Article for the NZ Property Investor Magazine I did 2- 3 years ago.

[Pegasus]

Hi Striver
When trading its true you never know when you will find the next great deal thats for sure and it can be seriously frustrating to say the least when you are looking and looking and can't find anything that adds up. Pretty much every year I am not sure if I will find another good one. But my partner always says - well if you look back we have found good deals every year so we will again this year and we do.
There is always opportunities. Last year we got 4 fantastic deals and I don't see any reason why we won't do that again this year if we look and focus hard enough. There are people out there making a living from property so it is a viable business.

The opportunities have come for us when we can use our experience to see how we can do-up a place for less than others may think and get it to be worth a lot more than you would first imagine. Also with our knowledge now about subdividing in our area we have been able to buy at what looks like market value but with the knowledge that we can create a new section etc out of it that not everyone may realise or want to do.
Sometimes in the height of the market there is actually more opportunity with trading. If you think about it there is never one set price for a house - theres always a range, one person will pay more than another if its worth it to them. So if you can be in quick and get it under priced a little or see a twist it can be easier to sell it on again higher than in a slow market. Also don't underestimate the way value can increase with cosmetics - a tenanted dirty cluttered house can look way different when you clean it up, do the gardens and house dress it. Also we have done well by turning a 2 bed into 3 bed to increase price if it is spacious enough to take a bit off the lounge or change the layout.

Definitely you need to have your funding ready so you can make quick clean offers. In the quieter market you can take your time and put in more clauses but now we don't have that luxury so much. Usually if it looks good, we get down there asap but first I call the council to check on permits so we dont need a lim and look up the section size, etc on the internet. We do our own building check when we are there, or allow a bit for anything we are unsure of. We have revolving credit funding off our equity so that the money is there mostly so can go cash unco if we want to. Also you have to be a bit pushy sometimes with the agent to get them to write it up there and then and not take their time.
I have private messaged you so you can just reply to that message if you like - look at the top of the page under Notifications or Private messages and it should be there.
cheers
Pegasus

[orion]

Hi Pegasus,

Very good posts.
I don't remember you on here from a few years ago when I was on more, you sound like you are doing really well.
Which part of NZ are you in?

Graeme

[Bluekiwi]

How does this work in a falling market?

Pegasus your posts are like gold to me, you are a real genius.
The one thing I have done differently, is to buy as many holds as I can now, while market was low, from 2008 to 2013, about 5m of property (12 income streams).
As my holds are bought early and I get the most capital gain from them.
Not quite cashflow nuetral as I spent money upgrading RV's and had a few problems along the way.

But covering negative gearing while house prices are increasing and you are buying well and adding value is quite easy.
Not so good if you buy at value, your reno does not add value, or you havent bought the right place and right time - this is what you have to learn to get right.
And Ron and his students have done this right, and what you pay mentoring to get right.

Now I am maxed out on holds (all with development potential latter I might add, especially with Unitary Plan).
I can get into property flipping, ye old buy and sell.
Mixing holds and flips certainly does not bode well for the tax man, you should get specialist advice if you are going to do that.

Pegasus, you have made me print out more of your posts again, you are right.

Here is how it works elguapo.

Bad Market:
You can buy really well as everyone is desperate to sell and cant afford to make their houses look nice.
You can therefore add value easly and buy well.
Selling is hard and can take time, so you sell fast as you can by selling "Below" market value.
But you should have bought well enough and added enough value to cover that.
You can fish with lots of low ball offers.
Sell fast and quick basic reno's as you dont want to be caught holding a lemon while prices dive.

Good Market:
Be very very fast to spot a deal and buy it.
Take your time and do a good reno to make house look superb, buy in a hot demand area, called a "Blue Sky" sale as the sky is the limit at auction.
You buy in an up and coming area so even while you have it under contract and are renovating, you are making money

Nice and simple.

[Pegasus]

HI guys
Graeme I think I probably started posting towards the end of when you were posting so never had much interaction then.. You have been our main mentor - altho we have never met! When you start you really need to have that ideal of what someone else has done so that you can believe it is possible and strive to get there and you provided that for us so thanks again.

I did send a Q&A to you when you were doing those in Prop Investor mag and my letter got printed so we won a copy of your book. At that point it all seemed so hard and we used to wonder what magical things are these guys doing to find such amazing deals. Now it doesnt seem like any more than common sense but I guess it takes plenty of time and experience until it is more straight forward. We are in Whangaparaoa, just north of Akld - (still Akld tho) and do everything in this area only, as it has seemed safer to stick to what we know.

