Feb

February 09 ~ Who’d a thunk it?

Who’d a thunk it?

February 2009 and we have sub 6% interest rates, the best weather
ever I can remember and a smorgasbord of property opportunities.
If anyone had said 12 months ago that the current investment landscape
would look like it does today we would have locked them up.

So as 2009 careers along where are you going and what are you planning?
In particular what are we going to do with our money or lack of
it this year.

I touched on this in December but so much has changed it is worth
discussing again.

The Banks:

There is a lot going on with finance at the moment so let’s
break this down to 3 areas.

Your money in the bank:

Many of the banks and some of our finance companies are now government
guaranteed so your money is safe in a bank, however it won’t
do you much good in terms of creating income or wealth.

As I write this you can get around 5.5% with a bank. So
after inflation and tax you are actually losing money by putting
it in the bank. General feeling is that we will continue
to see deposit rates fall so don’t be surprised if this
year those rates go below 4 or even 3%. (In the USA now
they are getting 0.25% interest on their money). Even the
finance companies have so much cash they are only offering around
7% and this is technically “at risk”.

Borrowing money from the bank:

Credit criteria have tightened to a ridiculous level. I have a
personal friend who is worth plenty, earns huge money, clean credit
and he was yesterday declined an 80% lend on a property in Auckland.
This isn’t likely to change any time soon so we are reverting
back to the 70’s when you had to actually SAVE money and
when you borrowed you PAID for it.

My parents were paying 27% interest when they built their house.
They borrowed it from a finance company because that’s what
you did. Now we had rampant inflation but I think NZ has
lost sight of reality due to suffering at the hands of too many
years of socialistic policy.

Historically people who were well off and had money could borrow
it. Usual rule of “if you don’t need it you can
have it” right?
So the other 99% of us had to pay through the nose to get money.
2nd and 3rd mortgages were normal.

I remember 25 years ago paying a 6 grand fee to get a 130K loan
at high interest rates because that was how the system worked.
The finance companies were making very good money BECAUSE THEY WERE
DEALING WITH RISKY BORROWERS. They needed to make good money
to stay safely in business.Today everybody is bleating about the banks etc. being so greedy.
I was reading a newsletter form a long standing property expert this
week ranting about the evil banks and usury. I couldn’t believe
they would talk such “nonsense” when they had been around
so long.

Part of the problem for our current mess is lending so much money
to people who shouldn’t have it. The only way to make
that system viable is to charge like a wounded bull to those people
so that you stay alive when many of them default.

Alternatively the people could take different action enabling them
easier access to cheaper money. Simple things like managing
their credit rating and being responsible with their money

So understand the banks are doing what any responsible business should
do, ensuring their risk is minimized and their profits maximized.
That is a companies legal obligation to their shareholders.
There is no conspiracy going on, we have all just forgotten that getting
money as easily as buying a newspaper has been a privilege not a basic
human right.

Fortunately there are alternatives today we didn’t have 20 or
30 years ago as I have discussed many times before or you can get
in depth training HERE,
HERE
or HERE!!

So when it comes to getting money from banks the rules have changed.
They are now lending to investors at around 60 to max of 70% and
people who don’t really need the money can get 80%.HOWEVER one of the upsides of the Govt. guarantee scheme is that
there are now 2 finance companies rolling in cash who will lend
up to 75% and even some who will allow second mortgages. For more
on this you need to talk to the best mortgage broker in New Zealand,
Kris Pedersen HERE.

Even if you have a good broker Kris is worth talking to, he has
access to funds other brokers can’t access and through his
own experience and association with Massive Action and our clients
he has more experience with creative problem solving than most.
When the going gets tough the smart people talk to Kris.

Banks in general:

The banks will play the game differently for awhile however it will
only be a matter of time till the non banks re enter the market
and that is likely to see sudden and fierce competition between
the banks to defend their market share.

What happened in the early 2000’s was a non bank introduced
a low doc product at 70%. The main banks then introduced the same
product at 75%. Then they would to and fro till they were supplying
mortgages in boxes of cornflakes.

So eventually we will probably see the same environment we have
had earlier this decade return. The time frame for that is
anybody’s guess of course.

