An Auckland real estate agency has set up a buying service that will locate and manage residential investment properties on investors' behalf.
Called City Sales Investment, the fee-based service has been set up by Martin Dunn, the principal of real estate agency City Sales which specialises in the Auckland apartment market.
However it will be focused on locating stand alone houses and home units in the suburbs for its clients, rather than apartments.
The scheme will charge investors using the service a "buyer's agent" fee of 2.5% plus GST (2.875%) of the purchase price of any property deals it concludes for them, with a minimum fee of $12,500 plus GST.
City Sales Investment will then manage the property on the investor's behalf for a minimum term of one year, charging a management fee of 8.5% of the rent.
Clients who participate will pay an upfront fee $3000 plus GST, which is deductible from their first buyer's agent's commission.
They will then receive details of about five properties a day which City Sales Investment believes could be as suitable investment properties.
Once the investor chooses a property they like, City Sales Investments will handle the purchase negotiations on their behalf, and if a deal is struck, the investor will own the property themselves, and City Sales Investment will be the property's rental manager, dealing with tenancy issues, collecting the rent, arranging maintenance, undertaking property inspections and so on.
Because it's an investment property, the buyer's agent and ongoing management fees will likely be tax deductible.
Because residential rents are relatively low compared to capital values, in Auckland, the scheme is likely to suit people looking for long term capital gain rather than a high income stream.
Dunn said it was likely that the properties purchased for investors would be providing gross rental yields of about 4.6%.
Once management fees, rates, maintenance and other expenses were deducted the net yield would probably be around 3%, so depending on their tax situation, people may get an after tax return of about 2%.
However he believes the price of houses in Auckland will keep rising by about 8% a year, and in most cases that capital gain would be tax free, so the total net return to investors could be around 10% a year.
Dunn said he expects most of the people using the service will be local, professional people who want to own their own investment properties but don't have the time to be hunting for them themselves and don't want the hassle of managing them.
17 Comments
"However he believes the price of houses in Auckland will keep rising by about 8% a year" the most rediculous thing ive read in a long while.
700k ave price currently in auck? He recons 900k ave is likely in 3 years? 1.05mill in 5 years? Thats worse than gambling. He was prob buying xero shares as well when they were at $40 plus looking back and extrapolating forward.
Mr Dunn couldn't get his Dunn Funds scheme away a few months ago.
This one is a different way he is trying to organise his finances for HIS retirement.
People who hand their money over to this type of financial arrangement need to be aware of the costs and downsides. Certainly I don't know why anyone would need Mr Dunn to tell them what is a good house to buy.
Energizer Bunnies - Martin and Scott Dunn
It wasn't that they couldn't get it away - they pulled it
Prepared and printed a prospectus, advertised, did the PR job, including on interest.co.nz
Problem was the scheme had a sunset clause where it was to be wound up after 11 years, properties sold and proceeds distributed. With all the entry fees, agency fees, and management fees, the only surplus, if any, would be capital gains, (or losses)
IRD stepped in and told them the profits would be taxable - because they were selling capital gains
They pulled it
Tuesday 15 April 2014
Dunn Funds put on hold
The launch of a controversial new investment company that was to invest solely in residential property has been put on hold.
The clear intent to sell had raised questions about the tax implications for shareholders
http://www.landlords.co.nz/article/5041/dunn-funds-put-on-hold
Ha ha.
Sorry mate... I don't believe that story for a moment. Why?
Because the reason for shelving the idea makes Mr Dunn look stupid.
If he didn't realise tax was an issue with his plan then he is clearly not a person anyone should be trusting with their investment funds . The reason suggests he obviously knows very little about property and investing.
But I think Mr Dunn knows plenty about property. So why would he pick a reason that makes him look silly to offer as his excuse?
Often people do things for two reasons... the reason they tell everyone and the real reason.
I reckon the real reason Dunn Funds was shelved was not tax implications, but that the public did not respond in sufficient numbers to make it worthwhile.
Heck it better be, 'cause his stated reason makes him look incompetent and not a man to be giving money to.
