Forum Replies Created
“the bank will have trouble selling the property to anyone other than myself”
— This is very unlikely. The bank [primary lender] will sell the property at a discounted value [at times 30-50 cents on the dollar] if necessary in order to recoup outstanding principle.
This generally attracts multiple buyers/bidders and ensures a prompt sale – often above the discounted value established prior to commencement of auction.
“Or, am I mistaken in that the bank could sell it to an unrelated party for say 700grand at a mortgagee auction?”
— see above.
“Lets say I lend someone 200k on a 1M prop, and are given a second mortgage on it.”
— I would consider this scenario a major “red flag”.
This typically results if the borrower is unable to secure a loan via an institutional lender – which is generally at a lower carrying cost than private funds.
There are very rare circumstances when private funds are used to leverage a real estate investment ahead of institutional funds, i.e. bank. Most occasions the borrower has been declared bankrupt, has failed due diligence for another reason
or the deal simply did not stack up.— Michael
After reading your posts and the various feedback, I would suggest [as an experienced developer] first finding out your rights under the zoning regulations – as recommended.
The key to a successful development, small or large, is to not cut corners – from a cost perspective – and employ qualified and experienced people as needed.
Your posts indicate you are new to the development game. If so, I recommend seeking an experienced architect [conduct due diligence, i.e. visit several of their projects and speak with property owners] who will discuss your idea in detail, translate the zoning laws, and advise the “best use” for this particular site.
If familiar with the location, the architect will also provide an indicative cost to build, on a square meter basis, plus fees, etc. This information can be used for your preliminary feasibility study, although you should employ the services of a quantity surveyor prior to discussing finance with a lender – the bank/lender is generally far more leniant.
I do not recommend using a builder to design the building, or advise on costs, unless you have worked with them in the past, or they have a very good and honest reputation.
If the project gets underway, it is also advisable to offer the architect a project management role – if they are qualified in this capacity and you are not.
I have always found the end result is a much higher standard when this approach is taken – and the budget will generally remain in line or under the expected cost.
From a cost [fee] perspective, there is generally not much difference employing the architect working on the project versus an independent project manager, or assigning this role to the general contractor.
Real estate development can be very rewarding, but it can also be very risky when inexperienced or without the right team in place to assist you.
Finally, do not start the project unless you have sufficient cash reserves [and then some] for the preliminary phase, i.e. planning, design, contingencies, etc – as noted, if you cut corners from a cost perspective, this will more than likely impact the quality or standard you require to achieve the target market value.
— Michael
Apart from potentially breaching securities regulations, why would anyone become involved in an “investment team” when all participants are [apparently] inexperienced. It would amount to no more than the blind leading the blind.
If the writer is seeking advise and/or mentors, then approach this forum accordingly.
It would appear the writer has no experience when it comes to joint ventures/partnerships or the legalities associated with such structures – “caveat emptor”.
Sometimes ideas that seem logical are quite unrealistic in the real world.
I hope you prove me incorrect.
— Michael
The same scenario attracted media attention in the US a month or two back.
If it appears to be a con – or too good to be true, then it usually is.
Do not respond to these emails. If they don’t get your money, they on-sell your email address and whatever other details they can gather – which may have been the case on this occasion.
— Michael
A trust is not necessarily the best option – the most beneficial entity depends on factors associated with the formation of the joint venture and its specific purpose.
You and your prospective partner should meet with a qualified laywer [and accountant] to discuss. I for one do not recommend taking advise from a public forum when it comes to joint ventures – they are never one in the same.
– Michael
Westan – in response to your question..
Foreign investment plays a very important role in sustaining New Zealand’s property market – commerical and residential – and the economy.
If it were not for this foreign investment, it is very unlikely the property market would be where it is today – which has indirectly contributed to increased average wage/salary, lower unemployment, greater wealth in the community, and a higher standard of living.
If the government puts barriers in place which prevent or restrict foreigners from acquiring property in desireable locations, it gives a wider perception that New Zealand is becoming too restrictive – which in turn leads to investors in all market sectors looking elsewhere. Including myself.
Recent government policy and indirection has created a “what’s next” mindset in the investment community. Investment is all about risk management and getting out at the right time. [a sucessful investor is not one who knows when to buy, rather one who knows when to sell]
As a consequence, the property market can suffer as will the economy. This in turn can adversely affect every New Zealander.
This is a scenario which transpires over time. But the Labour government discounting foreign investment and overlooking a business community that is ripe for clear and defined policy, i.e. tax incentives, does not instill much confidence from a foreign investors perspective. Adding further restrictions compounds this nervous energy.
When the Australian market rebounds, the New Zealand economy and property markets need to be prepared – and not so restrictive. The Labour government needs to look beyond Wellington [and New Zealand] and consider the effects such decisions have had on other economies. They need to be less ignorant – or is it arrogant.
I tried to convince Michael Cullen several years ago that New Zealand needed to take a similar stance to Ireland – from a tax policy perspective. The feedback was extremely closed minded, it was as if Cullen had never left the shores of his own country.
