April 08 ~ Can you believe it??
ByREAD ME ONLINE OR DOWNLOAD ME HERE
April, can you believe it??
It seems like only 3 months ago it was still 2007. Well actually 3 months ago it was 2007 
.
Anyway this month I wanted to try and give you some solid help with getting out of any ruts you may be in and how to move forward from here. I’ve just today, thanks to Kris, learned how to put those bookmarks in to take you to different parts of the newsletter so the headings are below, click on ‘more’ to go to the rest of the article. Or if you have the time just read it all.
PS Don’t forget to read the bit on Aussie, I’d love to have dinner with you next week to discuss it further!!
Sell my house
Yes OK it’s harder to sell right now than last year, however there are a few tips and tricks we can implement to ferret out that elusive buyer.
Recipe’s for lemons
How do we analyse the numbers to ensure the wisest possible course of action if we are forced to sell.
Staying Squeaky Clean
Our current finance scenario has sadists beaming from ear to ear as they formulate new or enforce existing lending rules.
Talk about a boom
Stats out today show the Australian market just getting better and better for investors. Come and have dinner with me and find out more!!.
Getting your life to really work
The highlight of my educational career, a day of life changing information and tools, is now available for you to enjoy and work with in your own home.
Keeping your head screwed on!!
I started to talk about some strategies to assist with dealing with properties you may have got stuck with in my recent blogs, however I realized that it needed a bit more space than a blog to cover some of the financial side of things to ensure we make wise decisions.
My blog info is included here for those of you who don’t visit that site and then I want to talk about analysing the numbers.
Now there is no cure all for coping with lemons when a market goes west, however there are things we can do to maximise our opportunities.
So if you are trying to quit a property here are some ideas to help.
A: 101 Presentation.
I was talking to a house stager this week and she said that most people never take the time to think about first impressions when trying to sell a home. Typically the woman makes the buying decision and she does it within 30 seconds of walking in the door. So if you need to sell then you need to make sure you present the home well. Everything clean, smelling good, entrance and grounds all tidy, you know basic stuff that can cost you a sale if you ignore it.
B: Finance.
Assuming you already own this property then you are in a position to offer “whatever it takes” to the buyer in terms of finance options. When you are offering something no one else is, it’s amazing how often the price becomes that little less important.
So make sure your advertising states that 100% finance is available, you can purchase this home with no deposit, etc., etc. This is a powerful strategy to find buyers when they are scarce. Between leaving some money in through to offering a lease option, you can solve anybody’s finance issue to assist with the sale.
C: Creative solutions.
Advertise the home in the swaps and trading sections of your local papers, etc. You will be amazed how often someone has something that you can sell and get your money out of a deal. In the last few months I was offered a boat and 2 cranes as part payment on a trade. In one case it didn’t fly but with the other one I was far better off taking the cranes and selling them, nearly 100K better off. You will never find these people through a typical agent or marketing programme, these are horse traders so you need to advertise where they look.
D: Vacant land.
Sections often suffer in a soft market so you have to look for solutions to entice buyers. The 2 main ideas are to offer builders terms and pursue every developer builder you can find in an area. Tomorrow I’ll show you what to do and how to work out the numbers.
I’ll also give you more info on the other main strategy which is to sell the site with house plans already attached.
E: Create 1 wow.
By this I mean think of one thing you could do to create a wow factor that will assist with getting a buyer over the line. For example if the lounge is perfect design and shape for a huge plasma TV then put one in and include it in the sale. You can rent it till you sell and then buy it once they are unconditional. If you never got round to putting a dishwasher in while you owned the place put a twin dish drawer in now. If yours is a family home consider putting a decent playground or swing set in the backyard, like a really cool one. It’s amazing what you might find on Trademe that costs you not much but adds huge value.
With all these ideas remember it is the WOMAN you want to impress. A huge beer fridge generally won’t cut it.
So a few more tips for dealing with need to sell properties today.
1. Get a letter printed to drop in every letterbox within 500 metres of the property letting the neighbours know it is for sale and giving the properties good points. Many times people have friends or relatives looking to move into an area, they can’t buy your house if they don’t know it’s for sale. Don’t assume that because you have a sign out that the neighbours will know. Some people rarely venture out and don’t register that the property is on the market. Tell them in a letter and make sure you have your contact information and state that you can help with finance if you are willing to leave money in or lease option.