When I first started out on adult life the only rental properties in any great number were things like blocks of flats, it was almost unheard of for private stand alone houses to be rentals, oh how times have changed and it changed in the mid/late 80s when every man and his dog wanted to get into the rentals game
Buyer’s agents are very common in many other countries, as the buyers deserve the same representation as Vendors agents give to sellers, that is, they have a fiduciary duty to their client. And NZ is well over due for professional buyer’s agents.
But, if Mr Dunn introduces a buyer client to one of his listings (a seller client) then he has a fiduciary duty to both clients, which can create a conflict.
The REAA rules on buyers agents say ‘A buyer’s agent is engaged and paid by the buyer and does not maintain property listings.’
By definition, agent could also mean sale person, it is possible within the same agency for one salesperson to be a buyer’s agent and another a sellers agent, and maybe a ‘Chinese wall’ created between the two. But the rules are not clear whether they are talking about the individual salesperson or agent and therefore possible agency.
Also under Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 Conflicts of interest 9.14 A licensee must not act in a capacity that would attract more than 1 commission in the same transaction.
This is not clear as to whether a Buyers agency commission can be claimed where a property is already listed where a commission would be due if sold, ie two commissions payable on same transaction.
Also for Mr Dunn to induce someone into purchasing a property with a certain yield (more easy to predict at time of purchase) and then say expecting a continual 8% capital growth per year (a guestimate at best), and that the property is managed by Mr Dunn (no other option?), I think is opening himself up to possible issues by the purchaser if the claimed returned do not eventuate.
It might need some further clarification on the rules. I do question whether NZ's market is really broad enough to have enough volume to make the professional service worthwhile for LOCAL Kiwi's... after all such buyer agents tend to be for big deals, or when one can't travel to see the purchase (like a foreign investor).
what does concenr me thought, is that frequently I've seen a lot of lazy sales agents in NZ (not just in real estate)....sure they'll get the "best" price they can...the "best price on the day" in that any price is better than no price, and frequently we see the seller being pressured by the sellers agent into dropping the price to get the close.
Buyers agents are more important (in my opinon) than sellers agents as when you think about it, on the sellers side you have the property owner who will know every little detail about the property they live in (eg the leak when the wind and rain blow from a certain direction) and their 'professional' selling agent. The Buyer is always against it, they need more representation to make sure they buy well.
In most states in the USA a buyer would not think of buying without going through his buyer agent, just like each side is expected to have a lawyer. Also some selling agents will/cannot deal with a buyer unless they have proper represenation ie will only deal with you through your professional represenative buyers agent. It could be argued that this is filfulling their legal obligations to both parties in the transaction, irrespective of who is paying the commission. The trend in real estate law in NZ is heading this way but seems to have difficultly in deciding what their objective is.
Counter intuitively, houses that sell through buyers agents sell for a higher price than when only a sellers agent is involved. A chocalate fish for anyone that can explain why.
"Also some selling agents will/cannot deal with a buyer unless they have proper represenation ie will only deal with you through your professional represenative buyers agent. "
actually that's often done as a reciprocating arrangement to ensure that companies extract the maximum amount of fees from each property transaction. Fortunately such behaviour is still illegal in NZ. Likewise in NZ there is seldom a need for lawyers, unless a soliciter is needed to handle bank/third-party funds. When in the US the process is deliberately obfuscated so that lawyers are needed to "decode" for each party, the practice ensuring that the lawyers keep each other in business.
IIRC buyers agents in the US also have connections with mortgage agencies and valuers, so it's not just a reciprocation of the sellers salesperson.
Why is it counter intuitive? A buyer agent is supposed to look for good value properties that fit criteria, they do this my rejecting the poorer, risker properties - by having a finger on the pulse the agent knows who is available for what kind of property should opportunities come up, so good deals can be sold for profit later. That's why buyer agents used to become buyers agents, it was "commission" instead of capital gain, sure the profit was smaller, but the turnover in hours or days, and no chance of getting stuck with the "potato", and even better, you could shop for good deals well out of your own CGain price range using OPM and zero risk!
gods has it really been 10 yrs since I was watching US property.... you're making me feel old!
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.