I recently met with the new Reserve Bank Governor [Bollard], who I felt was nothing more than a “yes man” to Michael Cullen. I would have more faith in my PA overseeing the Reserve Bank.
They are both of the mentality that when New Zealand starts to prosper, it is time to put the breaks on. Why? because a high percentage of the Labour party’s support derives from those who live on tax dollars, not those who pay taxes.
It will be interesting to see if Don Brash takes the helm at the next election. I personally feel he is the best person for the job. Otherwise, myself and others will maintain a high level of caution in terms of our dealings in New Zealand, and will always have an exit strategy ready to implement.
— Michael
RE: “But the New Zealand government has made it easier for foreigners wanting to invest big bucks in Kiwi companies by doubling the threshold at which transactions have to be scrutinised.”
Why invest money in a New Zealand company when the primary incentive is the government will not “scrutinise” the transaction unless it is $100MM or more.
From the perspective of a foreign investor, this isn’t going to put more money in my pocket – there is no incentive, it just means less paperwork.
— Michael
RE: “at the end of the day it doesn’t affect any one here from being able to continue buying in nz”
Restraints on foreign [real estate] investment can [and likely will] adversely affect every person who owns a property in New Zealand – and quite significantly.
— Michael
These “rules” appear more politically driven than common sense – the Labour Government attempting to gather support from those in the wider New Zealand community [in the build-up to the election] who do not understand the importance of foreign investment – capitalizing on the “New Zealand is being sold-out” theme.
“doubling the threshold at which companies are scrutinised” is a weak attempt to offset the business communities concerns – typical Michael Cullen.
It will take a lot more than this “incentive” to attract much needed foreign investment into New Zealand’s business sector – corporate tax incentives should have been implemented years ago as a first step.
If the rules re: acquiring property become too stringent [which is now evident], direct foreign investment in New Zealand could rapidly decline to the point where the negative impact on the property market, and greater economy, will adversely affect every New Zealander. This can happen very quickly especially when the Australian market rebounds.
Foreigners may buy the land, but they cannot take it with them.
Foreign investment is a catalyst for building wealth in the greater community – when foreign funds are invested in property, the market and economy [and therefore community] benefits.
Eventually the property is sold, by which time more people within the community have benefited financially and can afford to purchase the property.
In terms of protecting land from development, it does not matter where the land owner originates – New Zealander or foreigner. Constraints should focus on design and zoning controls rather than “ownership”.
Such controls have been overlooked resulting in a mix-match of predominently mediocre development in New Zealand. Queenstown being a prime example.
Companies are easily relocated off-shore resulting in lost jobs.
Less scrutiny by a clandestine government authority does not compare with financial incentives, i.e. tax breaks, such as those offered by Australia and the United States.
Sustaining a competitive position in the global marketplace – and retaining successful companies, is reliant upon clearer financial and economic incentives – which the New Zealand government has still not addressed.
— Michael
I have not come across a specific “village” zone as such, but I am involved in a medium to high density zoned project which was referred to during the planning phase as a village.
Because zones can have multiple variations, I recommend contacting the local council or the person who placed the ad to clarify.
Otherwise, it is likely to be a mixed-use zone including commercial, retail and residential.
— Michael
Avoid “leasehold” and acquire “freehold” land – otherwise you will not benefit from appreciating values which 9 times out of 10 outweighs the lower entry cost.
Leasehold can also be very restrictive if you wish to improve the land – again a negative in terms of profit.
Asking the right questions comes with knowledge and experience.
The south island of New Zealand is demonstrating the best investment opportunities at this time – specific location depends on how much you intend investing.
— Michael
RE: “But as an Australian resident you’ll normally pay CGT in Australia on gains made in NZ.”
— This is correct. However, if you plan to invest in New Zealand for the longer term – buy and sell multiple properties, by avoiding capital gains tax and other fees you have more capital to leverage further investment than you would buying and selling property in Australia – all factors being equal.
RE: “And NZ losses are quarantined there. By my understanding you can’t offset them against other Australian income or capital gains.”
— speak with a qualified accountant.
RE: “I would like to know which banks in Australia you would go to to organise finance to purchase in NZ.”
— Most banks in Australia will lend funds for acquiring property in New Zealand, if you retain sufficient assets in Australia to secure the loan.
RE: “I’m looking at Auckland”
— Dependent upon specific location, property, etc, Auckland is not recommended at this time. There are far more/better investment opportunities, offering higher short-medium term capital gains/lower risk, in other regions of New Zealand – primarily the south island.
RE: “What is the current interest rate for the major institutions in New Zealand?”
— Search for this information on the Internet – it is readily available. If you prefer to use a major institutional – such as a bank, I recommend ASB Bank [www.asbbank.co.nz] who I have had dealings with in the past and are known to be competitive – I personally work with Bank of New Zealand [www.bnz.co.nz] which can be the better option for larger or complicated transactions.
— Michael
“NZ is attractive because Aussie is stuffed R/E wise until about 2007. A loss is a loss NZ or Aussie.”
