Buy or bye!

[Frezzinghot]

Serious scenario!!!

If you have the money now, knowing what is going on with the market and you have the opportunity to bag a bargain do you:

A. Put the offer in with long settlement and hope by the time this pandemic passes you have a market to rent to.

B. pass the property up, wait a few months then present offer?

C. Keep the money on hand to see where we are going in the next few months.

FH

[Don't believe the Hype]

I didn't confirm on a contract I had to buy a house last week - the downside risk outweighs the upside in my POV.

Beyond that locking myself into another financial commitment (mortgage/rates/insurance etc) that I can't get out of with the uncertainty of revenue streams and duration of this issue means it's not for me.

You'd need a big pair of stones to buy now.

[Frezzinghot]

Far too risky ATM! A recession is imminent now anyway, plenty of low lying fruit on the way so waiting is now the best policy.

[sidinz]

Would the people saying 'too risky' still say that if their day job was completely safe and their current tenants were beneficiaries?

[deechnz]

I’ve been weighing up the options for myself recently- do I sell up now and get out before the impending price correction, do I sit and do nothing, or do I look for buying opportunities. There is a lot of risk involved in buying at the moment but I’ve come to the decision that I would buy now but only if the purchase price factored in the risk, i.e. I’d only buy something that allowed me to get by if/when prices correct and interest rates rise (I certainly wouldn’t buy into something that could get me into trouble in a few year’s time). It would have to be cashflow positive (and then some to account for future corrections) from day1.

My current portfolio shows ca. 42% of rental income going to expenses (not including the mortgage). After paying P+I mortgage (@3.3% interest rate), I could currently break even on a $380pw rental income if I bought the house at $220k. However, if the rents get corrected down to $300pw and interest rates rise to 5%, I would need to buy the same house for $140k. At $300pw rent the house would have an 11.14% ROI. At current rents (if I did buy now) the ROI would look like 14.11% (with $380pw rent). So that is the level that I would be comfortable buying now, 14.11% ROI. While these numbers might look like wishful thinking compared to recent yields, it was only 4 years ago that I was buying houses for less than $140k returning similar yields in Flaxmere- and I’d be happy to buy in that area again now.

I’m thinking to invest $2mill in property if I can find the houses. It might not be possible, but I thought that I’d put my intention here. I know a lot of people think NZ is about to have a prolonged and severe price correction and might want to get out and/or have more liquidity in these times. So if anyone wants to talk with me, I do have lending power that I’d spend on the yields mentioned above, so we might be able to meet each other’s needs in a bulk scenario and in a relatively pain-free way.

[Frezzinghot]

I’ve been weighing up the options for myself recently- do I sell up now and get out before the impending price correction, do I sit and do nothing, or do I look for buying opportunities. There is a lot of risk involved in buying at the moment but I’ve come to the decision that I would buy now but only if the purchase price factored in the risk, i.e. I’d only buy something that allowed me to get by if/when prices correct and interest rates rise (I certainly wouldn’t buy into something that could get me into trouble in a few year’s time). It would have to be cashflow positive (and then some to account for future corrections) from day1.

My current portfolio shows ca. 42% of rental income going to expenses (not including the mortgage). After paying P+I mortgage (@3.3% interest rate), I could currently break even on a $380pw rental income if I bought the house at $220k. However, if the rents get corrected down to $300pw and interest rates rise to 5%, I would need to buy the same house for $140k. At $300pw rent the house would have an 11.14% ROI. At current rents (if I did buy now) the ROI would look like 14.11% (with $380pw rent). So that is the level that I would be comfortable buying now, 14.11% ROI. While these numbers might look like wishful thinking compared to recent yields, it was only 4 years ago that I was buying houses for less than $140k returning similar yields in Flaxmere- and I’d be happy to buy in that area again now.