2. If you are dealing with an agent tell them to bring you something on paper, anything. At least this gives you a bottom line to start from. Most decent agents have someone like me in their database who will buy anything at the right price so even if the offer is an insult at least you know well the worst thing that can happen is I could accept this offer. It also means that when you get other interest you can create some urgency by honestly saying you are considering an offer currently. This may encourage them to make a better offer.
3. It may be useful to get a current registered valuation. Investors will take no notice of it however you may be selling to a home buyer so if you have a current official RV it often makes people feel more comfortable that you are not asking too much. One of my main agents is using RVs less than 2 months old as asking price and it seems to be working.
4. Trademe. No secret weapon in this one except MAKE SURE YOU TAKE GREAT PHOTO’S, TWENTY OF THEM. I can’t believe some of the photo’s I see and people wonder why they have no bites. And remember that if you are getting lots of hits with your ad and no emails or enquiry your advert is bad. Something needs changing. Check for spelling mistakes, change or remove the price, make sure you haven’t accidentally said something stupid. Keep changing little things till the phone rings.
5. Power of humour. Whether it is a billboard or Trademe or a flyer for a letterbox humour sells. So instead of, “House for sale” try, “I’m an orphan desperately in need of adoption”. If you can make them laugh when they realise you’re a house and not a child, it will help you get them to ring.
Deciding what to do with an unwanted property.
OK so you are stuck with something and it just won’t sell for what it’s worth. How do you decide on a Plan B? Obviously if you are heavily leveraged you may not have a choice other than to find a way to hunker down and ride things out. Get a part-time job, sell a car, whatever it takes to survive till values and buyers return. For most of us though our issue is more that we don’t want to lose money and I fully understand that. But if you have tried everything and still no joy then at some point we have to decide how much money will/can we lose and is there a “good” and a “bad” way to lose it.
So let’s look at an example and establish how to make a good decision.
Purchased as a trade for 400K. Bought into GST registered trust so GST received and hopefully taken off mortgage or put into revolving credit to replace deposit funds. RV of 500K
DEBIT ITEMS
20% deposit out of revolving credit = 80K @ 11% = $169 per week
Balance of mortgage at 9.5% = $585 per week
Rates = $30 per week
Insurance = $10 per week
Allowance for vacancy = $20 per week
Allowance for R&M = $60 per week
Allowance for property manager = $24 per week
Total outgoings without R&M etc = $898 per week
GST refund applied to RC reduces this by $94 per week.
Net outgoings = $804 per week
CREDIT ITEMS
Rent = $300 per week
Depreciation = $0 per week (purchased to trade)
Net loss = $504 a week.
So on the surface this property will lose $26,208 every year that we hold it. So we can make a decision based on these numbers and decide whether holding the property for say 3 years is likely to get me an increase in sale price of at least 79 grand. If it isn’t then sell it now.
But this is not quite the whole story. If you sell now you have created a taxable loss but have eliminated any chance of a better outcome even though you know that time would assist the situation.
If you retain the property you will also create a taxable loss that can be offset against other income, but it will take 3 years to get to the same loss level and you will still own the property and create the opportunity for a recovery.
So if you have other profitable activity in the same entity, or you know that you will, then this actual loss becomes a paper loss as it were. So for every 26K of profit you generate in the same entity, or another entity that can be accessed by this one, you have a loss to counter it.
In most cases it now becomes far better to keep the property than sell it. Given that prices will recover and you are creating usable losses your likely outcome is significantly improved with time.
So point 1 is ensure you look at the tax implications in addition to the “above the line” numbers. And understand that losses created over time whilst retaining ownership can work in your favour and produce a successful outcome.
Another point people forget is that just because you can’t sell this property doesn’t mean you have already lost that money as far as the bank is concerned.
In the above example you have a $356,000 mortgage on a $500,000 property, well actually your mortgage is only $320,000 because the balance came out of your RC. That is a 64% geared property. You are in a far better position to borrow from a bank for another deal WITH that property in your portfolio than if you sold it and ended up with 30K back in your revolving credit.
And in fact if you can hold that property for 6 to 12 months you then ring up Kris Pedersen, 021300192, and he will get your mortgage topped up to purchase price and then you can use those funds to hold the property if necessary until the market recovers.
Understand this. If you are going to take a hit now and lose money you will have to find that loss or fund it from somewhere. Isn’t it better to utilise the property and fund it from it’s equity AND give time an opportunity to actually wipe out the loss??
Now it is impossible to cover every unique situation in a newsletter but briefly let’s look at a few other situations and what your options might be.