Other investments:

I’m no authority on other asset classes but what do you
spend your money on is a hot topic in many conversations I seem
to have. Shares and gold would be the 2 most common “other”
options if you don’t like property.

One of the forums I frequent has some very clued up investors
involved with gold and their comments and my own research indicates
that there is a high likelihood of gold, (and silver), increasing
in value considerably.

But this is speculative, it is not as predictable as many other
asset classes and doesn’t always behave how it should.
I am told in New Zealand there is a 4 month waiting list to even
buy physical gold. So if you have some funny money around
and want to hedge against inflation with a chance of some significant
gains gold is worth looking at. Not my bag but it may be
yours.

Shares are simply too specialist and too scary to comment on with
any authority. If you get skilled up in this area I know
there are great opportunities currently but they are ALL speculative.
The Dow has taken a hiding and many respected researchers believe
the pain has only begun, so for me and I would suggest for you
there is still only one real option……..

PROPERTY (YAY!)

So we have moved a long way from when I last wrote to you in December.
We can now choose almost any property knowing that it will cost
us nothing to hold.

Incredibly we can now use a new rule of thumb calc for purchasing
now.
It always used to be $200 a week for every $100,000 purchase price.

Now we can go $150 for every $100,000 and be cashflow positive.

So the bottom line now is what to buy, where and how?

What to buy

The golden rule now is to be cashflow positive pre tax.
Don’t even consider anything that you have to top up.
Equity. One of the uncertainties for the next 12 to
24 months is how much value erosion we will see and how quickly
it will recover. So when buying anything in this market
you are looking for discounts off CURRENT valuations to give
you a buffer.
A less popular but even more important thing to consider
is how much deposit you are willing/able to put into the property.
In the current environment you want to be as low geared as
possible.
This is a risk minimization strategy, but the risk is quite
high. If we see further value declines then the banks
could come knocking wanting you to get your gearing back in
line.
So if you buy a property for say 300K and stay 80% geared
then if we lose 10% in values the bank will come wanting an
immediate injection of 24 grand.What is a safe gearing level? I would suggest around
60% of current valuation, absolute maximum of 70%. But for
70% gearing the deal would have to be exceptional.
How you achieve that will be determined by how much discount
you can get in relation to deposit requirements.
In terms of types of property I don’t think there
is a list of “good and bad” types of property
per se in this market. The fundamentals never change
however.In case you’ve forgotten….

New homes: ~ Generally too expensive but
right now great if CF+.Blocks of units: ~ Great for cashflow but hard to sell.

3/4 bedroom homes: ~ Always perfect rental stock.

Do ups: ~ Good in this market if you can buy them cheap
enough.

Home and income: ~ Perfect in this market.

Minor dwellings: ~ Perfect in this market.

Student accommodation: ~ High maintenance, not for newbies.

Subdivisions/developments: ~ Holding land in this market?
BIG NO-NO!!

Apartments: ~ Highly likely to come into their own in this
economic climate. Must not be leaky, must be 50 sqm
or more and you should be paying peanuts for them.

Where?

My position has been the same for some time and I think it is
even more critical now. Unless you are a specialist living
in an area you know like the back of your hand then STICK TO MAIN
CENTRES ONLY. Auckland, Hamilton, Wellington and Christchurch.

As things get worse economically we are likely to see a significant
urban drift as people move closer to potential jobs/welfare/food
banks and move to areas where they don’t have to spend a
fortune on gas. We may also see a move to primary production
(farming areas), as they may actually do OK in this recession
but that is a more speculative gamble than the cities.

How?

Structuring:

Well the good news is that much of the touted law changes designed
to destroy the evil property investor have vanished, probably
until the end of the next boom. National is never going to pass
any punitive tax or GST legislation in a recession. And
as housing gets in shorter supply through a lack of new builds
we may even see some carrots being offered to investors to buy
houses

So as I always say, use the best structuring brains available,
(HERE),
but it appears the current LAQC/Trust situation depending on your
needs, is going to be fine for some time yet.And if your “How?” is about finance then as I said earlier
talk to Kris.

