Massive Action

Worried about the bills?

Dean Letfus — Sun, 15 Jan 2012 19:55:45 +0000

Maybe you are wondering why you hit the credit card quite so hard at Xmas or how to survive without a daily latte till you can go back to work. Well this may brighten your day, or at least help you get things in perspective.

These are some new friends of mine. They live in the building behind us. Mum can’t read or write, the older girl has had her mind damaged through abuse and they live on $80 a month. Now how is your day looking? (More images on my Facebook)

: Imagine living in 35 degree heat in a hut made from 44 gallon drums

Stay Real and Stay Inspired ~ Dean

Tough year behind, what’s ahead?

Dean Letfus — Wed, 11 Jan 2012 03:19:39 +0000

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.

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!

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?

PROPERTY UPDATE BY DEAN LETFUS

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.

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:

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.

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.

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.

USA UPDATE

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.

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.

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.

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.

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.

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.

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!

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:

And the numbers??

Purchase Price		$73,900
Closing costs		$1,500
Total cash investment		$75,400

Monthly rent (income)	$1,390	$16,680

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		$1,000.00
		$6,342.40

Total Net Cashflow		$10,337.60
Weekly Cashflow		$198.80
Gross Yield on Investment	22.12%
Net Yield on Investment	13.71%

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.

EMAIL ME for more info

(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 :_)

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.

MINDSET SCIENCE

“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?”

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.

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.

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.

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.

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.

As always Stay Inspired and Stay Safe, Dean and the Team.

Even the gloom merchants can’t deny it now

Dean Letfus — Thu, 22 Dec 2011 20:00:28 +0000

This article is from John Talbott, a consistently anti property author and researcher. It is a must read regarding the US market.

I have been waiting for more than five years to offer this advice. It is now time in most cities across the country to buy a new home or refinance your existing home with thirty-year fixed rate mortgage debt. And this from the author of The Coming Crash in the Housing Marketpublished in 2003 and my 2006 book, Sell Now! The End of the Housing Bubble. Let me explain why.

Home Prices Relative to Peak Prices During Bubble

Home prices are off anywhere from 10% to more than 60% in cities across the country. There is no reason to believe that prices were “fair” during the bubble as we have seen they were largely caused by loose and aggressive lending by banks and non-banks. But, it is always better to buy at a discount rather than at a historical peak, and these seem like awfully big discounts. And by my calculations, in most cities across the country, real prices adjusted for inflation have just about come into line with where prices were in 1997, before all this crazy bank lending started, so there should be little additional downside risk by buying today. There are still some neighborhoods across the country that have not seen very dramatic declines in price, many of them very wealthy and expensive enclaves, but given the distribution of incomes lately heavily weighed toward the wealthy, these areas may never see a really large home price decline.

Home Prices Relative to Construction Costs or Replacement Costs

Homes in many cities across the country are now selling for as little as $60 to $70 a square foot. Depending on the quality of construction and the underlying land value, this represents a 50% to 65% discount to the costs you would incur if you tried to build a similar home today in these cities. While there is no guarantee that there will be a strong rental market in the short run, in the long run it just seems to make sense to buy if you can acquire assets at half or less of the cost of building them.

Home Prices Relative to Incomes and Rents

During the peak years of the housing bubble, entire cities like San Diego were seeing their homes priced on average at 11 times the area’s median family income. Such prices financed primarily with debt are by definition unsustainable. Now, because banks have pulled back on their lending formulas, homes in many cities are changing hands at three to four times average family incomes. Similarly, at the peak, houses traded at such large multiples of possible rents that it made the projects uneconomic from the start. Now, with homes trading at more reasonable multiples of rents, houses and condos can be purchased that are immediately cash flow positive in year one and enjoy all the upside of any appreciation that will occur as inflation returns.

Home Prices in Real Terms, Not US Dollar Terms

We still talk about home prices in dollar terms, which is silly because the dollar has lost 98% of its purchasing power relative to a more stable asset like gold over the last fifty years. If instead of pricing houses in dollars, we look and see what a home would cost in ounces of gold, we see that houses today are a real bargain. As a matter of fact, this graph shows that average homes, measured in the number of gold ounces it would take to buy them, are now trading at forty year historical lows.

