Grow rich with the property cycle

[Gerrard]

Hi Kieran, I've just finished my first pass through the book and am amazed at the now obvious holes in my education. I knew there was a property cycle, but really hadn’t thought hard about how I would approach things differently in the different stages. I’m going to have another more thorough read over the next couple of weeks as things sink in, but have a few questions in the mean time:

You talk about going into an aggressive buying pattern at the start of the recovery phase. Does the wise investor leverage themselves up to the highest point they feel comfortable with at this stage (e.g. 90% LVR) in order to purchase more property, and reap the capital gain in the coming phases?

Although the financial pinch appears to go on in the slump phase, this appears to be the obvious time to give existing properties a makeover. Do you have any evidence (anecdotal or otherwise) that this is a successful strategy to maintain tenants and rent levels during the slump?

You seem to be suggesting that by waiting until the bargains come up in the slump and recovery phases, that I will be able to buy positive cashflow properties in better areas (i.e. higher social-economic) than I would right now. Is that correct?

You have been selling the minor dwelling strategy for a while now. Will you continue to promote through the slump phase, or will you be taking a different approach?

Thanks for the enlightenment. The value of your book has been many, many, times its price tag.

Regards
Gerrard

[kieran]

Thanks for the feedback Gerrard,

I'm glad you got plenty of food for thought from my book.

To answer your questions:

You talk about going into an aggressive buying pattern at the start of the recovery phase. Does the wise investor leverage themselves up to the highest point they feel comfortable with at this stage (e.g. 90% LVR) in order to purchase more property, and reap the capital gain in the coming phases?

Yes, typically you should leverage up as much as you are comfortable with in the early recovery and yes there is a comfort level that is specific to individuals. Some won't exceed 65% but others will happily go to 90%.

Although the financial pinch appears to go on in the slump phase, this appears to be the obvious time to give existing properties a makeover. Do you have any evidence (anecdotal or otherwise) that this is a successful strategy to maintain tenants and rent levels during the slump?

Not anecdotal evidence but many personal stories from clients confirming this (i.e. struggling to get a tenant so makeover the ppty and then easy getting a tenant) and when you think about it, it's common sense that the made over property catches the tenant and commands a premium rental (versus the not made over property).

You seem to be suggesting that by waiting until the bargains come up in the slump and recovery phases, that I will be able to buy positive cashflow properties in better areas (i.e. higher social-economic) than I would right now. Is that correct?

Yes, but that doesn't mean the +ve c/f ppties in better areas will necessarily be cheaper than they are right now... just that rents will increase and at the beginning of the next recovery the opportunity to get +ve c/f in better areas will again be possible.

You have been selling the minor dwelling strategy for a while now. Will you continue to promote through the slump phase, or will you be taking a different approach?

As long as this strategy produces good +ve c/f before tax we will keep using it until an alternative strategy becomes evident which produces a better result. The Minor Dwelling strategy still works well but nowhere near as well as 12 months ago. The window of opportunity for this strategy appears to be closing... but for now it remains open.

Regards

[Gerrard]

Hi Kieran

The Minor Dwelling strategy still works well but nowhere near as well as 12 months ago. The window of opportunity for this strategy appears to be closing... but for now it remains open.

Why is it not working as well now? Do you mean that even Minor Dwellings are not enough to be cashflow positive any more?

Thanks
Gerrard

[muppet]

Hi Gerrard

Read some of Kieran's earlier posts.

I think it is something to do with the Waitakere City Council charging more for permits etc.

Regards

[kieran]

Thanks,

Yes Waitakere City Council now levy an extra expense of around $9,000 when you build a Minor Dwelling.

So when you consider doing an MD today you now have:
1) The extra $9k (based on interest cost this reduces c/f by -$720p.a.)
2) More interest expense. Values in West Auckland have increased by over 20% plus interest rates are 1% higher than last year (on say $330k = -$3,300p.a.)
3) Rents have softened slightly ($10/week = -$520p.a.)

You probably can start to see that the numbers are not as good as they were last year as roughly $4,540 has been eroded from pre-tax c/f in the above example.

Like I say you can still get good +ve pre-tax cashflow but it's dwindling rapidly for any new deals. I am currently in the process of ascertaining how to deal with this or change the equation so we get better pre-tax c/f.

[kieran]

Someone has just emailed me a glowing review of my book which has apparently been posted on another forum.

Posted: Monday, 9 August 2004 9:43:43 PM

I read a book on the weekend that's called Grow Rich with the Property Cycle by Kieran Trass. One of the girls at work gave me her copy and said I should read it. Well I went and got my own today because it's got to be the best book I have ever read on property investing. It is filled with lots of common sense, so much so that I found myself nodding along with each point which is set out in a simple and easy to follow way. It's stuff we should know and should realise. It has lots of ah-ha's in it. Unlike a lot of books, it is not one that pushes property as the be all and end all, but rather one that seeks to give us a true understanding of how the simple basics have such a profound effect. I am brimming with confidence now. This author deserves enormous thanks. I cannot recommend his book highly enough.

Best regards

Jacqui

[kieran]

Interestingly the thread containing the above review of my book (placed on a thread in another forum) has apparently now been removed from that forum by the site moderator..?

I welcome all feedback from anyone who has read my book and feel free to ask me any questions about it on this forum. (At least we know the moderators of this forum are not biased and will not delete genuine comments).

[Gerrard]

Kieran - would this by any chance be the same property site that does not appear to carry your book in their bookstore, nor carry your advertising in their magazine?

Sounds like paranoia to me (theirs, not yours!)

Gerrard

[janesco]

Hi Kieran

One of the good things about having a good product, or as in this case an excellent book, is that it doesn't matter how hard the opposition tries to block it the word of mouth things works anyway.

I actually saw that review but I thought it was on www.landlords.co.nz. I may be showing my ignorance but it seems to be a good site. I don't think it is the site you are talking about.

Just as an aside I actually think the book is brilliant. Very easy to read, logical and very helpful. Well done. Now if only I had purchased the autographed copy......

Allan S

[donna]

I'm hearing some fantastic reviews of Kieran's book and we want them!

You'd be helping out your fellow members by submitting your comments on Kieran's book in our Bookstore....go to

http://www.propertytalk.co.nz/module...&bookId=84

and add your comments and rating.

Ta v much

Donna :P

[kieran]

Allen,

I really do appreciate your feedback. I quite like the www.landlords.co.nz site too.

Next time you are in Auckland, drop the book into the office and I will sign it for you. If I'm in the office we might catch up for 5 minutes but if I'm out or in a meeting just leave it at reception for me to sign.

Regards

[janesco]

Hi Donna

I have done as you have asked...

and

Hi Keiran

it was my pleasure. I may very well take you up on your offer.

Allan S

[PC]

Just finished reading Kieran's book.
Other than the "get rich" Title and the 9 pages of Hybrid promo at the end, it impressed me as sensible advice.

I was surprised to see what little effect interest rates had on the cycle.
The classic economic cycles seem to put more emphasis on interest rates.

There was not much mention of the aging population and the baby boomers.
I sometimes wonder about this when I see the oldies selling the large family home and then move to a remote coastal area!
Phooey on real estate - invest in mobile medical/nursing/handy man services for the old and rich living miles away from any services!

Kieran - Thanks for the good education.