Well it’s been a miserable few months for investors in some finance companies and of course even sadder is the fact that many of those who invested were people who could ill afford to lose their savings. 18 months ago I had written in the Kiwi Property Investor magazine that any Finance company that took security over second hand cars purchased on no deposit could be considered unsecured personal loans and were unlikely to go the distance, in addition, car dealers no longer take recourse on car finance so the risk is compounded in that it takes another avenue of responsibility away from the lender when things go wrong. This is not to take away from some well run finance companies of which there are many but it begs the question, does Real Estate remain the best long term investment? I think so, but then I’m a Real Estate salesman with a passion for my product and a passing interest in making you rich so of course I’d say that, but it also hurts when I see people suffer for the investment decisions they make, particularly when they genuinely believed they were doing the right thing.
Let me give you two examples of common financial illiteracy that most of us can put our hand up for although rarely mentioned in intelligent company. I have just bought (through Trade Me) a 2003 Audi allroad diesel for $40,000. The owner woefully mentioned that he had paid $120,000 for the car 4 years previously and was selling because he had just purchased a new BMW. Now normally I would shed a tear or two for someone who was about to dump $80,000 plus, but I suddenly realized that he was not only prepared to lose his shirt on this car, he was also prepared to repeat the process in another four years time, it’s stories like this that makes me wonder why we weren’t so designed to kick our own butt. In another, albeit leftfield example, you may remember a freezing worker who had forgotten about $500 he had left in a Government Super scheme of the day and now found after 25 years it had grown to $13,000 or thereabouts. Predictably it made the idiot news for the easily entertained at six o’clock that evening and he and his mates at the bowling club were reportedly drunk for a week. I was discussing the article with my brother at Law Real Estate in Hunters Corner recently so he ran a comparison analysis on a Manurewa home sold in 1975 for $20,000 and ended up with a 2007 market value of $358,000. The fun part was that, in the preceding years, had a purchaser borrowed the full amount the tenant would have repaid the principal sum through the rent and the IRD would have contributed to the interest, all resulting in the freezing workers Superannuation return looking like the kids allowance. This is not covered wagon economics, its established data and is easily accessed by anyone that is interested enough. What I’m trying to say here is, most of us give scant regard to blowing money on cars, boats, over seas holidays and almost any other feel good venture we care to name, but as soon as we experience a correction in property values we fall over ourselves to bale out at any cost, usually to an experienced investor who will never sell.
At an AGM recently somebody mentioned that the apartment he had purchased was now worth $50,000 less that what he paid for it 12 months earlier. Well sometimes that happens, but the truth remains, you will only lose money when you sell, up to that point either the car or the apartment will provide you with exactly the same level of service or return that it did on the day of purchase. While I accept that the recent increase in interest rates messes with the validity of the above statement, we still need to keep things in perspective, after all, a 2% increase in interest on $200,000 is approximately the cost of a Friday night at KFC washed down with a mid range Chardonnay, do you feel better now?
Robert leads the team and Impression Real Estate the top CBD property manager. If anyone knows the market Robert does!
Source property forward magazine. Issue 7
Robert Hodason