You might argue that this is because gold is priced highly today. I would argue that gold’s purchasing power has changed very little over time, it is the dollar that is depreciating and thus giving the appearance that the price of gold is rising. Actually, gold is quite stable relative to other assets and commodities and it is the dollar that is highly volatile and declining in value due to the US funding its deficits by printing dollars.

The Real Bubble – US Treasuries and Future Inflation

The real bubble out there is longer US Treasuries and 30-year fixed rate mortgages for home-buyers. With US debt equal to its GDP and equal to more than four times our government’s total tax revenues and with annual deficits of $1.3 trillion and growing, it is amazing to me that people will lend to the US for thirty years for less than 3.0% a year. Even more amazing is that individual homeowners can borrow at 4.0% (around 3% after tax) for thirty years on a fixed rate basis, some 300 basis points better than Italy which has a lot more people and makes much better shoes.

Homes may not appreciate greatly in real terms over the next twenty years, but they don’t have to if inflation comes back, which is the only way the US and Europe are going to get out from under the huge debts on their countries and their banks. You may not make a lot in real terms on the house, but if inflation returns, you could make a killing on your investment as your thirty year debt becomes worth less and less in real terms. Run the numbers, but if inflation and interest rates go back to say, 7% to 8%, you could easily make eight to ten times your equity investment on the house because you locked in your borrowing costs and home appreciations historically have always correlated well with unanticipated inflation.

So, run, do not walk to your neighborhood banker and either finance a new home purchase or take out the maximum amount of money he or she will lend you on a home equity loan and buy hard assets, not financial securities, with the money. When inflation comes roaring back the only perfect hedge is to be a borrower, not a lender or investor. Shakespeare said, “Neither a borrower nor a lender be,” but they didn’t have huge government deficits and the risk of future inflation back in the Bard’s time.

Get Going and Stay Safe ~ Dean

(If you’d like any info on or help with investing in the USA drop me a line HERE)

Life as it used to be

Dean Letfus — Tue, 20 Dec 2011 18:06:25 +0000

My computer charger died on the 13th December. By the 14th I was powerless and internetless (?) till yesterday.

After panicking about how life would continue without being online I discovered that life did indeed go on. And in fact life was a lot less busy and I had time to think, connect with people and be creative in ways that I hadn’t remembered doing since my teens.

It was quite revelatory how different I felt and thought. We really have become slaves to the machine with our laptops, ipads and smart phones.

My Xmas newsletter will now have to be my new years newsletter as I have been unable to prepare anything meaningful due to my power outage and now that I am back online I simply have too many people to talk to this week and too many “real” things to do.

I pray that you find yourself able to unplug from the tyranny of the urgent and plug into something important this week and over the Christmas period.

There really is life outside the blinking lights and glowing screens .

Remember the three “L”‘s, find Love, live Life and leave a Legacy! ~ Dean

First World Tragedy

Dean Letfus — Tue, 13 Dec 2011 20:53:43 +0000

I know it’s not Friday but I had to share this with y’all. We really do have it rough don’t we?

Stay Inspired and Stay Safe ~ Dean

Will it ever end

Dean Letfus — Mon, 12 Dec 2011 19:46:52 +0000

I have had three meetings this week with close friends all involved in real estate in New Zealand and it is the forst time I could sense their total frustration at the never ending recession. No one expected 4 years on for things to still be so bad and it is really grinding people down. There is some talk of the Auckland market doing well but it si simply not true unless you are in certain streets on the right day holding your mouth a certain way.

My coping mechanism always has been to focus on the positive and keep looking for solutions. I don’t expect that will ever change as I think it is good for my mental health, however I think also sometimes just have to acknowledge how bad things are and let that be OK as well.

So many of my friends, and myself for that matter, are battling uphill battles or have been overtaken by their situations and there are plenty more to come yet.

So yes we are in teh worst financial crisis since the depression. Black Friday and the .com bust were nothing compared to this.

So for many the end wil be rocky and a long recovery. And that is life, sad but true as Metallica would croon.

But I can’t help myself and must look for some positive in every situation. For me it has been the rallying of friends and even clients who appreciate my candour about my own situation and can relate it to theirs. I have been overwhelmed with emails, support and affection. Almost enough to make the whole thing worth while.

