Q&A: Yields

As a rule of thumb: What, typically, would you currently expect to earn (net per annum before tax) from: a) A clean & tidy 3 bed residential property in say, Balmoral/Sandringham? b) A tidy $2m commercial property in industrial East Tamaki? What do you reckon is the quickest and least painful way to really learn about commercial property? (Work as a researcher for you for free?) Do you think we are experiencing a Great Property Market Correction where, instead of house prices seriously tanking, rents will climb to the point where it will become worthwhile to hold residential in the absence of significant annual appreciation? I conscientiously read and enjoy your newsletters.
Best wishes Diana
PS Didn’t attend ’2011:The Outlook’ but I did get the workbook and audio programme (Queens Road, Panmure – brilliant!)

Dear Diana
As a rough guide you can expect around 3-4% yield from the Balmoral/Sandringham property- but it all depends on the number of bedrooms, condition and many other factors so this figure cannot be relied upon.
The commercial property in East Tamaki could return anywhere form 6.5% to 10% depending on the quality of the tenant and the property. There are so many variables in these exercises that far more detail would be required to come up with a better answer. I think rents are due for a big correction
again depending on position ad quality. Poorer areas cannot afford big rent rises so investing to more affluent areas would be the way to go.
Cheers, Olly

Pero sparks Real Estate agent ‘mini revolution’? Olly Newland comments

Agents offering cut-price deals, says real estate commentator NZ Herald 16 Feb 2011

Commentator Olly Newland wished Pero “the best of luck”, but said most agents were negotiable on their fees anyway – if homeowners were willing to speak up.
“Kiwis aren’t good at haggling – they usually get very embarrassed about it. I’m used to it, but that’s my game.
“The tricky bit is knowing whether to haggle at the beginning or when the pen is poised over the paper,” Newland said.

Pero slashes commissions on top home sales NZ Herald 17 Feb 2011

Property investor Olly Newland said the move could prove to be a “watershed” moment for the industry if Pero lasted the distance.
“All power to him if he can hang in there – he may have started a mini-revolution,” Newland said, adding that lower commission rates were common in many other countries.
Rival agents would be “gnashing their teeth” and “putting pins in their waxed dolls” upon hearing the news, Newland said.

Q&A: Time to upgrade or downgrade?

Hi Olly
If you were selling a property in the current market, and buying another property, would you think it was better to buy a property at the same price you sold for ….. or for more and get a mortgage, or less and save the difference???
Thanks, Caroline.

Dear Caroline
If you can find a nice house for less than what you sold for, and save the difference that would be a good idea.
In theory it works well, but in practice people often get frustrated when selling down as the house they move down to is not as nice as the one they left.

Q&A: Auctions – on site or at rooms?

Dear Mr Newland Do you think Auctioning a property in ‘rooms’ against ‘on site’ has any influence on the bidding outcome?
- R

A lot depends on the setting and the weather.
If the setting is very nice then on site is preferable, but if the setting is nondescript — or the weather doubtful (such as the middle of winter) then rooms are better.

Bidding wars on rentals

Read this article at the NZ Herald:

I predicted this 6 months ago and it is coming true.

You can put the blame on two things:

(1) The Government’s discouragement of property in investment by changing tax laws in last years budget to dampen investment and remove tax beaks.
(2) The huge slow down in building consents partly caused by over anxious lending by banks, higher deposits required, and the effects of (1) above.

As fewer investors buy into the rental market (and more investors get out of the rental market)
the situation will only get worse — much worse — for renters.

The inevitable result will be higher rents, and unfortunate stories of squalor and over-crowding.

Investment properties a stepping stone

Investment properties a stepping stone

ANNELI KNIGHT www.stuff.co.nz 19 Jan 2011

Soaring property prices have made it difficult for many first home buyers, but there is another way to enter the property market. Buying an investment property before your first home is a good way to start building an asset portfolio to help you get ahead.

Michael Furlong, director of MAP real estate, was renting until last year, when he bought his first home at the age of 39. However, his first home was not his first time in the property market; he had bought and sold 18 properties before finally buying his dream home. He says there is a big difference between being a renter and a renter who is also an investor.

“The way you win is to have all of your money work for you throughout that phase that you’re still renting. The term I use is a ‘professional renter’,” he says.

Furlong says there are many reasons why it can be a good strategy to buy an investment property before your home.

“You’ll be able to afford to live in a much better property as a tenant than what you could if you were to buy it – we were living in a A$700,000 or A$800,000 property and only paying A$550 a week [in rent]. As a professional renter you’ve got a much better property for a smaller amount of money for your own personal use.”

Furlong says it also doesn’t suit many people to solidify their first home until their late 30s. …

Read on at stuff.co.nz

The Gathering Storm (column)

Olly Newland’s July 2010 column

In this column, I would like to cover a variety of topics, as the last few weeks have been crammed with ‘news’ and opinions about the property market — and much of it arrant, dangerous nonsense.

Some folk in the news media and posters on various websites have had a field day predicting the imminent collapse of the property market. They continue to be spectacularly wrong, it should be noted.

These deluded commentators seem to believe that if property prices fell by 20% to 30% (as some have predicted) then they, and their children would be able to buy a house more cheaply in the future and that would be a wonderful thing. They think a massive drop in the market would make housing ‘more affordable’.

What they cannot understand is if that really happened hundreds of thousands of Kiwis would be out of work, much of our economy and industry would come to a virtual halt, the banks would collapse and New Zealand would be reduced to a nation of ragged beggars left to shuffle through the two dollar shops and rifle garbage bins.

Jobless and with an economy in ruins it wouldn’t matter if houses were a third of their present price. They would still be unaffordable.

It will cause some consternation to these nay-sayers to learn this week, that house prices are still well up on this time last year despite the usual upside down view some in the media always make of these things.

link: http://nz.biz.yahoo.com/100711/3/k6u6.html

I always derive much amusement in the way the media portray good news through the wrong end of the telescope. The headline in this example says: “House prices fall further in June”.

It’s not until you read down further that in fact house prices are still 5.2% higher than at this time last year and the slippage (if  you can call it that) is a statistically insignificant  0.4%. Put another way, it is effectively a yearly increase on the current average price of $404,715 by a respectable $21,045 (or approximately twice the rate of inflation!)

Read the rest of this column