A word on housing affordability.

I said in a blog recently (subscribe
here), that we spend a lot of time complaining about things
we can do nothing about, ultimately futile activity.

Recently there has been much media comment on our housing being
more affordable than it has been for years. And other commentators
are saying that is a load of nonsense for a variety of reasons.

Well as investors we have to remember 2 things:

It is entirely irrelevant how affordable housing is and as a
result…..
We don’t care.

You see housing affordability is a sentiment issue, not a
numbers one. If we can buy a property that is cashflow positive
pre tax, do we care how affordable housing is?, absolutely not.
In theory if housing became ridiculously affordable then we might
run a risk of low occupancy because everybody would buy their
own homes right? Wrong!!Kiwi’s are the worst savers in the world so most of us will
never save enough for a deposit and our culture actually has a
very high percentage of people who want to rent. The idea
of having their own home is a responsibility they would avoid.
So housing affordability is a white elephant, don’t worry
about it, don’t read the articles, it is simply irrelevant
to us.

Never forget, this is a NUMBERS game!!

Education anyone?

As you know last year we launched a joint venture with the Traders
to provide a quality mentoring service top new and experienced
investors. Our first intake was very successful and the second
course starts on the 17th Feb.
Not only will you get a great education in all things property
but you also get to mix with like minded people and use some of
the countries top investors as a filter and sounding board for
your own investing!! Find out more HERE.

Breaking up is hard to do!!

Yes it’s true we at Massive Action are having a trial separation!!
Some of you like to get education only and some of you also like
to know about some of the opportunities that we have available,
so…….

From this month I am going to use a separate newsletter to advise
you of property deal related stuff rather than clog up the normal
MA ezine.

You can unsubscribe from the Propertyconnect newsletter separately
from the usual MA one so that you only get the stuff you want
from us.
Normally these will be 2 weeks apart but for February you will
see the PropertyConnect newsletter in a day or two.

Fiji

Our heartfelt thanks to those of you who have donated to help get
kids back into school in Fiji. We sent the first lot of funds
and we are starting to supply books and pay fees for students whose
families have absolutely nothing after the floods. This pic
is my good friend Kishore providing 1 family with resources so their
children can go back to school

To get an idea of the problem watch this Fiji
One news report.

More info here.
Please join us in making a difference in Fiji.

Final thoughts

The third newsletter I ever wrote for Massive Action finished
with the below words. (Every newsletter is available by clicking
on investors library/newsletter archives if you fancy a read).

I thought given the current global situation my thoughts were
worth revisiting.

Empowering yourself and others

Some principles are universal. Whether or not you “believe”
in gravity, you are affected by it. So it is with a law
called sowing and reaping. In simple terms, what you give
out, you will get back in some form or another. My world
view is filtered through my Christian faith so I am perhaps more
committed than many people to encouraging others and seeing them
built up. However I have never ever seen any benefit in
being negative or critical towards another person or situation.

Empowering or sowing into others is the pathway to our reaping
our own freedom and success.

As a Christian I would say it is in giving to others that I receive
from God. Buddhists talk of a “middle way” meaning
the highest point of a triangle.
Even physiologically it takes less energy to smile than frown.
Laughter actually releases health into your body. Anger
and bitterness can contribute to arthritis, cancer and a host
of other so called psychosomatic illnesses.

So what am I really on about??
Simply this. If you find yourself constantly critical of
others, needing others to feel bad so you can feel good, then
something is wrong internally in your world.

You cannot focus on positive outcomes in your own life if you
are being sidetracked by negativity inside your head. Various
success guru’s give it different names: abundance mentality ~
living above the line ~ obeying the golden rule ~ forgive and
forget etc. etc. They are all touching on the same truths.
Successful people focus on the things they can control.
No point getting angry over a red light for example. Expend
energy on things you can control. If you find yourself tossing
your toys out your cot over relatively petty things you have an
internal wiring problem that needs fixing. You can’t control
other people, cats or the weather!!

Successful people always look for the good in a person,
situation or deal. They will be aware of the bad but never allow
that to control the situation.