Being an overseas investor who knows many foreign investors with an interest in New Zealand [and Australian] real estate, the trend toward investing in New Zealand is clearly no longer linked to the Australian market.
Investment decisions stem from “awareness” which has been far less prevalent in the past.
New Zealand’s unique scenery, low population density, low/moderate valuations, advanced infrastructure, and being considered a “safe haven” – combined with awareness, have positioned this country as a more prominent investment location than Australia and many other countries, which is not expected to change in the foreseeable future.
[Steve] “Rob’s comments about due diligence are very well made.”
Am I missing something here? Aside from negative banter there is certainly no substantiated reference to due diligence or otherwise.
— Michael
Stock market trends should not be associated with the real estate market.
The stock market is very liquid and is traded in a completely different manner to real estate – RE takes time to buy and sell [trade] and therefore typically results in longer cycles.
As an example, it is common for a stock [or equity market, i.e. NASDAQ, DJ, etc] to rise significantly in one day’s trading, sell down as quickly the following day, and rise again on the third. At times this trend occurs over a few hours. This same trend [cycle] can take months, or even years, in the property market.
“i will just make sure i have a buffer to ride me through any downturn”
— contingencies such as a “buffer” and/or “exit strategy” are the key to being a successful real estate investor.
— Michael
The research we have conducted indicates many “locations” in New Zealand are between 30-50 percent of their true value – comparative to overseas markets, accounting for supply and demand, etc.
Markets such as Auckland will continue to plateau in the short-term due to over-supply in specific segments – this does not translate to a downturn in the Auckland region as a whole.
As for a “crash” there is no indication a severe market downturn is on the horizon in any location in New Zealand.
Historically New Zealand has closely followed trends in Australia because it was a market confined to domestic and trans-Tasman investment.
The extent of foreign investment and “awareness” in the past 2-3 years is changing this trend and positioning New Zealand as an independent and far more viable investment location/market than Australia – which will continue.
Regarding the graph referenced in this post. Putting aside the two factors noted above [foreign investment, awareness] which have had a very positive impact on the New Zealand real estate market since 2001/2002, this graph indicates capital growth will continue to impact the market for at least another 2-3 years.
— Michael
Search for earlier posts on this subject. I myself have touched on the tax implications, etc several times in the past 2-3 months.
— Michael
“the company that I worked for in my last position offered JV opportunities that are returning between 32% and 65%.”
Which company and what were the terms?
“your security was guaranteed as you owned a proportion of the freehold property.”
Investment 101 – “guarantees” are nothing more than a marketing ploy. Developers who use this ploy will generally have contingencies to protect their interest if the project fails – if not, they should have.
“The borrowing for the project was secured by using that unencumbered property.”
If the LOC is “secured” with freehold property, and the project is viable, then a primary and/or secondary lender will generally finance the deal at a cost of up to ~12-15 percent p.a. – counteracting the need for private funds or a joint venture.
— Michael
SFH = Single Family Home
“some even offer up to 70%p/a. But the average is about 30%”
Be very wary of any developer offering an annual return of 70 percent. Even 30 percent is not common and can be indicative of significant risk on the investors part, an inexperienced developer, or a scam.
There are a number of channels available for sourcing capital for the “preliminary phase” of a property development – SFH or larger, for far less than 30 percent.
If the developer is offering ~30 percent to finance the “construction phase”, then I would bet my last dollar that the project is not deemed viable or the developer does not have enough credibility with institutional lenders to secure finance.
“what is the legalities of a JV or promisary note.”
The legality issues should be directed to a qualified lawyer – every agreement and/or note is structured differently.
“Promisary note. Is this piece of paper worth what it says or just the paper it’s written on?”
A promissory note [also referred to as a “note”] is a legally binding document and the basis of many large and small loan transactions. But a note is not a guarantee that you will see a return on your investment.
“JV’s appear to be more secure, does anyone know the in’s and out’s? What to look out for, what you must have in it?”
In general participating as a “joint venture partner” requires a significant investment in proportion to the required funds.
Although at times joint ventures are structured as syndicates whereby smaller investors can participate – retaining “units” i.e. shares, in the joint venture.
But this method often reflects the developer/JV’s inability to secure sophisticated investors and should be approached with caution.
From an experienced developer/fund raiser’s perspective the objective is always to limit the number of investors to as few as possible.
Furthermore, any entity raising funds must typically comply with securities requirements – which your lawyer will advise on.
— Michael
“Tony’s six needs are quite different to Maslow’s hierarchy”
Although different, I think you would find the basis of Tony, etc theory “stems from” Maslow’s Hierarchy. There are too many parallels to suggest otherwise.
My point being, “Almost everything these motivational speakers preach is simply a different translation of theories, strategies and so forth which in many cases have been around longer than they have.”
“I would also go so far as to say that Tony’s ‘theory’ is not a ‘needs based motivation theory'”
This contradicts your earlier statement “They’re trying to meet one of six basic human needs.”
Everything about Tony Robbin’s is motivational.
— Michael
By searching this and the “General Property”forum you will find a variety of information on investing overseas and the tax implications.
— Michael
