Property investors - just curious ...

Forums › Home Workshop DIY › Property investors - just curious ...

rayonline

1734 posts

Uber Geek

#160498 8-Jan-2015 20:44

I'm more a shares person myself. Not in AKL but just curious about this as work colleagues talks about it. Are they banking on high growth areas or low cost areas to maintain that income rental stream? Maybe I have got this all wrong ....

Our place was $280k and now $500k 15yrs after that is a 4% return or about 5.5% gross.

If we factor in the mortgage costs. If one puts in $100k deposit and get a $500k house ($400k loan). $500 per week let's say rental income and let's assume no tax so no deductions. So each week they put this $500 and $1,000 of their own money to knock out the mortgage ASAP. In 6.5yrs it is knocked over. $500k becomes $650k (with the 4% return) and less $75k in interests leaves $575k.

Jase2985

13463 posts

Uber Geek

ID Verified

Lifetime subscriber

#1210821 8-Jan-2015 21:25

depends what you are in it for, capital gains, or rental return

grant_k

3539 posts

Uber Geek

Trusted

#1210841 8-Jan-2015 22:35

I prefer to invest in property via the Listed Property Trusts (LPTs) on the NZX. All the large LPTs are structured as PIEs so you don't need to include the income in your tax return unless it is beneficial to do so. Even at their currently inflated prices, most LPTs are still returning 5.5 - 6.5% yield, which is better than money in the bank. Several LPTs have quarterly dividend payouts so they are good for income investors, or for those who prefer to re-invest their dividends, several have Dividend Reinvestment Programmes (DRPs). The advantages of using a DRP are two fold:

No brokerage
A small discount to the current market price is sometimes offered

Having been a landlord for several years, I'm over it, and much prefer the liquidity of shares, where I can sell a few and raise some cash within 3 business days, rather than selling a property. Share trading costs as a percentage, are also a tiny fraction of what you typically pay to sell a property.

itxtme

2102 posts

Uber Geek

#1210901 9-Jan-2015 06:32

Ray you have hit the nail on the head with increasingly higher numbers of people actually not truly doing the numbers. Of course some smart people do it for the negative gearing that it provides on their other income, but I have seen a two examples in the last few weeks where financially the investment makes no sense what so ever. On those two occasions the people involved had gotten into it because "thats what you should do". One will make a loss trying to sell, the others ROI is 1-2% pa. Its actually a very tight game, tighter the less capital you have.

Niel

3267 posts

Uber Geek

Trusted

#1210926 9-Jan-2015 08:19

Lots of businesses bargain on people not doing the numbers, or not getting it right. My mortgage is my investment, giving me more than 6% return tax free guaranteed and I can use the funds immediately if I need to - I have a revolving credit facility, money you put in comes directly off the mortgage balance but as it is debt, there is no income tax on interest you save. When it is paid off, I might consider buying the neighbour's property, move the boundary, extend my house (i.e. new mortgage), paint the neighbour's house, and then sell that one as soon as I can. Then I have a mortgage again, but also a higher value house (and not a more expensive second mortgage and/or out-of-sight tenants). For income I'd rather rent out rooms in my house and put the income in the mortgage, perhaps design the house so you can block off the extra rooms and give them a private entrance. And then deduct whatever I (legally) can from income tax.

You can never have enough Volvos!

jonathan18

7413 posts

Uber Geek

ID Verified

Trusted

#1210957 9-Jan-2015 09:22

grant_k: I prefer to invest in property via the Listed Property Trusts (LPTs) on the NZX. All the large LPTs are structured as PIEs so you don't need to include the income in your tax return unless it is beneficial to do so. Even at their currently inflated prices, most LPTs are still returning 5.5 - 6.5% yield, which is better than money in the bank. Several LPTs have quarterly dividend payouts so they are good for income investors, or for those who prefer to re-invest their dividends, several have Dividend Reinvestment Programmes (DRPs). The advantages of using a DRP are two fold:

No brokerage
A small discount to the current market price is sometimes offered

Having been a landlord for several years, I'm over it, and much prefer the liquidity of shares, where I can sell a few and raise some cash within 3 business days, rather than selling a property. Share trading costs as a percentage, are also a tiny fraction of what you typically pay to sell a property.

Hey there - at the risk of thread hijacking, are you able to point me in the direction of some further and reliable information on these LPTs? I've just been contemplating where to do a little bit of investing, and had been planning on putting some money into a Smartshares fund (other than one of the power companies, this would be our first foray into the sharemarket). I'd be interested in reading more on this, especially the most effective and efficient way to invest in an LPT, given that we've recently decided that direct property investment isn't for us (at the moment at least).