1. Simply paid too much. This is the most difficult one because if you simply paid over the odds through inexperience or lack of DD you have limited the options considerably. When you haven’t created equity on purchase there is no leverage available and you may in fact be 100% geared.
So in this situation you need to hold if you can afford to but if your cashflow prevents it all you can do is make a very expensive investment in your education and quit the property. You will have to work out how much you can afford to lose and live to fight another day. If you have a 420K property you just paid 500K for this could hurt, but the time required to recover and the stress attached to the ongoing monkey is going to be very onerous.
2. Bought to hold but have to sell. The basic situation is always the same, keep it if you can and sell if you can’t. However in this case there are some critical considerations.
Ensure you documented clearly your intention to hold the property.
Regardless of whether you have owned it for 1 day or 20 years go and see your accountant or a specialist like GRA and get them to advise you in writing their recommendation to dispose of the property because of your financial situation. This creates a trail for IRD to clearly see your intent and the resultant change in your circumstances.
Why is that important?? Because of you sell out of a buy and hold entity and you were keeping the property you won’t have any tax to pay on the capital gain, PROVIDING you can show your intention was to hold.
And this brings me to my main point in this situation. If you are in the proverbial and have to sell something, it may be prudent to sell whatever has the most equity in it in your portfolio. This will put the maximum food on the table and eliminate some stress.
3. Bought off plans. Now if the project gets built and values proved to be inflated, things will be a pain and you have to work through the above scenarios.
Prior to title your only real recourse is to get your lawyer to tooth comb the agreeme and see whether the sunset clauses can be activated or if there are any other grounds for cancelling the contract. Many times build delays mean the developer will ask for an extension to the sunset clause. Make sure you DON’T give it and then cancel your contract when it expires.
Now when the project is not going to be built due to developer failing you need to contact your accountant or a specialist like GRA as there are some specific tax opportunities that may benefit you in this situation.
4. Bought section/land with existing title. So you were going to make a buck out of on-selling a section but have gotten caught?? Bearing in mind that it is land that increases in value, work out if you can afford to ride it out, if not then consider this:
Land is often difficult to sell at a premium in a down market, however new houses selnd rent well in a flat market and construction costs reduce in a down market as builders hunt for work. So the smart money in this situation is to establish what the numbers would be if you built. Even if you paid full retail for the section building it out may create a profit.
The CRITICAL thing here is to not get emotional and behave like an investor, not a home owner. So to get going we need to establish some numbers and know what to build.
A: Talk to a local trusted agent or 3 and find out what is likely to sell well in the area the site is. Is 3 bedroom better than 4 or 5?. Is single level better than double storey?. Do people in the area like lots of garaging?. What is there the strongest rental demand for in the area?? Get as clued up as possible as to what would be the “perfect” house for the area.
B: Again from your agent and maybe a good local valuer establish what is the realistic sales price for that new property if it was built today.
So let’s say you have established that 4 bedroom homes were the best in your area and good garaging was expected due to proximity to a uni or college as most people coming into the area had teenagers or adult kids at home with cars. And your research indicated that a realistic sales price for a new property in the area was $595,000.
C: Once you have this info you can now do your feasibility. The biggest area where people stuff themselves with a spec build is they get involved. Don’t do it. You need to go to an investment builder who has his own plans and get them to tell you what to build.
I highly recommend Stuart Shutt, owner of Investor Homes, if you want a totally honest quality builder who will bend over backwards to save you money.
But regardless of who you use they must be able to advise you on what to build and they must have plans themselves so you don’t need to involve an architect.
So in the above example I would sit with Stuart and say my sale price is 595K, my section owes me 190K leaving me 405K gross margin less:
4% selling fees on the 595K = $23,800
Interest on the section for 12 months = $20,000
Interest on build (est) = $15,000
So a rough margin pre-build is $345,000. Stuart will help you work this out but this gives you a number to work from for the build.
In this case I would want to be building the house for around 250K max as by the time I pay GST on the sale and allow contingency this is about as much as I can spend and not risk losing money.
So this is where people like Stuart are worth their weight in gold because they will find you an in-house plan that they have built before so it is easy to cost the build. Any good investment builder will have plans 1, 2, 3, 4 and 5 that cost $XYZ dollars to build on a flat site.
So for example a 4 brm double garage property could be anything from 150 sqm to 250 (or more) sqm. The former might cost 200K to build and the latter 325K. If the ceiling for sale price on the area is 595K you could build both of these next to each other and the sale price might ONLY be 5% different. You always want to under-capitalise if you can, especially when you are doing this as an exit strategy to create profit or minimize losses.
