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Property Investment Blog

APIA Property Blog

How to achieve positive cash-flow

Wednesday, September 03, 2014

What is positive cash-flow?

In this week's Ask An Expert feature, David Whitburn talks positive cash-flow.

APIA Ask An Expert

I am a newbie investor and find myself struggling with many investment jargons thrown around at APIA meetings.  What is ‘positive cash-flow’?  How important is it to have a positive cash flow?  How do I achieve it considering I am only on my first property?

APIA Ask An Expert

There is a lot of jargon in property investment.  Positive cash-flow is where the rental income from your property exceeds the outgoings (rates, insurance, repairs and maintenance).  Positive gearing is where the rental income from your property exceeds your loan repayments.  

With the centuries long old trend of population increases in Auckland, and the fact we are the third most liveable city in the world, house prices are rising in Auckland.  Our gold sponsor Barfoot & Thompson publishes excellent data on house prices and rentals, which shows a gross yield of 3.7%.  Interest rates are at least 2% higher than this, let alone extra costs for rates, insurance, and a provision for repairs and maintenance.  If you are wanting to build a sizeable property portfolio since the banks look at deals with a higher interest rate to best ensure you don't get into trouble (a stress test), you need to focus on cash-flow or you are likely to get your loan applications declined as you try to build your portfolio unless you have high cash-flow from other sources.  Speak to ANZ at one of the next APIA meetings for further advice on this.  They have run some numbers for me through their calculators in the past to test scenarios.  I have noticed that many APIA members have things like home and income properties such as minor dwellings, and inner city studio apartments to provide solid cash-flow for them in the current market.


David Whitburn
David is a project manager with Fuzo, a medium density housing development specialist.  His passion is to create good property projects and connecting passionate people.  David is a past president of the Auckland Property Investors' Association, a trusted media commentator, and a bestselling author.  


Do you have any property related questions for our panel of experts?  Comment below or email us at questions@apia.org.nz.  

Understanding building guarantees

Tuesday, August 19, 2014

In this week's Ask An Expert feature, lawyer Adina Thorn shows investors how to understand builder's guarantees.

APIA Ask An Expert

I am about to engage the services of a builder but am overwhelmed by the different building  guarantees out there on the market.  A couple of friends of mine had trouble in the past enforcing their guarantees,what I should look out for when I assess different contracts?

APIA Ask An Expert

In any building contract you want to know what the builder is promising to provide you.

 
Generally, the contract starts with what the builder is agreeing to build (often by reference to the plans and specifications). From there many building contracts provide further guarantees/warranties.  These are in addition to your other legal rights – including under contract, in tort, and under legislation (such as the Building Act 2004 and the Consumer Guarantees Act 1993, where applicable).
 
You need to work out

  1. how the guarantees/warranties relate to your other legal rights 
  2. what additional protections they are giving you, and 
  3. that they will work in the way you think they do, should you need to enforce them.

From there you want to consider issues like who you are contracting with, what security you have, and what provisions there are if something goes wrong.
 
You also want to look at where and how you enforce the building contract if something goes wrong.
 
I strongly recommend you to seek legal advice in relation to the types of contract and ensuring that appropriate protections are in place.


Adina Thorn
Adina runs a specialist litigation law firm, Adina Thorn Lawyers with expert skills in property, construction and commercial litigation. She holds degrees in both Property and Law (Honours). Her knowledge in relation to property matters is a real strength to her clients.


Do you have any property related questions for our panel of experts?  Comment below or email us at questions@apia.org.nz.  

The politics of houses

Monday, July 14, 2014
Upcoming policy changes affecting Auckland property investors

With the General Election merely weeks away and housing being the epicentre of the political battlefield, it is time for property investors to understand the positions of each of the major political parties and how our investments are likely to be affected.  

Below is a summary table of the four major political parties and their policy positions for the seven hot button issues for investors: 

  National  Labour Greens New Zealand First
Rental Warrant of Fitness  Targeting state houses and those receiving accommodation supplement Mandatory for all rental properties  Mandatory for all rental properties  
Capital Gains Tax   No Yes 15% (excluding family homes) Yes (excluding family homes)  
Ring Fencing Losses "Bach tax precedent"  Yes Yes  
Heating and Insulation   Healthy Homes Guarantee Bill Energy Efficiency Conservation Bill  
Residential Tenancies Act  No Yes Yes Yes
Rent Freeze   Yes With Limits Yes
Regulation for Foreign Investors  No Overseas Investment Bill Yes Yes

Source: New Zealand Property Investors' Federation 


How to stop tenants from 'breaking-bad'?

Tuesday, July 08, 2014
Prevent your property from being used as a meth lab

It was one of those shows that is entertaining on the telly but an absolute nightmare in real life.  It goes without saying that Breaking Bad has hit a raw nerve in the landlord community.  Residential rental properties are considered prime locations for clandestine meth labs.  The high risks of fire, explosion, and toxic fumes make weekly rental payments almost negligible.  More troubling still is the seemingly incoherent fashion meth labs are entrenched in our community.  While there are pockets of meth lab hot-spots, not one suburb is entirely without risk.  If an innocent enough looking high school teacher can conceivably moonlight as a meth-cook, anything can happen. 

In the end, landlords are the ones picking up the pieces.  Not only is your property almost irreversibly damaged, in many instances the damages may not even be covered by insurance.  

The best way to handle of risk of meth labs is to manage it while it is still just a risk.  Here are some tips to help you identify early signs of trouble.  Next week we will share tips on what you should do when you seriously suspect that your property has been used as a clandestine lab.

