations under the agreement.
Insurance/damage
The insurance/damage provisions have been amended, largely driven by Christchurch experiences. Where there is partial damage and the property is not untenantable the purchaser can deduct the cost of reinstatement or repair from the amount they tender on settlement. This will be relevant to damage caused between the contract being signed and the settlement date. We expect a little more discussion around this on settlement, but at least in Auckland this will mostly be about damage caused by the vendor, not new earthquake damage. If there is a dispute about the amount then an interim amount (determined by an experienced property lawyer if not agreed) is deducted on settlement and held in trust until determined or agreed, like other claims for compensation under the contract.
Interest for late settlement
Where an interest rate for late settlement is not selected, the default rate will be the current Inland Revenue Department rate for unpaid tax, plus 5% per annum. This is likely recognition of the fact that interest rates are currently too low to be a true default rate.
Purchaser default
Where the purchaser is in default, then the vendor must now provide reasonable evidence of the vendor’s ability to perform any obligation that they are obliged to perform on the settlement date in order to use its remedies. This may make it more difficult for a vendor to charge penalty interest as previously vendors have just needed to assert they are ready, willing and able to settle, without providing evidence.
Calculating days
The time for performance clause has been clarified further. Where the day nominated for settlement or fulfilment of condition is not a working day, then the relevant date will be the last working day before the day so nominated. Whilst this was clear for the settlement date not so for conditional dates.
Deferral of settlement date
Where there is a right to a deferral of the settlement date more time will now be allowed.
Where neither party is ready willing and able to settle the settlement date will be deferred to the third working day following the date that one gives notice saying that they are ready; previously it was the second working day.
Where a new title is to be issued then the settlement date will be deferred to the tenth working day following the day notice is given that title is available and searchable, previously it was the fifth. This means title must be available by the tenth working day prior to settlement for the vendor to be able to insist on settlement on that date.
Trustee limitation of liability
The limitation of liability for a professional or independent trustee has been slightly narrowed. If the right of the trustee to be indemnified has been lost or impaired then the trustee’s liability will be personal.
Lawyers settlement obligations
The way lawyers settle sales and purchases must now be done in accordance with guidelines issued by the New Zealand Law Society. Remote settlement is required, except in limited circumstances, so bank cheques will hardly be used. Lawyers will need to use SCP (the same day cleared payment system through the Reserve Bank, unless agreed otherwise). For those buying and selling there will not be much change on the face of it, although note that settlement will not happen under the contract now until the paying or receiving bank have also given direct confirmation of payment to the vendor’s lawyer. This could create delays to settlement.
It is also made clear that e-dealing is to be used to transfer title, which is what happens in practice anyway.
Notices
Lawyers may now use a secure web document exchange for serving and receiving notices. This must be agreed to by the lawyers.
Where e-mail is used to serve notices return e-mails generated automatically will not be deemed to be an acknowledgment. The same care should be taken where e-mail is being used for formal notices as these will not be served until acknowledged by the other side orally, by return e-mail or otherwise in writing.
There is however clear recognition that electronic forms of communication are appropriate, subject to the rules regarding service referred to above.?
FOR UNIT TITLES ONLY
Deposit
Where a unit title property is being sold, the deposit will now be held by the stakeholder (usually the agent or vendor’s lawyer) until the purchaser’s rights to cancel the contract under the Unit Titles Act 2010 have been exhausted. This is a welcome change. Purchasers could have a right to cancel where disclosure is not properly completed, but face difficulties in recovering the deposit. However, for vendors of unit title property there is potentially a long wait before they can use the deposit. Committing to another purchase in the meantime could be difficult.
Disclosure
The agreement now clarifies that the pre-settlement disclosure statement is from the vendor, certified correct by the body corporate. Insurance certificates, not policies, must be supplied in addition, not less than 5 working days before settlement.
Levies and apportionments
It is also made clear that levies for the operating account are apportioned on settlement. There will be no apportionment of the contributions made to the long term maintenance fund, contingency fund or capital improvement fund. Vendors should consider the contributions they have made when pricing their units. If there is a large balance sitting in the fund they will not get this back from the body corporate or the purchaser.
Address for service
The requirements for service of notices under the Unit Titles Act were unclear as the new law required service on the individuals not their lawyers. This is addressed with the lawyer appointed “agent” for the purposes of the Unit Titles Act.
Recovering fees
Any fee for the additional disclosure statement paid by the vendor can either be deducted from the deposit or included in the monies payable by the purchaser on settlement. This gives the vendor more protection that they will not be left with the bill when additional disclosure is requested.
Deferral of settlement
Where the settlement date is deferred under the agreement for sale and purchase the vendor can insist on further deferral in order to have time to comply with its obligations to attend to disclosure and provide insurance certificates.
FOR COMMERCIAL PROPERTY
CZR – GST
Where CZR applies, on or before settlement the purchaser needs to provide the vendor with the recipient’s name, address and registration number, if those details are not included in the specific GST schedule or if they have altered.
The GST schedule has been amended so that it is simpler to use.
“Default GST” has been widened to cover the positions of GST groups. Default GST is now expressly able to be included in the monies payable by the purchaser on settlement.
Land Act/OIO consent
Where these apply and no date is inserted on the front page for securing consent, then that date will be the settlement date or 65 working days after the date of the agreement, whichever is sooner. So this has been increased slightly – previously it was 2 months.
If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean
PS: The next Cashflow Tour is happening in October, check it out HERE
