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**Ivanhoe** · 09-02-2006, 10:14 PM

hi!
cash on cash return - how do you calculate it?
take a look at www.nzgems.com - not cf+ve enogh?
and do you REALLY think that a) cf+ve properties are advertised to general public thru agent's listings and are not bought in seconds b) they would be advertised at price that makes them cf+ve c) you can buy cf+ve property in current NZ's market based on advertised price?
Where I live average yield is around 6%. 7% is consdiered by public and agent a screaming bargain.
Borrow time machine, go back to 2002 and buy ANYTHING that has roof and a bit of land or if you cannot - welcome to reality.
Now, how do you recon one can buy cf+ve property in current NZ market?

**Dean@Massiveaction** · 09-02-2006, 10:34 PM

Hi Pete, you'll find lots of tips here at PT. To answer your question though you need clear rules. Are you looking for cashflow + pretax or after tax?
After tax is dead easy to find in most parts of the country. Pre tax is the challenge. If you put offers in on all the properties you looked at you may have uncovered one or 2. There are not many agents putting cash flow positive in their adverts as most of them wouldn't know what pos cash flow was. If you search for home and incomes you will find it easier but at the end of the day it's a bit like being a door to door salesman. Every door you knock on is worth $5.
Well with property every offer you make is one offer closer to uncovering one of the 6 D's!! It might take a hundred offers, but if you put in the yards they are there

**Emblaze Pete** · 10-02-2006, 12:34 AM

Hi Ivanhoe

cash on cash return - how do you calculate it?

Annual net cash flow divided by initial cash requirements = COCR of x%

do you REALLY think that a) cf+ve properties are advertised to general public thru agent's listings and are not bought in seconds

No I don’t .I am not so naïve to think that these types of properties would be really listed online. My point was that if I chop the purchase price by a third or a half it still doesn’t represent CF+. For a property to be CF+ I would think you would have to get the property for a song in the first place, or add value somewhere to make it CF+ i.e renovations

b) they would be advertised at price that makes them cf+ve

No

c) you can buy cf+ve property in current NZ's market based on advertised price?

No

I do take your point though, in that one needs need to be on the ground sniffing them out. Unfortunately I am not in a position to do that just yet. But hear what you are saying!

Appreciate your comments

Hi ya Dean

Are you looking for cash flow + pretax or after tax?

Well I suppose ideally I would be looking at pre-tax. I don’t really want to have to rely on a tax rebate to make the property cash flow+ if I can help it. It does seem to be a challenge though. I get the feeling at least for the moment whist in UK I wont find them until I am down on the ground, which is fair enough. I now know at least I am getting the vibe that they do exist somewhere, where as before I couldn’t see how they could.

Well with property every offer you make is one offer closer to uncovering one of the 6 D's!! It might take a hundred offers, but if you put in the yards they are there

Point taken …. But how many agents are fed up with people like me, new to the industry, that start to throw in 100’s of cheeky low offers, for which in the most part will turn out fruitless. (I appreciate many of the successful investors here do this) Do agents stop dealing with you because of this? I know legally they must summit the offers but surely this can’t help to get them onside. Do you have blanket approach to summiting these offers like say 30% below asking price etc?

**cube** · 10-02-2006, 08:52 AM

But how many agents are fed up with people like me, new to the industry, that start to throw in 100’s of cheeky low offers, for which in the most part will turn out fruitless. (I appreciate many of the successful investors here do this) Do agents stop dealing with you because of this? I know legally they must summit the offers but surely this can’t help to get them onside. Do you have blanket approach to summiting these offers like say 30% below asking price etc?

Hi Pete,

If you check out Chris Ashenden's Journey, among other posts, you'll find some tips on dealing with agents. Basically, sweet talk them, tell them what you want and, most importantly, if they find it for you, reward them by buying it!

I agree that faxing low offers from overseas on all the properties listed is not going to win you a great many friends. You'll do better to find a few agents to work with who understand what you are trying to achieve.

Good luck!

cube

**leapy** · 10-02-2006, 08:55 AM

I don't think there are nearly as many people out there lowballing as is commonly presumed. And maybe now is a good time to be doing so. Most agents do not appear to be as busy as they were, and I hear some vendors are significantly worried by media reports of the declining economy.

If you are going to lowball, the trick is to find an agent who will go in to bat for you as a serious player, even though you are a lowballer. If you can lowball subject to as few conditions as you are comfortable with - so much the better. And the words "cash buyer" do wonders.

**Matty** · 10-02-2006, 01:30 PM

Originally posted by leapy

If you are going to lowball, the trick is to find an agent who will go in to bat for you as a serious player, even though you are a lowballer.

I think that’s important in the relationship building process with an agent. If they understand that you are making the offer you are because it fits your buying criteria then they will respect that (you don’t have to tell them what it is if you don’t want although it will help them source you properties later).

It only takes a few seconds to mention that you have a specific reason on why your offering that particular amount rather than just walking around town lowballing everyone

I think the people the agents do lose respect for are the REAL lowballers who make lazy blanket lowball offers. IMO that takes no skill.

