Michael Yardney's advice:

[Bob Kane]

Which puts the high yields in rural towns in context.
(high risk)

[Dean@Massiveaction]

Especially right now when there is high yield in cities.You can't take too much notice of the Ozzies, their strategies are totally different. They invest solely for growth, they buy outside OZ for yield. USA and places like Tokoroa here. They are still doing tours to Toke :-)

[Bob Kane]

You can't take too much notice of the Ozzies, their strategies are totally different. They invest solely for growth...

There's a mention in the latest NZ property magazine about the aussie strategy - pull out the equity and live off that. When you die there's not much for the kids but is that a bad thing?
Food for thought.
Anyone got strong feelings about this?

[Dean@Massiveaction]

This is a very old Yardney/Mcknight strategy. It is from around 05/06, weird it would be in mags now.
It is an Oz strategy where they consistently get ridiculously high growth. Irrelevant to NZ, ignore it Bob :-)

[Orkibi]

This strategy called living on equity, should be few threads covering discussions about it. As Dean mentioned, it is not relevant for The current NZ or global no growth market.

from memory you have to have a certain size portfolio to actually for this to work. $1.5million + 10% growth yearly.

you cant count on a strategy like that.

[WGN ex-property manager]

This is a very old Yardney/Mcknight strategy. It is from around 05/06, weird it would be in mags now.
It is an Oz strategy where they consistently get ridiculously high growth. Irrelevant to NZ, ignore it Bob :-)

Respectfully disagree:

The big old timers are still doing this, but you need a LOT of spare equity to keep it safe.

If you're only 40% geared on a $5mil portfolio, then taking out $150K a year (tax free) means it will take 6-7 years before you hit 60% geared, which is time enough for some growth to come and give you more headroom.

If you start from a portfolio in "high growth mode" (ie 80% geared before the crash), then of course you can't do it, but if you can keep it for 2 property cycles without selling down or increasing debt then you should be set for he rest of your life.

[Bob Kane]

Yeah - that's what I was thinking, Robin.
Perhaps it wouldn't work for the young fellas but after a few property cycles you'd have enough equity to stay ahead.

[Orkibi]

Perhaps it wouldn't work for the young fellas but after a few property cycles you'd have enough equity to stay ahead.

That's if you stopped borrowing (topped up your mortgage) each and every time you property increased in value.

[Bob Kane]

Of course - always take out less than the capital gain.
When there's no capital gain - don't take any equity out.
Simple rules.

[Dean@Massiveaction]

I don't know any old timers doing that at all. Quite the reverse, seasoned investors sell down in booms and rebuy in busts.
They never gear up, they build their buy and holds and flip each cycle for cash. Is a common thread amongst anybody I have spoken to who is a 15 year plus investor.
That's why I changed my own rules.
In OZ the opposite, they keep borrowing and borrowing.
You'll hear the pop from here :-)

[Bob Kane]

I don't know any old timers doing that at all. Quite the reverse, seasoned investors sell down in booms and rebuy in busts.
They never gear up, they build their buy and holds and flip each cycle for cash. Is a common thread amongst anybody I have spoken to who is a 15 year plus investor.

If we assume they all picked the end of 2007 as the peak and sold up and then managed to also pick the bottom of the slump in 2008/9, they would have made 10% on average since that's all the market dropped.
Since it's unlikely that people can call the peaks and slumps correctly then that figure might be less.
Perhaps there's more to their strategy than that?
I guess the claim will be that they often buy at a better than average discount.
What sort of discount do they achieve?
Does their strategy depend on finding desperate sellers?

[Dean@Massiveaction]

Many of them sold 05 to 07 and they would be buying 30 to 40% below now.
10% drop, you must be joking :-) Real values have dropped at least 25%.
Ignore the stats, look at what actual deals are selling for.

[Tom]

I agree with that opinion Dean. The stats say one thing but I have seen first hand the impact that the "downturn (read: crash)" has had in South Auckland at least. I saw a sustained (for approx 24 months) values drop of over 25%, in some cases more, and it is only just starting to stabalize now, after 3 years. Properties (full site, 3 brm, garage) that were commonly selling for low to mid $300,000's found a new base in the low to mid 200's, and the cheaper (crosslease) properties had an even larger 'correction'. It was, and still remains, incredible.

[WGN ex-property manager]

No No No......

You're all still looking at this from a growth point of view... where the aim of the game is to maximise the growth of the capital invested.

The people I'm talking about have ALREADY WON the game... they have reached their financial finish line.

The portfolio gets split in 2... 1/2 is for funding lifestyle, gearing is typically 40% or less. Lifestyle is funded from TAX FREE capital dividends, achieved by increasing debt. Typically they assume capital growth rates of half the historical average. This 1/2 is for tax efficient income for lifestyle, with a hedge against inflation.

The other 1/2 becomes the "growth fund" and is typically geared a bit higher, with a large war chest for picking up opportunities, more like most of the approaches discussed here on PT.

[LKSteve]

I agree with that opinion Dean. The stats say one thing but I have seen first hand the impact that the "downturn (read: crash)" has had in South Auckland at least. I saw a sustained (for approx 24 months) values drop of over 25%, in some cases more, and it is only just starting to stabalize now, after 3 years. Properties (full site, 3 brm, garage) that were commonly selling for low to mid $300,000's found a new base in the low to mid 200's, and the cheaper (crosslease) properties had an even larger 'correction'. It was, and still remains, incredible.

Careful Tom, you'll get up someone's nose claiming New Zealand property prices have fallen. Best just to say "prices have been flat".