Thanks!

grant_k

3539 posts

Uber Geek

Trusted

#1211012 9-Jan-2015 11:21

Hey there - at the risk of thread hijacking, are you able to point me in the direction of some further and reliable information on these LPTs? I've just been contemplating where to do a little bit of investing, and had been planning on putting some money into a Smartshares fund (other than one of the power companies, this would be our first foray into the sharemarket). I'd be interested in reading more on this, especially the most effective and efficient way to invest in an LPT, given that we've recently decided that direct property investment isn't for us (at the moment at least).

I don't think we're at the risk of thread hijacking because LPTs are another way to invest in property, albeit a different one from what most people consider when they think of it. I'll post some brief details here and if you want to know more, perhaps start another thread, or contact me via PM. Here is a link to a list of the LPTs on the NZX:

NZX Property Sector

Have a look at each of the entities in that list, comparing the Gross Dividend Yield, Capitalisation, Current Price (the large number at the top and NTA). Comparing Current Price to NTA, gives you an idea of how much the shares are overvalued compared to their asset backing (NTA). When I started buying shares like these in 2008, they were all trading at discounts to their NTA -- in some cases 30% or more! Now they are all trading at premiums, or were last time I looked. Ideally, you want to buy shares below their NTA, but that won't be possible at present, so the idea is to pay as small a premium as possible.

Another thing to consider is Market Capitalisation (shown simply as Capitalisation) for each entity. Augusta (AUG) is very small at only $82M, even though it offers an impressive dividend yield, but for various reasons, I wouldn't recommend it. Basically, the bigger Capitalisation, the better so long as you get a decent dividend yield, and aren't paying too much above the NTA. Note that AUG is trading at almost 70% above its NTA, which makes it a very risky investment compared to most of the others.

Finally, another thing to consider is what types of properties the various entities invest in. Some focus on Retail, others on Office Buildings, others Industrial and then there is VHP which is a specialist Medical and Health-related property investor. It has always traded at a much higher premium to NTA than some of the others though, so that makes it more risky. If you think about the types of businesses that are likely to do well in the early 21st century, it will give you some ideas of the sectors that are most likely to do well. Some people believe that retail is a sunset industry, but I don't agree. We will always have retailers, but the mix will change as online competition becomes stronger. Industrial buildings are a good safe bet, but make sure there are many buildings in the portfolio, not just a handful as in the case of AUG. Office buildings will also be around for a long time, even though the types of tenants will change as time goes by. Some of the LPTs have a number of Government tenants on long leases, which make for a very low risk.

As your first investment, perhaps choose an LPT with a mix of Industrial and Office buildings, so your eggs aren't all in one basket as it were. Then as more funds come available, perhaps diversify into other LPTs with a more specialist theme. That's the approach I've used since 2008 and it's served me well.

To invest in any LPT, simply buy their shares on the NZX through any broker. I buy online via ASB Securities and it costs 0.3% or a minimum of $30 per trade. This is a far lower fee than you will end up paying to invest via a Smartshares fund. Do your research and see which LPTs you like best.

rayonline

1734 posts

Uber Geek

#1211508 10-Jan-2015 09:23

Yeah I am coming to a conclusion that they are getting into rather expensive areas with high capital growth or those low cost areas to maintain that rental income stream and or multiple small flat units together like 2 or 4 flat complexes. Or alternatively those with a entrepreneur flair ie - strategically add value or develop or take on a small slow buzzling town that you expect it to hit big.

But take your average suburban family home here - maybe not AKL as I am not there. The yeild is maybe 3 or 4%. That is the gross rental income per year divided by the house cost. The capital is only 4%. Most NZders anyway needs the bank to play game with them.

I was just looking into this. I think it might have been this site or another and I got this book from the library. America's one of the best sellers. "Poor Dad Rich Dad". I read some of it .. to me it is about taking contro, get out of the day jobl and being more entreprenuerial. However if some people genuinely love teaching or love to care for patients then at least their day job they cannot hit that express way.

I can see overseas investors, who might not be clued up or trust the stock market. Many countries only earn 1 or 2% gross in a bank deposit / term investment account so if they have lots of money their standards of living there might be more priceier than NZ they could just buy a property in NZ like in a hotspot like AKL and ride that 9% wave and on top of that get rental income. And also when the NZD drops back they get another bonus too.