  1. Meticulous tenant screening - Reference check your tenant thoroughly.  Watch the How to reference check tenants properly video on APIA TV now.  Or consider having your property professionally managed, meth-cooks are known to target self-managing landlord on the basis that they are seemingly less professional and rigorous in their management; 
  2. Regular inspections - Stick to a regular property inspection schedule.  You are legally entitled to inspect your property once every four weeks.  Meth-cooks know that the more present their landlords are the more likely they will get discovered; 
  3. Inspect throughly or don't inspect at all - Go through every room and outdoor areas (such as garage and shed), be mindful of the items around the place as well as the smell of the room.  Refer to this list of ingredients commonly associated with cooking meth and look out for them; 
  4. Look for tell-tale signs - such as large quantities of plastic sheetings, patches of dead grass outside the front door (may indicate toxic dumping), white powdery residue littered around the corners of the house, ammonia or cat urine smells, boarded-up or blackened windows, as well as stained sheets or coffee filters; 
  5. Establish a good rapport with the neighbours - By maintain a good relationship with the neighbours of your rental, you are more likely to have a real understanding of how the property is being treated in your absence.  Neighbours are excellent sources of information to raise the alarm bell if there is an abnormally large amount of foot traffic through your property or if there is any other suspicious activities;  
  6. Pay attention to changes in behaviour - Do not discount changes in your tenant's behaviours.  If you are suddenly getting rents paid in cash rather than direct debit then it may be worthwhile to schedule an inspection. 

How have you been handling the risk of meth labs in your property?  Meth labs pose a real risk of residential property investment that are often detrimental to the value of the entire property.  Comment respond below to share your experience.  



Alistair Helm: Is NZ in a Housing Bubble?

Monday, June 30, 2014

Alistair Helm: Is NZ in a housing bubble?

Last week, we asked the EO of the NZPIF, Andrew King, for his take on whether NZ is in a housing bubble.  This week we are pleased to have the founder and CEO of Properazzi, Alistair Helm, sharing with us his views on the housing market.  

We asked Alistair

1. What are the warning signs of a growing house bubble? 

2. Do you believe New Zealand (and in particular, Auckland) to be experiencing a housing bubble?  

Alistair HelmAlistair Helm - Founder and CEO, Properazzi

The principle of a property bubble is created when the value of properties being bought and sold reaches a level that is out of context with the principles of affordability coupled with the underlying financial structure of debt that is funding these property purchases is out of line with rationale financial decisions and backed by rampant speculation. In my view the financial markets are acting entirely rationally in supporting the debt of the property market. There is more prudence in the banking industry than there has been, certainly as compared to the middle of the last decade. Certainly there continues to be strong demand for property that is located in areas of the country that  are proximate to the economic growth, but that demand is not irrational and prices are being paid based on buyers ability to pay and service the debt.

I do not believe that NZ generally nor Auckland in particular is experiencing a housing bubble. I believe that we have already seen enough signs that the heated property market experienced last year has eased considerably with the lead indicator of property sales trend peaking in October of last year. That weakness in sales has already cut the growth rate in prices right across the country and in Auckland. The next 12 months will see further slowing of sales and property price inflation falingl to below 5%.

Underlying the property market though is a demand fuelled by immigration and coupled with that economic growth that will likely for many years continue to see strong demand placed on the Auckland market as it will continue to be the magnet for economic migration domestically and internationally. As a result of this it is likely that through 2015 the rate of sales will turn around and trend upward and as a consequence prices will, having found a new more stable base, begin to pick up again.

Over to you now.  Do you think we are in the middle of a housing bubble?  Comment reply below.

 

Andrew King: Is NZ in a Housing Bubble?

Monday, June 23, 2014

Is NZ in a housing bubble?

Last week, we asked financial journalist, Bernard Hickey, to address key market indicators and discuss whether New Zealand is heading right into a housing bubble.  This week, we put the same questions to NZPIF Executive Officer, Andrew King.  

We asked Andrew

1. What are the warning signs of a growing house bubble? 

2. Do you believe New Zealand (and in particular, Auckland) to be experiencing a housing bubble?  

Andrew King Andrew King - Executive Officer, NZPIF

A bubble situation is not just house prices getting high, it is where fundamentals have got so out of whack that there is a high probability of large price falls. 

In the years leading up to 2008, this occurred in the US when they pumped the market full of cheap mortgage funds and removed requirements for deposits, which dramatically increased demand and prices. Too many houses were then built than was required.  When the cheap interest rates increased to market levels, demand plummeted and there were large amounts of new homes with no buyers.

Do I believe Auckland to be experiencing a bubble?  No.  Auckland house prices are going a typical cycle. We have had low interest rates for a number of years and high levels of migration causing high demand for property.  At the same time we have had low levels of homes being built.  This is a classic case of excess demand over supply and property prices are reacting appropriately. 

The Reserve Bank has implemented LVR restrictions and interest rate rises to protect the market. At this stage we still have a shortage of new building, so there is no over supply.  The Massey University Home Affordability index is increasing, but it is still considerably lower than it was in 2007.

There is nothing to suggest a bubble. In fact there is everything to suggest prices will continue to increase over the next year or two.  Economic conditions are constantly changing, so we will need to monitor the market to make sure the fundamentals are not getting too far out of kilter.

Stay tuned for the next instalment of this series as we put the same questions to Alistair Helm of Properazzi.co.nz.  

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