Trading property flat market vs rising market

[Don't believe the Hype]

Sometimes the best strategy is to do nothing.

[Frezzinghot]

You mean this statement "If you want yield, you just ask for it" - how more simple can it be ???

Step 1: Decide how much Yield you want, lets say for example you want 6%.

Step 2: Find a house you like, lets say for example there is a house on the market for $1,050,000 that you would like to buy for 6% yield.

Step 3: Find out the rent, say its $835 per week.

Step 4: Calculate the price you need to pay to buy the house at, which will give you 6% yield, so (835x52)/.06 = CIRCA: $725,000

Step 5: Put a cash unconditional offer in at $700,000 - negotiate and buy it at $725,000

So you want a certain yield, you just have to ask for it, and eventually you will get it.
If you don't ask, if you don't try, then you wont get it.

If you don't believe me, well the above example is exactly what I did in May this year.
CV 1050 and RV of 1.1m

Was this a trade Blue? That is an incredible discount!!!

[Frezzinghot]

The uncertainty on sale price at the end. One of the issues is that a lot of real estate agents don't have a clue what a house is really worth at the end either. They say, buy it, do up the kitchen and bathroom and it will sell easily, but they kind of miss all the other costs associated.

And also from watching many traders not make any money, or lose money. Plus trying residential trading myself.

Ross

Ross

I have seen some real howlers! One guy spent about 200k on a trade, by the time he had finished many months later the house was well over capitalised, profit was unlikely in the market he was playing in so the real problem he had was he did not understand the buyers he was selling to. I think if you are trading you need to know your market like the back of your hand.

[JBM]

I have seen some real howlers! One guy spent about 200k on a trade, by the time he had finished many months later the house was well over capitalised, profit was unlikely in the market he was playing in so the real problem he had was he did not understand the buyers he was selling to. I think if you are trading you need to know your market like the back of your hand.

Got a house across the street from where we live been on the market for over a year ... was a spec build by a builder .. think he was hoping it was going be a quick trade after building but wasn't a smart design for the asking price .. and we have seen house prices boom here in Central Otago 50%+ for many over last 3yrs

[flyernzl]

I am not a trader but from what I hear you have to work backwards.

The thought process goes something like this:
" If I do this and this I expect I can sell the place for $900K.
It will cost me $60K to do the work, which will take two months and then another month to sell it so the three months hold will cost me $15K. For my time, effort, skill and risk i want at lest $30K, so my top buying price would be no more than $795K.
I will start my offer at $700k and drop out if it gets above $795K".

[DaveW]

I am not a trader but from what I hear you have to work backwards.

The thought process goes something like this:
" If I do this and this I expect I can sell the place for $900K.
It will cost me $60K to do the work, which will take two months and then another month to sell it so the three months hold will cost me $15K. For my time, effort, skill and risk i want at lest $30K, so my top buying price would be no more than $795K.
I will start my offer at $700k and drop out if it gets above $795K".

You would need to add contingency and your profit margin needs to be increased to at least 20%.
I don't know about the project blue kiwi gave above but did he spend any money on renovating the property or is it a straight buy and sell only?

You should aim to make most money in the buying (at least 20%) , so if the property for sale at $1M is realistically expected to sell at 900k that means if you buy at $700k then you've made $200k equity. If you managed to have it valued at $1M then you have $300k equity but don't expect the market to pay $1M. If you figure you can do it up and sell at $1M then that will increase actual gross profit by $100k but if you had to spend $60k and two months of your time to realize that additional then that's a bad choice. Better to have spent that time finding another good buy. You wouldn't want to spend more than $30k to make that worthwhile.
Have you heard the saying - spend a dollar to make $4. It applies to renovating.

[BlueSky]

I wouldn't.
The market has changed.
Sometimes I went seven years between buying, at other times I bought three in one year.

There is a time to buy and a time not to buy.

It will change back at some stage.

Lot of investors are guiding to invest in the regions. . I guess it depends on how many rentals you want but 3 or 4 in Auckland would be sufficient for most to retire on rather than 10 in regions. If you can manage and maintain them yourself, it will save you $$ as you save 7% on PM, etc Investing in regions can be rewarding but need to wait for a lot longer. I recall Hamilton was stuck in a rut for a decade before Aucklanders decided to move or bought rentals there. Now prices over there are ridiculous almost the same as AK. Yet it doesn't have the economy or population compared to Auckland.

[OnTheMove]

Our plan is;

Beginning flat market (such as now) - focus on paying down debt and improving current property

End flat market- yields will be higher so look to purchase buy + holds

Beginning rising market- delayed settlements, new builds, begin property trading.