So you get your investment builder to provide the best plan for the site that can be built the cheapest and then they will do a complete package price for you. Make sure you are getting a turnkey contract. Your price should include everything from now to handing you the keys, driveways letterboxes, EVERYTHING DONE. This is a fixed price contract all inclusive and that is what you need.
So let’s say Stuart gives you a price of $247,000 GST inclusive, build time 20 weeks. You can now work out reasonable accurately what your outcome will be.
Land cost 190K
Build cost 247K
Sale Price 595K
Gross margin = 158K
Less GST = 17K
Less Interest = 30K
Less selling costs 24K
Leaving you 87K less tax. This means you can sell at a bit of a discount if necessary and have some margin for contingencies. But either way you have solved your issue of losing money on the section.
5. Bought section /land pre title. In this situation your best scenario is to see what you can do pre-settlement to ease the pain. I would go through the build feasibility above and then I would go to the vendor and see if I can negotiate builders terms. If the market is flat and they are not overrun with buyers then a flexible agreement is better than a cancelled one to a developer or vendor.
So what you do is go through the whole process with Stuart first so you know your costs, then go to the vendor and see if they will allow you 6, 9 or 12 months builders terms. What this means is that they let you start building without having settled on the section. In the above example this would increase your bottom line by over 20 grand because you don’t have the interest costs on the section. This is a great way to try and create some further upside for yourself if you are in trouble.
Staying squeaky clean.
Our current finance scenario has sadists beaming from ear to ear as they formulate new or enforce existing lending rules.
So ‘tis the season to be perfect in all your dealings. In particular you must keep on top of your mortgage accounts, etc. It is so easy to miss a payment or have an account go overdrawn for 24 hours and not think twice about it.
Kris, my No 1 broker has advised just this week that he has had clients with great cashflow and heaps of equity, clean credit and lots of provable income that were refused loans because…….
- One of their mortgage accounts was overdrawn and they were charged a dishonor fee. The lender saw it in the bank statement and declined their loan.
- A client had a parking ticket that they had paid, but not ill it had been to court and appeared on their credit report. Lender declined their loan.
In other words the power is swinging to the banks while this credit crunch is on, so stay squeaky clean. Get your broker to do a credit check on you, (there may be a small charge), and ensure there is nothing on it. And don’t let anything slip through the cracks.
We need to take this seriously. One thing I did a while ago because of nearly having a judgment against me for a classified advert was to have a PO Box as my address for everything.
We basically get no mail to our house at all now. This means if we are overseas, or if we moved house, or if our letterbox got left open, etc. we still get all our mail.
See for most of the women this isn’t an issue, but if you’re like me and say you get a parking ticket, by the time I stew for several days on how to tell Raewyn I “forget” about it, (AKA hope if I pretend it never happened it might go away?). So it only takes a few weeks for this to have gone to court and have $100 odd added to it and now it is on my credit report. All over $14. This can literally stop you from getting a mortgage.
So if it’s dirty clean it up and if it’s clean keep it spit polished OK??
Talk about a boom!!
I know I’m an excitable lad but the opportunities in OZ are just amazing and I’d like to encourage you to look at it as an alternative to just sitting through the carnage here in NZ. If you’re in Auckland I’m putting a dinner on next week for anyone interested in finding out more about Oz and Azzura. You will need to book as numbers are strictly limited to 20. So email me if you’d like to attend and you are available for a complimentary dinner next Wednesday or Friday in Auckland. There is no cost to you, just come and find out about why Oz is the place to be investing.
Behind Closed Doors in your own home.
The last Behind Closed Doors event is without doubt the highlight of my career as an educator. To see people set free from things that bind them up and to hear of the positive results in my friends and clients lives is well, there aren’t words to express what it means to me.
I have heard from people at and since the event who have put their marriages back together and adoptees who could finally forgive and move on into freedom. So many people have said that by understanding how different people think and operate has transformed their ability to love others, to deal with their kids, to negotiate property deals, the list goes on. Even just knowing why you think and feel the way you do can be so liberating.
Sometimes dealing with this stuff in a public setting is difficult and a bit scary so I’m please to announce that we have now produced Behind Closed Doors 2 as a DVD set that you can watch and work through in your own time. This material will not only change your own life but also give you immense benefits in understanding how to negotiate and work with others.
Stay Safe, Dean, Raewyn and the team at Massive Action
Downloads
