Forums / Property Investing / Overseas Deals / Do your due diligence on NZ properties

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  • Profile photo of kerwynkerwyn
    Member
    @kerwyn
    Join Date: 2004
    Post Count: 145

    Hi All
    As most of you are aware there is a bit of a feeding frenzy among investors especially the Aussie ones: who are rushing into buying cheap property in NZ.
    I have just returned from there myself on a bit of a scouting mission. I made offers on 2 properties in Invercargill one at $50000 and the other in the same area at $40000 both meeting the 11 second solution easily. Both had long term tenants so on the surface they looked good.
    On the $50000 property I stuck to the normal 14 day period before going unconditional and the other I asked for an extra week. The vendor insisted on a cash clause be inserted into the 2nd properties contract that would give me 3 days to go unconditional or lose the deal if another buyer turned up with the cash. This is exactly what happened as another cashed up Aussie investor offered immediate cash so I chose to drop out. I asked the agent how long the other buyer had before they had to go unconditional and was told a cash deal was just that and if I did not take up the deal the other person bought the property then and there, no time to think about it.
    I then proceeded with my due diligence on the other property and got a valuation done before I went unconditional. How glad I was when the report came back telling me the property was not that good and worth no more than $38000. The valuer even recommended to any lending institution not to lend any more than $27000 and if they do it is at their own risk.
    Now I believe that the $50000 property was in better condition than the $40000 one and I was out bid by someone offering a cash deal. I did check how much a new roof would cost, how much to fix and repaint the outside and bring the house up to standard and was told at least $20000 to $25000. Definitely not worth it as I could buy a better house in a better suburb for under that, no good having the best house in the worst street. Even if you did spend the money the rent would only go up by $20 a week max in that area.
    So my advice to any Aussies who are about to jump on a plane all cashed up, is don’t buy without getting the proper checks done or you will end up with a pig in a poke like the other investor who cashed me out.
    Certainly pays to do your due diligence and worth the $350 it cost me for the valuation fee.
    Kerwyn.

    Profile photo of MiniMogulMiniMogul
    Participant
    @minimogul
    Join Date: 2002
    Post Count: 1,414

    kerwyn, sorry to hear about all that.
    yes, the dreaded cash-clause. I never accept it because of what you said!

    now my only comments are: the cheapest properties are cheap for a reason. lots of work needed, bad street, etc

    and also that Invercargill, complete with a 12 year history of population decline and a horrible climate, is not the only town in NZ.

    NZ Investor and Bird Dog

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Hi Kerwyn

    you raise some good points. Unfortunatly the “cash clause” will often be requested when you pick up a good buy or ask for a lengthy settlement time. It is always good to try to have financial pre approval to speed up the process. Try to get the building reports done as quickly as possible.
    When there are plenty of buyers around seller don’t want to sell home with long time (2-3 weeks is considered long) before it goes unconditional. They know the buyer can walk away from the deal if they want over that time but they can’t walk away from the sale. Often what happens is people buy homes subject to conditions such as finance and building reports, effectively they are off the market while the buyer does their checks sometime the sale falls through and the seller is back to square one, with the home not sold.
    One other check you must do is get an independant rental assessment.
    regards westan

    I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database

    Profile photo of aptamaptam
    Participant
    @aptam
    Join Date: 2004
    Post Count: 61

    Westan,

    Who would you normally get to do your independent rental assessments? Just other agents in the area ?

    Cheers,
    Andrew.

    Profile photo of kerwynkerwyn
    Member
    @kerwyn
    Join Date: 2004
    Post Count: 145

    Thanks MiniMogul amd Westan
    You make sense from a vendor’s point of view. What concerns me with the cash clause is the person who comes in with the cash doesn’t have time to get a building report. When they invoke the clause they are locked into buying the property even if it is a dud.
    My point is that cashed up Aussie buyers who are flocking to NZ are not taking their time to check out the property: just because something is cheap doesn’t make it a good buy.
    I know it is their problem for rushing in and if they get stuck with a dud then it was their choice.
    The problem is that these people are driving the market up because they are buying everything in sight without doing their due diligence. This impacts on the investors who are trying to check the property out properly, who are being forced to move quicker than they want to in fear of missing out. It is great for the vendor as they can off load that dud property and some sucker will buy it without checking.
    All I am saying to these people, is do your due diligence and stop playing into the real estate agents hands and helping them get rich.
    Kerwyn.