One thing we are not short of is judges and spite. The news is full of it everyday world wide. You can make a difference by being the difference!

I hope that in the midst of your situation, whether it is currently great or terrible, that you will find it within you to love those you love, be kind to those you can and encourage those who need it.

It has made the world of difference to me in the last few months and forges friendships that will last any adversity.

As to the recession, keep an eye on your inbox for my Christmas newsletter shortly!!

Stay Loving and Stay Safe ~ Dean Letfus

Up, down, sideways or the same

Dean Letfus — Mon, 05 Dec 2011 20:03:27 +0000

A fascinating week in the news with The Economist warning us of a 25% drop in house prices, every real estate principal saying the opposite and the statistics able to favour any position depending on which particular part of the country you examine.

I think that New Zealand, like the USA, really doesn’t know what to do and how to assess the information coming out so in true DIY fashion, we all guess.

The fact is the world is in a mess economically. The nations most at risk are those who tried to avoid a hard landing in the early stages of the recession, propping up their economies in the hope that the recovery would come in time for them to avoid any real pain.

The problem is the recession isn’t going anywhere soon and the countries taking the big hits, who appear so incompetent now, like most of Europe, are probably no worse off than the USA and other more “civilized nations”.

Housing is an indicator of a countries wealth, their residents incomes and their general outlook on life. It isn’t something you can manipulate or control to improve an economy.

So in many caes the real hard issues aren’t yet being addressed or fixed. And until they are we will continue to have this seesaw posturing. But you can be sure of one thing in my opinion:

Every nation in the world is affected by what happens in China, followed closely by the USA. And they BOTH have an ocean of pain to go through yet, which must wash over us all.

So hang on, we’re still in for a bumpy ride .

Stay Inspired and Hold Fast ~ Dean Letfus

Taking things for granted

Dean Letfus — Sun, 04 Dec 2011 19:24:10 +0000

I attended 2 churches yesterday, both full of wonderful people and both meeting in conditions you and I wouldn’t consider for one minute. Dirt floors, dangerous temporary wiring and no facilities.

But this is life and death to these people. Their relationship with God is everything and they will find a way to meet and to share Him with others no matter what. Things that we would solve with money they solve with ingenuity because they simply don’t have the money.

It causes me to question more and more of our Western life style. (Don’t worry I am not about to become a monk or anything), it is simply a case of looking at what is really important. I have understood this and even taught it for years but sometimes it’s not till you go and live in a culture where there is no room for rhetoric because they are busy actually surviving that you see the reality of some of these principles.

So the lesson for us is not to abandon our lives but to be thankful for what we have and the choices we have.

To understand that what we have is a privilege and by definition it could be taken away at any time.

And lastly to ensure our goals and dreams are about people, passion and purpose rather than money toys and glory.

Get Going and Stay Safe ~ Dean Letfus.

Nek Minnit

Dean Letfus — Tue, 29 Nov 2011 19:29:07 +0000

This came out a week before the election but proved to be rather “prophetic”

Get Going and Stay Safe ~ Dean Letfus

Simplicity

Dean Letfus — Sun, 27 Nov 2011 19:50:00 +0000

I realised yesterday just how complex our lives have become in modern society. I was sitting in a church in mid service when the towns power went out.

Now if this had been in a typical NZ church basically everything would have ground to a halt. You couldn’t hear the speaker without a PA system as our venues are both large and poorly designed acoustically. You couldn’t sing because the band are all electrified and enhanced and nobody would be able to see the words without powerpoint and screens.

And then when the power did come back on it would be anything from 3 to 10 minutes checking that all the expensive equipment and computers had reset properly and everything could be “restored”.

But what happened yesterday was………….

We carried on regardless. Everybody knew the songs and just sung “a cappella”. The speaker spoke a bit louder to be heard and everybody could engage him no problem. When the power came back on the fans started again, which was nice in 32 degree heat with 99% humidity, but other than that nothing changed.

It is hard to convey how powerful a lesson this was without you being there but I suddenly saw all the things we clamour for; all the toys, all the gadgets, all the latest things, as distractions that often keep us from what is really important.

Something to think about on a Monday!

Get Going and Stay Safe ~ Dean Letfus