Leveraging vs Cash

[BlueSky]

I was asked this today by a close family.

What will be a better use of the family funds.

Borrowing capacity of $1M
Cash reserves $800K

Use the leverage to buy good cash flow IP's in downturn or use cash for a development site (subdivide and build duplexes to increase yield) when a good opportunity comes along

[absoluteproperty]

I was asked this today by a close family.

What will be a better use of the family funds.

Borrowing capacity of $1M
Cash reserves $800K

Use the leverage to buy good cash flow IP's in downturn or use cash for a development site (subdivide and build duplexes to increase yield) when a good opportunity comes along

Personally, number 2 appeals most in my thinking. Why?

- We have a problem today, that is affecting everything today.

- Property prices as a result of subdued market activity today, are affecting property prices today.

- We have a documented shortage of properties for residential occupancy, affecting supply tomorrow

- New COVID regulations as well as health and safety regulations and the timeless application of local government regulation are continuing to, and will increasingly hamper not only the speed of builds, but availability of construction specialists, and particularly in demand niche construction skills.

Short term there are barriers to development, however there are no short term advertised indicators to land prices falling. Long term, there are clear indicators that building is going to become more expensive and therefore buying a new build more expensive - higher margins for you.

Buy soon, hope for a change of government in October. Your chances of that happening go up if the lockdown is lifted this Wednesday and we are forced to return to Level 4 lockdown at a later time.

[BlueSky]

Buy soon, hope for a change of government in October. Your chances of that happening go up if the lockdown is lifted this Wednesday and we are forced to return to Level 4 lockdown at a later time.

concur with land value, but the economic impact will be for a while , 6-18 months. Better deals yet to come.

[JBM]

I was asked this today by a close family.

What will be a better use of the family funds.

Borrowing capacity of $1M
Cash reserves $800K

Use the leverage to buy good cash flow IP's in downturn or use cash for a development site (subdivide and build duplexes to increase yield) when a good opportunity comes along

If I had 1.8mill I could invest at present ....then I'd certainly be looking around a decent commercial property either primary industry or mix takeaway food related etc ..surely in the current environment one should be able to get 9-10%+ yield with good lease terms ....I see one for sale with bakery+Pizza+Subway in one property good mix in great location >>

[Beano]

If I had 1.8mill I could invest at present ....then I'd certainly be looking around a decent commercial property either primary industry or mix takeaway food related etc ..surely in the current environment one should be able to get 9-10%+ yield with good lease terms ....I see one for sale with bakery+Pizza+Subway in one property good mix in great location >>

Have you seen any change in the yields ?
I have spoken to Colliers and Bayleys today ....they said they are expecting a yield improvement but no sales yet to prove it.
Both calls were asking if I was interested in two failed settlements ...one $25m and the other $5m

[Beano]

If I had 1.8mill I could invest at present ....then I'd certainly be looking around a decent commercial property either primary industry or mix takeaway food related etc ..surely in the current environment one should be able to get 9-10%+ yield with good lease terms ....I see one for sale with bakery+Pizza+Subway in one property good mix in great location >>

Have you discussed with the bank to see what their appetite is like ?

[JBM]

Have you discussed with the bank to see what their appetite is like ?

No but will do in JUNE when my current loans come off fixed term ..but going off my last try no way I could access the 1mill+ I need to purchase the latest property I like .. but who knows till you try

[JBM]

Have you seen any change in the yields ?
I have spoken to Colliers and Bayleys today ....they said they are expecting a yield improvement but no sales yet to prove it.
Both calls were asking if I was interested in two failed settlements ...one $25m and the other $5m

I would think yields will be forced to rise to cover the risks with so many businesses in serious financial woes thanks too COVID shutdown .. I heard that of the biggest 600 NZ companies around a third believe they might not survive!!! going be many empty + unpaid landlords next several months(and how BANKs lenders add LVR to these risks) ...and take many years till we see many commercial properties back at pre COVID levels with investors happy to take on 3-4% yields ...

[BlueSky]

If I had 1.8mill I could invest at present ....then I'd certainly be looking around a decent commercial property either primary industry or mix takeaway food related etc ..surely in the current environment one should be able to get 9-10%+ yield with good lease terms ....I see one for sale with bakery+Pizza+Subway in one property good mix in great location >>

Wherebaouts the location.

So 3 streams of income/growth would be better than 3 residential 's in different locations including high growth central AK? I heard commercial yields will be down for a while yet especially when most business are forced to choose the online model including delivery.

[JBM]

Located in Dunedin