    Profile photo of TorachanTorachan
    Member
    @torachan
    Join Date: 2004
    Post Count: 68

    I love it. For a fee I will find you great investments that are cash flow positive. I don’t want them because ……. well that is the question isn’t it.

    Air goes in and out. Blood goes round and round. Any variation is a bad thing

    Profile photo of westanwestan
    Member
    @westan
    Join Date: 2002
    Post Count: 1,950

    Kerwyn

    i understand your point of view. But you should be able to arrange a building inspection in the 3 days. As far a finance goes make sure you are pre approved. The important thing is don’t buy the property till you have done all your ckecks, you are correct that the proper DD must be undertaken.

    you need to find the right balance in time from when you write the contract till it goes unconditional. Enough time to do the DD which will also be enough time to avoid the Cash clause.

    Torachan, why don’t you raise your question as a seperate post. I’ll glady respond to it.

    regards westan

    I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database

    Profile photo of MiniMogulMiniMogul
    Participant
    @minimogul
    Join Date: 2002
    Post Count: 1,414

    “I love it. For a fee I will find you great investments that are cash flow positive. I don’t want them because ……. well that is the question isn’t it.”

    Torachon, good point, and believe me, I do pick through the deals first as does my business partner, and still, we can’t buy everything (yet!) – we have to choose.

    Yes, we have ‘spare deals’, but less than we used to – and yes, they are good.

    Now if you compared three deals we might find, some are a bit more expensive with a worse yield but in a good area. Some are cheaper with a high yield. Some need a lot of work done, but with rewards such as yields in the high teens achievable. They are all ‘good deals’ based on being negotiated at fantastic value compared to recent sales in the area for that type of deal. You wouldn’t know this if you didn’t know the market as we do, but if you did, you’d appreciate it. Who can get CF+ve in an area where there isn’t any for sale? Me! How? Well, just before Christmas, I signed up for two properties from the same vendor – who needed to sell BOTH. Although there was no guarantee, the chances were that – for the right price – I could get two clients (or one to take both) to grab a great deal that was possibly sold to me 5-10k too cheap per house, just because I was able to take both. That was worth – to me- the 10k discount off a 100k purchase price which I needed to make the numbers stack up, and to be able to present to my clients two 10 percent yielding houses in an area where – you can’t even buy ten any more and even nine is hard! And 7, 8 is the norm! Those weren’t deals I would buy- for myself – they didn’t have enough problems! And I didn’t have the cash. And besides, I already own property in that street! *grin* ! Can’t be greedy now! So my money is very much where my mouth is. But I can’t be expected to buy the whole street, now, can i!??? But, for our Australian clients, they were perfect. People that had been watching that particular market KNEW they were a fantastic deal – as did I.

    Now out of those three deals I mentioned before, I am sure that for anyone our there reading, that one of those deals would ‘speak to you’ as being more desirable to you than another. That’s because each investor is different, and just because I don’t buy ‘that sort of deal’ (whichever sort) doesn’t mean it’s not a fantastic deal for someone else who DOES buy that sort of deal.

    I hope this makes sense!

    Profile photo of CastleDreamerCastleDreamer
    Participant
    @castledreamer
    Join Date: 2003
    Post Count: 288

    Torachan, like Westan said why don’t you start a fresh post and the rest of us will respond to your comments. Although I think Mini sums it up succinctly.

    Kerwyn, I agree in some ways about due diligence. I have had to let a deal go previously because the vendor wanted a cash clause (and it wasn’t even a real cash clause it was a “if I get a better offer I will take it” clause!). I wasn’t prepared to do investigation with a 3 day cash clause. Maybe with a five day clause if I was preapproved and knew the area and had a good team of builder, valuer etc. but cash clauses don’t make it easy for the buyer that’s for sure..

    CastleDreamer
    NZ Investor and Property Spotter

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