Hi Bluekiwi - always like to hear what you are up to... We were traders first becos we didnt want the hassle of being landlords back then and also just were doing it to make a living and couldn't afford to buy rentals as well as trade at first. So we have never counted on capital gain - thats the way we learned it, a trade must add up as it is in the current market as you say. Saying that, we unintentionally have also benefited from the capital gain in the last few years as we started to buy the rentals similar time to you and they went up so much the equity meant we could buy more. Also last year we bought a few development properties as trades and by the time we had done the subdivisions they had gone up a lot more than expected, so it is a good strategy you have taken to profit from the capital gain at the right time in the cycle.

I think the goals are the thing that should drive the actions. Our first goal was just to make large amount of money easily. We would focus on that - this was even before we knew about property. We fell into it by chance or synchonicity and found it was a good way to trade and make the bigger sums fairly easily - ok maybe not so easily when we had to learn all the reno-ing from scratch... but big sums anyway

Then our next goal was to pay off our home mortgage - to be mortgage free. After that we felt we didnt want to rely on trading forever - it can be stressful never knowing how much $ you will earn each year so we looked into rentals. The reason for this was our new goal was to have enough passive income to cover our expenses so we don't have to work. Basically we like our freedom and are not that into working - certainly not full time or for too much of the year anyway and its good to have a decent break over summer as well! We have reached that goal now just from the good trades since 2009.

At first the rentals just didnt seem to add up but we were very lucky to be ready to do them at the right time, in the recession. We bought 7 houses ( 4 properties, 3 with 2 houses on one site) as buy and holds and got them to be 10% or higher yeilds with reno and highest rents possible. We want to have them very close to being paid off if we can in the next couple of years. We will probably sell one of them in order to help this goal. If we can do that they will give us $100k passive income after costs which is more than enough for us seeing as our expenses are low - no mortgage, no kids. We also have a part of our home as a flat/ 'border' giving $10k/yr. We have a few other properties which are at various stages of subdivision right now which will be onsold to help the goal and one good one we may keep.

We were tempted to buy and hold more but we decided to keep it very simple becos our goal is to have the passive income as quickly as possible. Once we achieve that we can buy again next recession if we feel like it but won't have to. Keep it simple and safe and reach the goal as fast as we can is our strategy.
We have had pretty low spending, not done up our own house or anything until we get there.

Part of this is fueled by the pain we suffered in 2008 where we lost money and interest rates were 9%. I am determined to get to where it doesn't matter for me what interest rates are doing becos I am not borrowing anything! Of course we are keeping as much revolving credit facilities as we can in case we want it.

A few years back we heard Ron speak advocating his buy at 7% plus yields for capital gain and felt it to be very risky. We were proven wrong - it does work to use the capital gains. Now however I heard he is still advocating this strategy even to buy at 6% yield and I have to say we are concerned as to whether this is sound advice for those with little behind them borrowing to the hilt at this point now given how much prices have risen. We are not in the main Akld market however so can't say for sure if there is more capital gain to be had, enough to make it worth it to start buying up big now.

What are your plans Bluekiwi- we are doing well out of the small developments right now, they do take a bit of time dealing with council, suveyors etc etc but I enjoy that, its not really like work for me and we have found the relocatable house I mentioned so very excited to see that happen in next few months. Will you develop any of yours further right now or try more trading?

[Bluekiwi]

I am just getting into trading now. I have done a few in the past, and made about 30k on each one.
If I can get my trading to work in East Coast Bays where I live then it would become a dream job for me.
But I currently work and invest in South Auckland and all my expertise and contacts are out that way, so I may trade a bit around there as well.
Over the bridge in my mind is "South Auckland' as its not "North Auckland" and to be able to live on the shore and not have to venture past Glenfield -ever !!!!
Would be a wonderfuly lifestyle and give me time to spend with my young family.

The Unitary Plan has become a little gold mine for me, I know that the general populace (and the majority of investors) have no in-depth understanding of this.
And it is the biggest thing that has hit auckland property market for about half a century.
I am lucky in that I bought a lot of large houses on large sites.
Now in the Unitary Plan I can either sell off 300m2 sites (or build minor dwellings now), and / or, split my large houses into two dwellings and massively increase my yields.
Plus I have also in 2013 bought 4 houses that all have Unitary Plan potential.
So that is development potential for 2016 / 2017 when the Notified Plan comes into affect.