**Ivanhoe** · 10-02-2006, 02:14 PM

Matty, I agree totally - lowballing is an art (i'm not very good nyself in it yet).
If you mention "rules" or "numbers" or "i invest for cashflow, not for capital gains" or "i have my target yield" or "i'm in business" but you have to "talk the talk" too...
well and buying if you said you will helps too...

**Dean@Massiveaction** · 10-02-2006, 03:46 PM

hi Pete. Answer to your question about annoying agents is that's not your problem. Investing is a business. You are trying to buy the stock for your business at the best price you can. You will eventually find agents who will work with you and if the odd one gets out of bed, change bedrooms. I probably meet 10 to 20 agents in a typical week. About 1 in 50 is worth spending any time with. But I now have 3 agents who I work with regularly who have made me nearly a million dollars in the last 12 months by prsenting my silly offers. They're spending their commissions, I've made lots of equity and the agents who didn't like me are sitting at their desks wondering why they can't sell anything. I've said it many times before but yo ujust have to get over upsetting agents.

**FreezingandHot** · 10-02-2006, 05:28 PM

I totally agree 100% with Poomba, as I have not made blanket offers at rediculous levels, I still think about the offfers I need to make to make any deal cashflow+ve, and I must admit I find myself thinking that there is no way the agent or vendor will take this offer with any seriousness.

I think you would need to train your mind to say things like "this will work if presented" and this offer is part of my business so take it or leave it. Of coarse if the agent is not willing, find someone who is. Thanks Poomba for making things that much clearer.

So go for it.

FH.

**xris** · 10-02-2006, 06:17 PM

Hello Patrick,

Without minimising the importance of striking up a good working relationship with all parties concerned, have you considered the fact that the agent is not the person selling the property - the vendor is.

xris

**RonHoyFong** · 10-02-2006, 07:50 PM

Real Deals are not found at the advertised price,

Real Deals are found at the Negotiated Price.

It all comes down to putting in lots of offers and finding the motivated vendor.

Trying to buy below value at a wholesale price, then adding some value such as another bedroom and cosmetic renovations to increase the rentals will make that Cashflow positive find more achievable.

Cheers Ron

**cube** · 10-02-2006, 08:29 PM

Trying to buy below value at a wholesale price, then adding some value such as another bedroom and cosmetic renovations to increase the rentals will make that Cashflow positive find more achievable.

People often speak about the increase in value as a result of a 'simple' makeover (cosmetic stuff, not new rooms etc), however, is it people's experience that a newly decorated property will rent for more, or will it simply rent faster, reducing downtime?

cube

**Aston** · 10-02-2006, 09:33 PM

Originally posted by cube

People often speak about the increase in value as a result of a 'simple' makeover (cosmetic stuff, not new rooms etc),
cube

New rooms don't always have to be a major reno. The first house I ever bought was a one bedroom townhouse..... by simply re-arranging the walls I turned it into a 3 bedroom. bought it for $19,000, sold it for $48,000 a couple of months later.

**Propoholic** · 10-02-2006, 10:50 PM

Hi Cube
Cube wrote:

however, is it people's experience that a newly decorated property will rent for more, or will it simply rent faster, reducing downtime?

In a flat or rising rental market I have always found that a newly decorated property will rent for more and usually let faster. I also recognise that if I let the property at an increased rent but it goes quickly with plenty of applicants then I have probably let it under the current market. In a falling rental market (after new decoration) I generally achieve an increase in rent or maintain the status quo and tend to let it faster. In a soft rental market you should discipline yourself to still increase the rent say ~$10 pwk every six/twelve months. Tenants who enjoy their living environmemnt and know it will take some effort and time to replace it with something of equal quality will not move for $10 pwk.

I learn a lot by listening to other investors and prospective tenants about their views on the rental market. Just as with the importance of motivated vendors it is important to deal with motivated tenant applicants. They may be motivated because they inform you they have been looking for properties for six weeks and everything they have seen is rough or dirty. Your property may be across the road from their children's primary school and this means they will not haveto run the children to school in the car each day. Just like solving a vendor's problem we are solving a tenant applicants problem. Price (within reason) is usually not such an issue to these people because they have found the solution to their problerms. I am talking about motivation in good quality tenants here, not a lower quality tenant that has high motivation, for other reasons

.

Your mindset in renting your property and dealing with tenants is just as important as negotiating with vendors and locating discounted properties. I know one couple who have never let their investment property for anything above $300.00 pwk over the last ten years. In 1996 the particular property was let for $300pwk, in 1999 the rent was down to $240 pwk and recently it was up to $300 pwk again. At varoius social gatherings they have told me that "the rental market is soft" or "you cant charge that much because the tenants will not stay long". The underlying problem for them is that they believe and state that "tenants cant afford more than $300 pwk rent". Because of their beliefs they have never investigated the local rental market and established what comparable properties are being let for.

So many investors spend $6,000.00 - $10,000.00 on new paint, carpet, curtains etc then look through the NZ herald/phone local letting agent and then announce we should be able to get $$ pwk. Because they have not done their due diligence they easily come off second best in negotiations with prospective tenants. Unfortunately, they never realise they have come off second best.

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