I have friendships with many people who have done things to me
that I didn’t like. I have decided that whilst their actions
were unfortunate their motivation was not bad. They are
imperfect people who have hurt me or let me down. Do I write
them off for not being perfect?? No. I will undoubtedly
do the same thing to them at some point as I am not perfect either!!

I choose to pursue the friendship until such time it becomes evident
that they are wanting to hurt me, deliberately. If you think
of your past, are there people you used to be close to who are
gone for no good reason? People who you walked away from
over an issue but you still miss their friendship 1, 5 or 10 years
later?

I don’t find many people out to deliberately hurt others.
I find lonely, hurting, abused people who often have defenses
up to protect themselves. I find people who have never developed
good social skills who don’t know how to give or receive friendship.
But underneath those issues they are wonderful people, who can
become life long friends. Look for the good. It’s
nearly always there.

Successful people are able to choose HOW TO RESPOND in any
situation. Sometimes anger is appropriate, sometimes gentleness.
Free people can look at a situation and CHOOSE THEIR RESPONSES.
This is the Number 1 sign of a whole person. The freedom
to decide, “in this situation I think I will do ????”
because you have been able to analyse the facts, the impact on
you and respond with dignity and integrity.

Only whole people can do this. People who don’t have this
sorted in their lives can appear successful, but are rarely, if
ever happy or fulfilled. This topic always reminds me of
when I watched the behind the scenes documentary on Elton John.
Here is a man the world would say is successful. Rich beyond
imagination, talented and celebrated world wide. 5 minutes
of watching the real Elton John uncovers a spoilt, selfish child
who behaves in a totally unacceptable manner and should be vilified
for his treatment of friends, family and especially his staff.
Rich? yes. Famous? yes. Successful? no! Happy?
no!

Steven Covey had a great example of this in his book. He
was sitting in a railway station when a man appeared with several
unruly children. The kids were really out of hand and the
adult, presumed dad, was doing nothing. People were looking and
pointing and getting very angry with the kids. Steven sat next
to the man, introduced himself and simply commented on the kids
activity in a non judgmental way to try and get more information
about the situation. The man replied. “Yeah they’re
noisy all right. We just came from the hospital where their mum
died an hour ago. Like me they just don’t know what to do
with their grief”. Steven was free to choose his response
to a terribly sad situation because he didn’t need to react to
the apparent situation. Are you??

Partly because of the above, successful people decide to treat
others with dignity and respect irrespective of the behavior of
the other party. We all want mercy for ourselves and justice
for everyone else. That is not a success mindset.

Treat others well anyway. You never know the dividends that
might pay. One of my friends has really been through the
mill and abandoned by many/most of his former friends. I
have remained a friend and as a result we have been able do some
lucrative property deals together because I stayed on his team.
I’ve been able to help him start to rebuild his life while others
stand around talking about him behind his back. Which would
you rather be doing?? I’m interested in him as a human being,
not what he may or may not have done.

In fact truly successful people will not tolerate gossip or negative
comments because it sows seeds of negativity. In addition,
if I listen to negative stuff about someone else from you, what
are you saying about me to others? I find this hard because
there’s something in me that loves gossip. So I have to
choose to never go there. Sometimes I fail but I am committed
to doing it. Those of you who know me in propertytalk will
know how passionately I defend anyone being attacked. It
only destroys people.

Lastly, (for now), successful people wake up looking forward to
the day knowing life is an adventure and they have no skeletons
or dodgy actions to be concerned about. No integrity always
equals no peace. If you wake up in the morning and have
to talk yourself into getting out of bed then something is not
right. If you need pumping up every morning you need to
find out where you are leaking!!

So if any of this has touched you let me say this. You can
be set free from negativity and depression. You can become
successful in the way you think and act. I have found God
to be a source of healing and change and I am happy to share what
has worked for me with any of you, anytime.

If that is a bit too spiritual for you then start by reading,
“The seven habits of highly effective People”.
It will help. Find someone you can trust and start being
honest with someone about how you really feel. There can
be great healing in being “known” by another person.
A Christian Psychiatrist once said, “You are only as sick
as your secret”.

Stay Safe ~ Dean, Raewyn and the MA team

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