Are we maturing?

[Bob Kane]

It seems that there are signs of property investment maturity being displayed on PT.
I recall a number of years ago cash flow was king and 10% yield was demanded by all. Another famous requirement was $50 pw in my pocket minimum.
We looked over at aussie and saw their 3-4% yields and laughed.
However, there was one wise old investor who gently suggested buying 'in leafy suburbs' but he was dismissed as 'past it'.
So we roll forward the years and what is happening now?
Who is keen on 10% yields in south Auckland? Which famous investor appears to have sold up his 'high yield' portfolio and now aims for a better standard of tenant?
Cashflow may be nice but you don't seem to get a smooth ride with it.
Which is leading to the realisation that you can make money in 'leafy suburbs' with a lot less worry. We can make good capital gains over 10-20 years.
Perhaps 3% yields are ok because the capital gain will compensate.
Maybe that wise old investor knew what he was talking about, after all?

[Shane D]

Bob,

Your story was rolling along nicely until you got to the "3% yields are ok", part. I don't think 3% yields will EVER be ok.

And what is wrong with some parts of South Auckland anyway? There are some pretty good parts.

Shane D

[damage]

I actually thought it was the other way around in the last few years, ie LAQC - negative gearing etc being the norm.
It seems finally on here, and like Shane has eluded too, low yields should never be the norm.

With the removal of LAQC's and the depreciation element, we are now seeing proper property investment based on yields not speculative capitals.

[MarkButThis]

I agree with Shane and damage, a landlord must get paid for managing the properties. If I have to do work i.e. managing a property, then I should be paid the extra amount to do that work. Property investment this way is like running a business. And going back to the bad old days where people seem happy to put money into something, do lots of work, and continue to prop it up with more money, is simply bad business. Capital Gains is a form of speculation.

Now, as with anything, there is middle ground. And if it weren't for a little capital gain over the next ten years, then the current net yields for (my) properties don't stack up against a bank term deposit. So there is a bit of both arguments. Yields must be sufficient to make looking after tenants worthwhile.

[Justin01]

I also agree with the above comments that depreciation is always there where the landlord may loose a lot after having a small amount as fair/rent etc.the property management is of great importance and the landlord get paid.

[SwissKiwi]

Who is keen on 10% yields in south Auckland?

I see your point about high yield in less 'leafy' suburbs but it doesn't make sense to lump all South Auckland into one supposedly undesirable area.

Which famous investor appears to have sold up his 'high yield' portfolio

Do tell...

[Perry]

Try here and here.

[Bob Kane]

Bob,
Your story was rolling along nicely until you got to the "3% yields are ok", part. I don't think 3% yields will EVER be ok.

I do believe that yields will be coming down in the future as markets mature - but not everywhere, just in the most desirable locations. And leafy suburbs will be 2-3% yields.

And what is wrong with some parts of South Auckland anyway? There are some pretty good parts.
Shane D

Quite right - it's a large area. I'll retract that comment.

[Shane D]

Bob,

I have been thinking a bit recently about some of the pionts you discuss in your opening thread i.e. buying good solid houses in leafy suburbs surounding the Auck CBD. For me and (probably) most investors still building portfolios, I think a hybrid model would give the best balance of cashflow and possible future capital gain.

Hyrid model
I am thinking along the lines of
- buy 3 cashflow positive properties in higher yielding areas.
- buy 1 property in leafy suburbs surrounding the Auck CBD. (4th purchase)
- Then repeat process - 3 cashflow +, 1 capital gain. If the market was to heat up again over the next few years this model would adapt i.e. more focus on captial gain properties.

I think this would be a nice balance. But that being said, I would still chase a minimum 5% yield in the leafy suburbs. 3% yields scare the cr*p out of me.

Thanks for providing food for thought.

Shane

[SwissKiwi]

You could consider a hybrid model which includes commercial/retail.

[Shane D]

You could consider a hybrid model which includes commercial/retail.

SK,

The biggest barrier I see to entry into commercial is the higher LVR and stricter lending standards for banks on commercial lending.

Isn't commerical lending typically 40+% LVR? And most banks are only allowing loans for properties with rock-solid leases in place. From what I have heard its almost impossible to get loans for vacant properties.

Am I missing something?

Shane