Property investment strategy - advice please!

[joseph]

Hi there - I'd really appreciate advice on the best path to take with my property investments. At the moment, I'm planning to partner with a friend for some properties, and we're not 100% certain of the direction to take. We're planning to each put in $50K of equity and take on up to $250K of debt each.

My preference:
Buy several sub-$100K properties in smaller centres e.g. Whangarei, Rotorua etc, all positively geared.
I like the idea of spreading my risk and also think that achieving positive cashflow will be much more straight-forward this way.
He's a bit reluctant about the prospects for capital growth and tenancy in small centres.

His preference:
Buy a single property in Auckland, maybe a 2-brm with a large section, and add a minor dwelling or several bedrooms to make the thing cashflow positive.
He likes the idea of the property being closer to home, and in an area with traditionally higher capital gains.
I like the idea, but am reluctant to tie up all of our equity in one property (especially with the speculative component and Auckland prices as they are)


I would really appreciate input from more experienced investors - thanks in advance!
Joseph

[drelly]

Why partner to do something you could do yourself anyway?

[joseph]

I like the idea of having a 50% share in 4 properties more than owning two outright, I guess... I don't plan to tie up all of my equity and borrowing power in property, so I like this idea.

Would appreciate your comments if that seems unwise!

[orion]

I like the idea of having a 50% share in 4 properties more than owning two outright ...

Hi Joseph, while it does work out occasionally long term, the majority of times people go into these partnerships, it does not work out - in fact many friendships have ended because of it. Even if it is family, the same often happens. I do know one investor that has used a partner in this way to get started and still invests with the same partner, his story is in my book in the last chapter. I don't know of any other investors that have been successful using this strategy however.
I did do it once in a quick cash deal, but would never personally use this strategy with a long term rental.

Regards
Graeme Fowler

[joseph]

Thanks orion - if we ignore the partnership side of things, what do you think of the two different approaches i.e. multiple small properties out of Auck or one property in Auck with substantial improvements?

Thanks in advance
Joseph

[orion]

The key Joseph is to know your market well enough - wherever it may be, to make sure you are getting a bargain when you do buy. By doing this, you can often refinance a short while later at 80% of valuation. This will give you back your initial equity to do the next one if you have bought well enough. You will of course need good cash flow from elsewhere to service the debt though - that is actually servicing the debt and doing the same in the bank's view (taking 70 - 80% of rent as income). If you cannot do this, you will need to increase income from elsewhere - this is where you could use an equity partner for quick cash deals, income from a second job, business income etc.
Again it comes back to knowing your market well enough to get bargains, which does take lots of time and gaining experience in many areas such as negotiating, finding bargains, working with agents etc.

Regards
Graeme Fowler

[joseph]

Thanks Graeme - I have a good income but little time, unfortunately. Also, to be honest so far I've let myself get distracted for some reason every time I've just started to get a good handle on a market. Add to that a serious case of analysis paralysis...

I've gotten to the point where I'd love to be able to have someone else find a good property for me and take a fee - any recommendations or comments??

[toby]

NO GO

Hi,
I am in the process of splitting a partnership even though I made my partner $100k +- (and myself $100k) in equity in ten months because he didn't like to not have full control of his money.
People change !
We made infinite returns - cash in cash out in 3months like Graeme says.
I thought I could emulate Steve McKnights biz partnership - WRONG!
What I'm saying is I totally agree with Graeme 100%.
So what do you do???? Go second tier if you need to borrow more after first tier drys up or increase your cashflow.
Ron LeGrand says he'd rather pay 15% pa than 50% of a deal.
And after I've been through a real world seminar I'm of the same opinion (If I only would listen!).
Partnerships are best short term or not at all.
So far as your inaction Joseph - there is possibly something in your sudconcious that is producing this reality. I'd recommend you read and apply Mind power by John Kehoe and attend a landmark forum and if that doesn't help seek out a top NLP practioneer.
Food for thought - If your thoughts dictate your actions, and you thought like Donald Trump what would be possible!!!!???
My 2 cents.

[joseph]

If I thought like Donald Trump I'd probably have had several more wives than my current total of zero and name every investment property after myself! Joking aside, I just need to bite the bullet and take the first step...

How would you recommend getting second tier finance, and from whom?

