conditions. This is why human psychology plays a big role
in determining economic sentiment at any particular moment.
The fact is that we find ourselves in a situation of
negativity. Rather than getting bogged down we have to find
solutions to overcome the present situation. In my job as a
commercial property consultant I am privileged to inter act
with many multi-millionaire investors who are far better
informed than me. I also try and keep abreast the market
situation so that I can improve my own investment strategy
and also pass some useful information to my clients. I
would like to share two strategies that can help us to
profit from the current situation.
A. I was reading blog written by Brad Sugar. His advice is
"The banks will make the decision for you. If they will
lend you money, then keep investing, if not, then stop. Let
me explain ...Most banks right now have cut lending back to
only good solid risks and in many cases they want 30% to
50% as a deposit. You see the biggest lesson right now is
very simple, if you have the cashflow to hold through the
next boom (some time in the next 7 to 10 years) then keep
buying.If you don't have cashflow, then this is a great
time to work on getting a higher paycheck, or get your
Business into a strong profit position (not just high
revenues) so you are ready for the next market run ...Enjoy
the process, there are a bunch of deals around right now and
anyone can get an undervalue property, just make sure you
can hold it and rent it out"
B. Phil Jones explains his strategy through a property
wealth triangle:
"Put simply investors purchase Real Estate to attain one or
more of the above three benefits being:
* Cashflow - Where the properties income exceeds its
costs and delivers an annual profit
* Capital Growth - Where the properties value increases
over time
* Equity - Being the immediate equity an investor banks
when they purchase a property at a discount
If investors can't get any of the 3 wealth Triangle
benefits they cease investing in the market because there
is no possibility of getting a financial return. This
rarely happens as even in a soft or receding market
attractive returns can be made using the right strategies.
Every phase of the property cycle (Boom, Slump & Recovery)
allows investors to achieve one or more of the above 3
financial results.... Immediate Equity, cashflow or Capital
Growth. And if the market didn't shift between phases then
the Triangle would get out of balance with one corner
having more expansion than the others.
Here is an example:
Let us rewind the clock back 18 to 36 months ago and look at
the property wealth Triangle. In that market
lets see where the 3 corners were:
> Capital Growth = Strong
> cashflow = Very hard to find and disappearing
> Equity = Almost impossible to buy property at a discount
because the market was so buoyant
Rewind the clock back to 2001...
> Capital Growth = Was dead, the market barley had a
capital growth pulse
> cashflow = Was easy to get
> Equity = Abounded, it was simple to buy property at large
discounts
So lets look at the current market, where are we at....
> Capital Growth = Flat and soft
> cashflow = Increasing due to increase in rents & inflation
> Equity = There is Truckloads of immediate equity
available because property can easily be bought at a
discount
Intelligent investors read the cycle, check the property
wealth Pyramid and customize tactics to
harvest the profits using the strongest available corner of
the Pyramid. You see the challenge is not that you can't
make profits, the challenge for most investors is that in a
flat market they don't know how to turn "Immediate Equity"
into "Cashflow"."
His message is that in the current market with high
interest rates it is impossible to get cash flow. There is
also likely to be very little capital gain in next couple
of year. The only thing readily available is instantaneous
equity because it is easy to find discounted properties in
the current market. In some ways immediate equity is better
than future capital gain.....we know how much we are getting
at the time of buying. There are new mortgage plans that allow
you to convert equity into cash flow.
Our spring property portfolio will be out this week. There
are some great properties. I will analyze the properties
and will be sending you emails with my recommendations. I
hope some property will match up to your investment
profile.
One last thought "Don't wait to buy real estate, buy
real estate and wait."
COLIN KUMAR
Commercial/Industrial
Barfoot & Thompson Commercial
m. 027 684 1114 | p. 09 358 0989 | f. 09 358 4048
PO Box 1798 . Shortland Street . Auckland City
c.kumar@barfoot.co.nz | www.barfoot.co.nz
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