What would you do if you had $1 000 000 in the beginning ??????

[wanted]

If you had a $1 000 000 to work with for a year.

If you do not earn anything so there is no salary to get banks financing.

How would you use the money to maximise the returns and set yourself up for the future?
(p.s. I did not rob a bank)

[WGN ex-property manager]

Buy as much 8% or greater yielding residential property at the highest gearing the banks would let me

[wanted]

Thanks Robin How about returning the 1mil next year? Wouldn't some of the money get stuck? and Would the banks 100% finance the deals if they are 8%+ yield?

[MarkButThis]

If you have to give it back after a year, then just go for a 12 month term deposit. Not very imaginative, but if you have to give the money back there aren't too many options.

You would get around 4.5% (looking on interest.co.nz)
This would mean for the year - 4.5% * $1,000,000 = $45,000
...then tax man a cometh at 30%, say
...this would mean $45,000 - 30% = $31,500 in the hand.

...Or go into the sharemarket and risk the whole million on a roller coaster ride and hope that the person you owe the $1m to won't break your kneecaps if you lose it.

[PhiCapital]

Depends on your risk appetite.

Maximising returns, if the cash is only available for one year, and setting yourself up for the future is a difficult proposition. I may have misunderstood the question but if you do only have the cash for one year you would probably need to trade property within that timeframe if you were to have any hope of setting yourself up for the future. If however the cash is available longer term then I go back to my original point on risk appetite. Low risk traditionally means a diversifed portfolio - equities, bond, property etc. High risk - take your pick - property development to playing with whatever market that you feel comfortable with.

Plenty of stalled property development project out there that need some cash.

Thom Chorley
Phi Capital

[wanted]

Property trading meaning buy/sell or costruction? Would you say in a higher value area? I suppose that would be high risk but good return?

[WGN ex-property manager]

Ah, I didn't pick up that you had to give it back after 1 year.

I'd look at doing a major renovation / remodelling on a a multi-income property, with the aim of end up with a 100% financed deal via value add.

Just be careful the banks really really will lend the $1m to you at the end of the project.

I have my eye on a deal like this in Wellington:

Purchase price : $800K, Renovation $100K, Contingency $100K
Projected end value (from my valuer) $1.4M
70% lending gives you $$980K on $1.4M Registered value, and the cash-flow is strong.

[speights boy]

1 mil for 1 year with no salary.
I would stay away from property.

Bank preference shares : eg ANBHA (ANZ Bank) or KCSHA (kiwibank)
Yielding about 9.15% gross (ANZ) & 7.85 % (K'bank)
Buy and sell on the NZDX with instant liquidity ( money available in 3 days)

Won't set you up for the future...but you will be able to return the mil in 12 months time which I assume is more important

[PhiCapital]

Either or both. High risk doesn't necessarily mean a high return. A high return is expected, but not always achieved, hence why a lot of developers don't make it.

If you have to give it back within 1yr you will have to create cash flow to support the proposed debt. Securing development finance is not easy, especially in this market. That said Bank's will rely on an "on completion" value, based upon contracted pre-committment from a tenant (in the commercial space at least - not sure on residential).

Thre are lots of markets you can look at - just make sure you fully understand whichever market it is you choose, in particular understand your exit strategy and how you get your $1m back

Thom Chorley
Phi Capital

https://www.phicapital.com

[CJ]

There was a trading TV show in the UK where the did just this. I think they got to keep any surplus (not sure about any shortfall).

It was two teams of two and they would normally find, buy and renovate3 - 4 properties in a year. It was essentially their full time job.

I think it got canned when they went into recession and they were no longer making big profits for just a coat of paint.

In real life, if I was liable for the shortfall, I would probably buy some reasonable stable shares - Rym, SKC, SKT, maybe even TEL for its yeild but on a tight stop loss.

[Tan]

There was a trading TV show in the UK where the did just this. I think they got to keep any surplus (not sure about any shortfall).

I liked that program. I guess what is being said above was also shown in the program - a lot of the renovations went over time which put them over budget. The hidden problems were more common than not as well.

[WGN ex-property manager]

I should also mention that what "I would do" and when "they would do" is not necessarily the best thing for you to do.

Each individual has different skills, experience, risk appetite, knowledge and other financial reserves to fall back on.

It would also depend on what the consequences where if the 1mil was returned late, or missing a few $100K.

Would you get executed, bankrupted or told off?

[Dean@Massiveaction]

12 month capital return in this market I would avoid property too.
If you were risk tolerant what about X00K, (say 1/2 to 3/4) in the bank and put balance into copper or silver futures or another bullish commodity. Leverage the option so you actually have a mil in play but only X00K cash in. That ratio might not be quite right but the point is preserve most capital and risk on something with limited downside and big upside. Alternatively there are a lot of people looking for short term money who will pay big fees and big interest rates. You could realistically get 15 to 25% return on that money over 12 months.

[wanted]

Hi Robin - What yield does it have?

[WGN ex-property manager]

Hi Robin - What yield does it have?

Initial rental appraisal put it at $1800-$2000pw : on $900K project costs would put the gross yield at 10%-11%