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  1. #591
    Join Date
    Dec 2003
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    Hawkes Bay
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    Quote Originally Posted by Bluecoat View Post
    So what basis did you make your initial purchases? Yield is a pretty good indicator .
    Would you still recommend someone who has 500k capital to buy as many as he can or look elsewhere - from the tone , it seems like you want to move away from residential.
    The yield when you buy is important, based on the purchase price or after reno cost. After that it's not unless the debt is almost or fully paid off, or you can make better use of it i.e. commercial with better net yields. No point in trying to replace it with residential as you'd have to go to a worse area each time to make the yield better. That would only make sense for investors that have bought with very low yields to start with and then realised their mistake.

    If the yield is 7% plus gross with residential in a good location and population 100,000 plus then all good, not easy to do now/ So either put in a bigger deposit to make cashflow neutral or possibly look at commercial.
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  2. #592
    Join Date
    Jun 2004
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    10,666

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    Quote Originally Posted by orion View Post
    The yield when you buy is important, based on the purchase price or after reno cost. After that it's not unless the debt is almost or fully paid off, or you can make better use of it i.e. commercial with better net yields. No point in trying to replace it with residential as you'd have to go to a worse area each time to make the yield better. That would only make sense for investors that have bought with very low yields to start with and then realised their mistake.

    If the yield is 7% plus gross with residential in a good location and population 100,000 plus then all good, not easy to do now/ So either put in a bigger deposit to make cashflow neutral or possibly look at commercial.
    I recall a discussion where it was suggested that return on current value was irrelevant and you should always look at the historic value (ie not look at what a place was now worth).
    The flip suggestion was that current value was important for understanding if the capital could be invested better elsewhere.
    Seems you have come around to the latter line of thinking.

  3. #593
    Join Date
    Dec 2003
    Location
    Hawkes Bay
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    Yes, the yields in residential when buying at the time I was saying that were 8 - 9% gross and in my book buying those 20 properties were even higher at around 12%.
    The commercial net yields were similar to the residential ones at the time so there would be no point in changing.
    Now with residential gross and net yields so low, commercial is more attractive in that aspect.
    So to change to commercial now can make more sense as long as you are aware of the potential risks with commercial that are different to some of the residential risks.
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