Note: The 2 times that I was in dire straights financially, 1997 and 2009, I was standing in half completed construction sites looking out into dark rain.
I am uber careful about anything with the word "development" in it.
If I bought a relocatable house and put it on site it would likely roll down the hill and fall appart on top of the neighbours house and cost me 300k to rebuild their house

[Striver14]

Hi Guys, sorry for the late reply, I was working on my property (planting some veggies) and other things.
Bluekiwi, It seems you are not a do it up yourselfer . But you have got good sense - the good sense not to place a relocatable house on a hill . Where I live there was a house on a hill at the corner of the crossing just next to me. Last winter after there was 4 days of continuous rain I noticed that the land at the corner had slipped onto the road and about a third of the house was hanging precariously in mid air. The next day a huge jack like thing behind a huge truck had propped up the house and a few nights later they carted the house away. Then they levelled the land and now they are constructing a huge 3 storied house there. The moral of the story (to me) seems to be dont place a relocatable house on a hill.

BlueKiwi and Pegasus both you guys are way way ahead of me, I'm a newbie not only on this blog but also in property. I agree Bluekiwi that Pegasus's posts are absolutely brilliant, full of the greatest advice. If I have a plan and a goal just now - my plan is to hold onto the property I have and make some money by cautious trading and then buy some more rental property and build up a passive income. Thats the goal. How I'm going to do it is another matter.

Bluekiwi it seems to me that buying and holding right now may be a bit risky. But you have enough property to get rid of a few, make some profit and get more comfortable.

I have no in-depth understanding of the Unitary plan either. How can it become a gold mine? The only way I can think is that south Auckland will develop and get more connected and hence property values will rise there. The other is that big plots can be subdivided, but I thought that could have been done anyway.

[Sebastian]

Hi Graeme,
Just wanted to say thanks for the great post. I was stoked to see you posting on here again.
It was your book and your earlier posts on this forum that helped inspire me to buy my first property about 7 years ago when I was 24 and then pursue some trading. It's been a great journey.
I still recommend your book to friends.
All the best,
Sebastian

[orion]

Thanks Pegasus and Sebastian, much appreciated

[donthatetheplayer]

I have no in-depth understanding of the Unitary plan either. How can it become a gold mine?

Striver, have you looked at the unitary plan? It's worth doing some research about this to get your head around it.

I'm not sure about one-off properties but I have been well informed that the (proposed) unitary plan zoning has been priced into large section/land sales already.

[Striver14]

Hi yeah I had a look at it right now. The council has a viewer which gives the summary of the property you are interested in. Then there are the rules for subdividing in the Mixed Housing Urban or Suburban zones. The (proposed) unitary plan zoning may have been priced into large section/land sales but if you get resource consent the value would be higher I'm sure.

[bchu]

Thanks for very informative posts guys,
I admired all the advises/hints from Orions, Pegasus...
Just have quick questions that with the current regulations in NZ, what is best structure/setup for maintaining the Holding and Trading portfolio together and not tainted ?

[Bluekiwi]

Thanks for very informative posts guys,
I admired all the advises/hints from Orions, Pegasus...
Just have quick questions that with the current regulations in NZ, what is best structure/setup for maintaining the Holding and Trading portfolio together and not tainted ?

Okay first up you have to seek the advice of a property accountant specialist, before you set up shop.
As it will depend on your situation and what you want to do.

But in a nut shull, you cant (avoid tainting) anymore, but:

1. If you have intention when you buy your rentals to keep them as long term holds, and you keep them for 10 years, then you should be safe.

2. If you buy some holds, then do some trading in another entity then shut it down, then by more holds, then you are not in the active business of property trading at the time of purchase and will therefore not be tainted (get this right tho).

3. You just dont do one flip and are tainted, you need to be "In the business" of trading or developing.

But this is just one reason why you may structure your business operations.
You also need to take into account tax minimisation, protection of family assets.

[Striver14]

New rule requiring Auckland property owners to seek iwi approval

Hey all, Auckland Council is introducing a new rule requiring Auckland property owners to seek iwi approval to work on sites of cultural and heritage value to Maori. This will cause huge unnecessary delays and costs and is political correctness gone mad. They will claim every site has cultural and heritage value to them and will demand money for approval.

We can oppose this online by going to the auckland council site /unitary plan and then clicking on make a submission. Please do so and circulate this widely. TODAY IS THE LAST DAY FOR THE FIRST LOT OF SUBMISSIONS.

Cheers everyone.