Home News From bankruptcy in the GFC to buying properties at a $350,000 discount

From bankruptcy in the GFC to buying properties at a $350,000 discount

by admin
0 comment

The lowest point in Nicole Lewis’ life was global financial crisis In 2010, when the family home she was building on five acres of land was sold to a mortgagee.

Worth about $1 million, it went unsold for 18 months before the bank stepped in and foreclosed on it and sold it for about $650,000.

A real estate investor and coach, she said she’s learned from her mistakes during the last housing market downturn, and that she’s in a position to take advantage of a poor sale this time around.

Next week, she’ll help a client settle into a three-bedroom property in Avondale with an estimated value of $950,000 that she was getting for $600,000.

read more:
* Changes to investor tax rules: Government ‘takes action’ if rents spike, says Grant Robertson
* Anger over government moves against real estate investors
* Housing Policy: What Change Means for Homeowners, Investors, First Home Buyers, Tenants and Bach Owners

“So at $1 for $1 it’s very similar to the GFC,” she said.

“But there Not so many bad sales There was a lot going on at the GFC. “

Things could change, she said, as the recession will likely put many inexperienced investors in financial trouble.

“When I speak to sources at the bank, they are preparing their customers for trouble.

Real estate investor Nicole Lewis says the bank stepped in after she failed to sell her family's home in 2008.


Real estate investor Nicole Lewis says the bank stepped in after she failed to sell her family’s home in 2008.

“They’re setting up a team for people to call, so they can actually help them deny being a mortgagee.

She said lucky buyers can expect discounts of around 35% when sales are down. below pre-pandemic pricesThis could also have a more general downward impact on prices.

“In a falling market, distressed assets set new lows, while in a rising market desirable developments set new highs.”

To explain why tougher sales are around the corner, Lewis talks about the central premise of his book Property Quadrants.

The central concept was that there are four types of real estate investments. The first is emotional purchases. These were family homes and properties that people fell in love with.

The second quadrant was investor-bought real estate, which did not stack up cash-flow-wise.

“They were basically wearing emotional hats, not business hats.”

This often led to negatively linked rentals. This meant that the investor had to replenish the repayments with his own money, as the costs were not covered by the rental income.


CoreLogic’s head of research, Nick Goodall, explains several factors that could exacerbate the downturn in the real estate market.

“They use the same thinking when buying a family home and apply it to investment purchases.

“They buy what they want, where they want, and give their tenants what they want. I run out of.. on a monthly rental.”

Now, interest rates rise, including mortgage repayments, Rent stagnation due to population freeze,Investor facing tax increases.

“They accidentally run out of cash.”

The problem was exacerbated by falling prices.

“Suddenly, our assets went negative, and the bank knocked on our door and said, ‘Oops, we’re in trouble.'”

Lewis has already seen early signs of trouble.

“In fact, a client who just hung up said, ‘I bought these investment properties years ago. I read your book. I bought in quadrant 2 and I’m worried. Interest rates are going up. I’m stuck, I can’t deduct, I feel completely stuck. Please help, what can we do?”

Lewis said he expects the number of defective product sales to increase.

“We haven’t really taken a hit on mortgage interest deductions yet.

“March 2023 is when those tax returns should be completed and people have to pay.”

A significant portion of mortgages will roll off their current fixed terms and move to higher terms over the next six months.

Many commentators now say that whether the number of defective sales increases from their current low levels will depend heavily on the job market.

Economist Gareth Keenan said there is a dichotomy between people who have owned property for some time and know they can handle a return to rising interest rates. People who recently bought very leveraged in hopes that interest rates would stay low.

monique ford / staff

ANZ Senior Economist Miles Workman explains how the housing market went from FOMO (fear of missing out) to INPT (I’m not paying for it).

Mr Lewis pointed out that the decline in property prices has already begun They’re bigger than they were during the GFC.

Investors most affected by the phasing out of mortgage interest deductions were: take on a large amount of debt with the intention of using interest on the loan to offset the rent Lower your income and pay less tax.

Lewis criticized the group for taking too much risk, and said those who bet on the fact that they could profit from capital gains were “digging into the real estate market.”

“You can only borrow 60%, so you don’t take out a huge mortgage. Back before the GFC, you could borrow 90% to 100%.”

quadrants you should buy

Quadrant 3 was “active buying,” according to Lewis. This included investments such as building a new home or renovating a house, where the return would be commensurate with the effort.

Quadrant 4 was a multi-income property where the rent covered all expenses and made the investor’s money.

“The reason I’m not a landlord of 500 properties is that I lost everything in the global financial crisis.

“At the time, we had about 20 properties, and we got it wrong, lost everything, and had to start all over again.”

Lewis’ seven-property portfolio consists almost entirely of four quadrant properties.

Multi-income properties are more secure because even if one rental property is vacant, rental income can be obtained from other properties.

“If you have cash and you have cash flow coming in and you can sustain higher interest rates and you have higher capital, you can’t go negative and banks won’t knock on banks’ doors, and you can do whatever you can survive.

Other big investors have issued similar warnings to Lewis. Mom and Dad Investors have ignored the “cash flow principle”.

“I was one of the participants in the Global Financial Crisis (GFC). When you see the market going up, you jump high and you see the buying frenzy,” Lewis said.

“Then everything hits a dead end, they get stuck, they get caught and they can’t afford more.”

You may also like