Middle/end rising market- sell off trades, quicker turn around trades.

Rinse and repeat.

Thoughts?

Buy and holds are fine in plateau but you have mentioned your tactic for market crash, what will you do if the market loses 30% and interest rates hit 20%?

Also seldom do you make money in NZ on actual renovations. You make the money on a rising market or buying below Market Value or buying a forclosed auction (you could also lose money), Kiwis are simple people, there isnt the market unless you are willing to risk mulri millions for renovations.

Also depends where you are buying, in Auckland, good luck.

You usually want somewhere that hold 100k pop, has many big employers, has not hit is upper value (pretty much everywhere in NZ has now).

Not trying to burst your bubble, its just you havnt mentioned a declining market. NZ does not have the fiscal reserves to stop a big market crash given its personal debt is 150% of its Production Income/GDP.

And to be honest I think a market correction of 30-40% is about right and will have us back at the mark if we drew a line from 2000 to 2019 and you will see where I believe our market value is at possibly 10% increase due to some gentrification of the city. Labour knows "Kiwis buying Kiwi homes" will not occur until either house prices drop or income to price ratio dramatically increases, ie wages double over night.

If you are TRUELY of mind set to hold for 20+ years. A loss of 30% wont bother you. Rents will minimally change. But to make money you need to find desperate vendors, which is often 1 in every 500 calls kind of ratio.

You need a risk strategy. ie have you bought thee houses so you personally cannot be held bankrupt you should not afford to pay the mortgages?

[Bluekiwi]

Buy and holds are fine in plateau but you have mentioned your tactic for market crash, what will you do if the market loses 30% and interest rates hit 20%?

Also seldom do you make money in NZ on actual renovations. You make the money on a rising market or buying below Market Value or buying a forclosed auction (you could also lose money), Kiwis are simple people, there isnt the market unless you are willing to risk mulri millions for renovations.

Also depends where you are buying, in Auckland, good luck.

You usually want somewhere that hold 100k pop, has many big employers, has not hit is upper value (pretty much everywhere in NZ has now).

Not trying to burst your bubble, its just you havnt mentioned a declining market. NZ does not have the fiscal reserves to stop a big market crash given its personal debt is 150% of its Production Income/GDP.

And to be honest I think a market correction of 30-40% is about right and will have us back at the mark if we drew a line from 2000 to 2019 and you will see where I believe our market value is at possibly 10% increase due to some gentrification of the city. Labour knows "Kiwis buying Kiwi homes" will not occur until either house prices drop or income to price ratio dramatically increases, ie wages double over night.

If you are TRUELY of mind set to hold for 20+ years. A loss of 30% wont bother you. Rents will minimally change. But to make money you need to find desperate vendors, which is often 1 in every 500 calls kind of ratio.

You need a risk strategy. ie have you bought thee houses so you personally cannot be held bankrupt you should not afford to pay the mortgages?

Interesting idea's here.
Do you think then you can make money buying below market value and then re-selling, without doing ANY renovations.

[Bob Kane]

Interesting idea's here.
Do you think then you can make money buying below market value and then re-selling, without doing ANY renovations.

Of course.
That happens when the market is rising.
I remember Dean L. saying he never did any renovations and he made a fortune.

[Nick G]

You can but be careful. I did it a lot in the GFC.

Interesting idea's here.
Do you think then you can make money buying below market value and then re-selling, without doing ANY renovations.

[Don't believe the Hype]

Of course.
That happens when the market is rising.
I remember Dean L. saying he never did any renovations and he made a fortune.

Dean said lot of things you would find hard to believe.

[Bluekiwi]

Dean said lot of things you would find hard to believe.

I have his "Massive Action" DVD series kit right in front of me here on my desk.

Bob Kane, yep of course you can do in a rising market.
But I am talking an instant on-sell so no waiting for market to rise, and in particular looking at a flat market situation.

Nick G yep that was a flat time, what was the margin with no reno.

[Beano]

Interesting thought. So times like these when the market isn’t showing great yield returns you just sit and sit for years and then buy in downturns (such as 2009-2010?)

In the meantime do you just pay back loans or invest in alternatives (share market funds for example)?

Repay your loans

[Bob Kane]

Bob Kane, yep of course you can do in a rising market.
But I am talking an instant on-sell so no waiting for market to rise, and in particular looking at a flat market situation.

I wouldn't expect to make money in that situation.
Some people resort to dishonest methods and manage to make some money.