[toby]

2nd Tier

Hi Joesph,
The very first thing is - do you need it or can you go first tier and what are you after so far as buying?
I understand that currently lenders are screaming for business.
There are quite a few 2nd tier lenders but are you doing flips or are yor going long term? How much deposit have you got. Basically what are your needs.
Then I'd suggest you find a good broker if your going 2nd tier if you're going 1st do it yourself.
When preparing your proposal do it all yourself. Take some tips from Dolf DeRoes site if it's still there on how to set up a propsal for finance.
Though I don't care for ESC I did buy their Property aquisition software, worked out the returns then put in my own excel spread sheet (don't buy any other of their stuff) it also has a prop for finance which obviously copied from Dolf.
You MUST maintain the high ground. You need the mentality of I am in charge and I am offering you my business if you give me what I want.
They need you, you don't need them as there's lots of them and only one of you.
Do not sign a credit check form.
Supply your own credit check and tell them that your more than happy to have them pull your credit once the loan is approved. (reason being if they decline you and you end up with a number of declines the next lender may decline you just because the others did.
I understand Soverign has just bought in an excellent package for 2nd tier.
Many people use Bluestone but there are a reasonable nuimberof others.
Happy hunting.

[The_Dog]

There seems to be a general reluctance to form partnerships, and it's frequently quoted as ruining friendships and tearing families apart.

I am currently involved in 2 collaborations, one quick hit refurbishment, and the other a property management company. Both are going well.

In the weekend I picked up a book by Napoleon Hill, author of 'Think and Grow Rich'. It's called 'Keys to Success'

Chapter 1 (Key one) is Define a goal - or 'Definiteness of Purpose' as Hill terms it.
Key 2 is 'Establish a Mastermind Alliance', or effectively a partnership. It talks about no one person having all the skills to become truly great, and it being ESSENTIAL to form a group.

This is interesting, as it's very much in opposition to popular thought (as above).

Our Property Management Company has 3 members, one being practical and very familiar with building services, one being the IT guru and dealing with all systems and communications, and me being strong on the technical and legal side of leases etc (along with good looks and charm). In this way, I believe we are a much stronger unit than any of the individuals. We are all established property investors in our own right (before combining), all with property in more than one country, and all having similar goals and ambitions.

So why not form partnerships? Unless you enjoy struggling on your own.

The Dog.

[grotto]

Partners can be great

I've got several rental investments which I have bought with a partner, and it's worked out really well. We've had them for over 6 years, and never had any hassles. We've never bothered to have any agreement written up, and although we occaissonally wind each other up a little, I like spreading the responsibility. We manage our own properties, so can cover for each other when one of us is on holiday, and it's always good to have two pairs of hands when cleaning/painting/ etc. I find it much easier hassling tenants for rent when there are two of us, and can always do the good guy/bad guy routine. I've heard all the stories about partnerships going bad, and you'd have to know the person fairly well. I've bought houses with another partner, and they have also worked out well, so it can work. It's good to have an alternative point of view, and someone to discuss things with who has a vested interest.
Based on my experiences, I'd buy something local. We seem to end up visiting one of the properties at least every month, and it would be hard to do this if they were out of town. Small repairs can be costly if your getting tradesmen to do them, and I've found tradesmen can "over charge" if they know you have not seen the problem or solution.
But as someone has already said, the key is knowing your market. We're always looking for more properties, and so far have averaged one purchase each year. The key is to buy the bargains, and you won't know what's a bargain if you don't know the market.
I like the idea of miving a nother house onto a large site, getting some positive cash flow and then buying another.

[duvetray]

good discussion guys joseph i tend to agree with Dave do it yoruself, your risk is not really reduced by spreading it by including another partner who has different objectives to you

i am currently in the throws of working out a partnership deal to operate buying CF +ve props in the US of A with a kiwi mate who lives in the US, he is on the ground has spare investment cash, but no IP experience, i have IP experieince and small but growing portfoilo in NZ for the past 3 years, and plenty of spare equity in the IPs.

would also appreciate any tips on how to extend my LOC loan as now have plenty of spare equity in my IPs with the bank to use the funds to buy offshore, I currently live and work in the UK

the key thing I think is what the dog mentions in his post "Define a goal - or 'Definiteness of Purpose' as Hill terms it. "

In any investment partnership i think there needs to be a need for different skillsets/attributes/circumstances with a shared goal and underlying philosophy, even more important and one of our key goals is openess and honesty about expectations of the partnership.

so far have gone it alone with success, but see this as an opportunity to try out a partnership investment wise.

[Jeanene]

Hi Toby,
can you please let me know of your experience of ESC as I am looking into them at the moment and would like to know all of the ins and outs of them...many thanks