I’m thinking to invest $2mill in property if I can find the houses. It might not be possible, but I thought that I’d put my intention here. I know a lot of people think NZ is about to have a prolonged and severe price correction and might want to get out and/or have more liquidity in these times. So if anyone wants to talk with me, I do have lending power that I’d spend on the yields mentioned above, so we might be able to meet each other’s needs in a bulk scenario and in a relatively pain-free way.

In theory 14% yield sounds good but usually has some hooks attached, flaxmere seems to get a lot of attention but not for the right reasons, I personally don't like anything outside of Auckland but would look at hamilton for the right price, flaxmere on the other hand just doesn't have the population to support and future growth IMHO, people are going to go to the big cities for work in a downturn and I just see the upside there.

Here is some details about flaxmere.

Flaxmere was built to cater to the housing demand of Hastings. Flaxmere was intended to be an upper-middle class subdivision but because land was subdivided into smaller lots it turned into a low income neighbourhood. Flaxmere has one of the highest social deprivation index values of the Napier-Hastings metropolitan area, being exceeded only by the suburbs of Camberley and Maraenui.^[3]
It has a small shopping centre with a supermarket, petrol station, post office, bakery, video store, butchery, indoor rock climbing centre, and various other businesses offering necessities and/or leisure. Other amenities include a library, police station, several churches and an indoor swimming complex, Flaxmere Waterworld.

[deechnz]

I'm not limited to Flaxmere. I'm open to anywhere with a population above 30k as long as the purchase price has factored in and allows a rent correction and higher interest rates to be stomached in the future. But I do have property in Flaxmere and don't have a problem buying there again.

[Monsterbishi]

Serious scenario!!!
If you have the money now, knowing what is going on with the market and you have the opportunity to bag a bargain do you:

A. Put the offer in with long settlement and hope by the time this pandemic passes you have a market to rent to.
B. pass the property up, wait a few months then present offer?
C. Keep the money on hand to see where we are going in the next few months.

FH

Market destroying pandemic or not, the same rules still apply - if owning the property will do what you want it to, you buy it. If not, you don't.

The key words in what I've written above is the "will do" bit - if you're relying on "Hope" then things aren't going to end well.

Everyone I know in the investment market is holding onto their cash at the moment, there are going to be some great deals to be had in the coming months/year.

[Frezzinghot]

Market destroying pandemic or not, the same rules still apply - if owning the property will do what you want it to, you buy it. If not, you don't.

The key words in what I've written above is the "will do" bit - if you're relying on "Hope" then things aren't going to end well.

Everyone I know in the investment market is holding onto their cash at the moment, there are going to be some great deals to be had in the coming months/year.

Agree, the real trick is picking when to go in and all out. Go in too early and you miss miss better bargains down the line, go in too late and you've missed the best deals. Im picking 6 months from now once all the mortgage holidays are done.
Not wishing any off this on anyone but someone will have to buy the properties.

[propertybuyingNZ]

What is your opinion on Steven Goodie's take, that the property prices will not fall, actually the opposite?
I am shopping for pre-approvals now, but not sure to jump in or wait. My gut tells me, its not over yet, actually the real mess has barely started yet.

[Nick G]

I'm perfectly happy to buy more. I'm aware I own a buyer's agency so take your custom grain of salt with that. I settled on a trade last week and am doing DD on two holds. The trick I see it is to do your cashflow projections at higher interest rates and vacancies (not bank-level high, but sensible) and be near employment... so the same rules as always.

I think some areas will soften but since I had no intention of buying a rental in Queenstown, Nelson or the Coromandel, I'm not really paying attention to it, although the front page of the Herald will scream it to the heavens. Nor am I buying in the $3mil family home range in Auckland.

Here is why I think prices will hold, if not rise in mid-level areas near jobs.

.... Interest rates are at 2.7, sliding to 2.5 and possibly lower. If you rent a $600,000 home somewhere for $600 per week you pay $31,200 per year in rent. If you bought that today with NO deposit, your first year interest per my spreadsheet at 2.7%/30yrs is $15,825 and principal $13,236. So you save a couple of thousand, own the home and have paid off a chunk of your mortgage. Make that a 10% deposit and your interest is $14,242 and principal $11,913. You are spending $100pw LESS than when you were renting and are killing your mortgage by more than $10K pa.

So everybody who had servicing, didn't have a 20% deposit, has a job and can swing a loan, perhaps with family help, should be out there right now trying to buy a house.

Another reason is cashflow. I can lock in 2.99% for 5 years. An awful lot of property became cashflow positive or at least neutral because of that. Mine were already very profitable and now it's just nuts once the rates roll over. A bank isn't going to take a super-profitable rental off you and you're not going to sell it, heck it might be your main income for a spell :-)

Next reason is survival... IF you can get onto the new rates and IF you haven't borrowed against the house for a failing business or a holiday home & boat combo, then (remembering that you can go on I/O and defer for 6 months altogether if you must), plain survival is a whole lot easier than going into the GFC... when rates were at 10% and banks had the mindset that the "right thing" to do with any customer in trouble was to clean them out and have a firesale of their assets.

Look at it this way, nobody is going to choose a mortgagee sale over an expensive break fee and my point that paying principal and interest is now cheaper than renting for most people really matters.

Last reason is returns. If you are a saver then your returns now are very bad. Property, even at 4-5% yields... (ugh) is more profitable than leaving your cash in the bank.

Etcetera. My goal is to double my passive income this year. If it all goes wrong I'll move to Fiji and blame forces outside my control.

[Frezzinghot]

What is your opinion on Steven Goodie's take, that the property prices will not fall, actually the opposite?
I am shopping for pre-approvals now, but not sure to jump in or wait. My gut tells me, its not over yet, actually the real mess has barely started yet.

The thing is no one is really sure are they?? But by all accounts this crisis is sure to be worse that the GFC, what I do know is finance is becoming difficult if you are an investor as the mainstream banks are not that keen on lending to investors atm. That I am sure of.

But it really makes no sense just saying house prices won't be affected by this, I agree the market will continue to rise, but will it rise in the next 6 months/a year? Cant see that happening with all bad news coming out daily.

Then again what would I know.

[BlueSky]

agree lending is tough even more so for developers ..hence the likes of DU VAL and Williams corp offering 10%, I feel lot of apartment type developers will go up the wall.
the advert reads
"MASSIVE INTEREST IN THE DU VAL MORTGAGE FUND
During times of uncertainty, it’s important to put 10x the amount of work you would usually invest into the business to build financial resilience. One of the ways we’re doing this is by building capital! We’ve only been advertising the Du Val Mortgage Fund for two weeks and our team have been absolutely inundated with enquiry.

Why are so many investors enquiring?

Impressive 8.5% fixed return p.a.
Secured by registered mortgage (the same security we provide our banks)
Tax-efficiency
Peace of mind investing with a developer who has scale"

[Don't believe the Hype]

Etcetera. My goal is to double my passive income this year. If it all goes wrong I'll move to Fiji and blame forces outside my control.

The whole post was long but well worth a read... especially for this last line!!

[Don't believe the Hype]

agree lending is tough even more so for developers ..hence the likes of DU VAL and Williams corp offering 10%, I feel lot of apartment type developers will go up the wall.
the advert reads
"MASSIVE INTEREST IN THE DU VAL MORTGAGE FUND
During times of uncertainty, it’s important to put 10x the amount of work you would usually invest into the business to build financial resilience. One of the ways we’re doing this is by building capital! We’ve only been advertising the Du Val Mortgage Fund for two weeks and our team have been absolutely inundated with enquiry.

Why are so many investors enquiring?

Impressive 8.5% fixed return p.a.
Secured by registered mortgage (the same security we provide our banks)
Tax-efficiency
Peace of mind investing with a developer who has scale"

Didn't the guy behind Du Val go broke in the GFC... an all in ego driven guy who plays big and takes risks with someone else's funds??