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Oct 16, 2023
Valuing Your Business
A true value is that agreed between a willing buyer and seller. A different buyer and seller with the same product may agree a differing value. Particularly in the SME (Smal Medium Enterprise) area, valuing your business can be difficult, as for the vendor the value of the heart and soul they have put into the business does not always equal the value seen by the buyer. The reason for selling comes into play. Have you grown the business to the point where you need help or just desire an exit? Is it due to a partnership or marital split? Is there a timeline involved? The three main bases of valuation are asset based, market based and earnings based. Normally at least two of these are applied to verify your answer. Asset based valuation is set around a fair value for the tangible and intangible assets. Market base looks at similar businesses for sale or sold. Earnings base valuation applies a multiplier to the discretionary business earnings. Discretionary earnings are the cash flow generated after paying normal operating expenses which is available for owner remuneration, debt servicing or retention. To accurately do your valuation you will need an understanding of the industry, it’s current market trends and any risks the business faces regarding key staff, technology, and legislation changes. Is the business operating in a competitive market? Is it a dominant player in the market? Is the value of the business tied up in tangible assets such as plant and stock or intangibles such as contracts, intellectual property and databases? Particularly with intangibles, how transferrable are they? Finally, ask yourself the question “What would I pay?”. Valuations are only opinions, albeit based on specific criteria and history. So, we come back to the opening statement. An arm’s length sale between a willing seller and buyer is the true value. Call Wayne on 027 498 3312 to talk about anything commercial.
Sep 22, 2023
Market Update: September 2023
Auckland’s housing market is turning in time for the traditionally busy spring season, with prices climbing in seventy-six suburbs in the past three months. City prices spent more than a year tumbling from record-high values in late 2021 and are now beginning to rebound. While homeowners will be happy with the news, those wanting to enter the market may find rising prices an additional hurdle as buyers already grapple with soaring interest rates. New Zealand’s median house price took a more than $150,000 dive during a 15-month slowdown after the market peak in November 2021. Kerikeri’s median prices continued to climb until third quarter 2022 and the house price index for the Bay of Islands ward has now come back around 10 to 15% off the peak. The latest data from analysts CoreLogic gives the best indication that a rebound is now under way, chief economist Kelvin Davidson said. “Back in June, 71 suburbs had recorded a rise of at least 0.5 per cent in the previous three months. But spring forward to September, and that count has risen to 188,” Davidson said. Kiwibank chief economist Jarrod Kerr said the housing market was likely to pick up again now interest rates appeared unlikely to climb higher and migration had surged. “Putting a stake in the ground, saying this is the bottom [of the market], I think we can do that now,” he said. About 100,000 more people arrived in New Zealand over the past year than left. And while New Zealand had been in a building boom in recent years, construction had cooled in the past 12 months because of high building costs and falling house prices, Kerr said. “Every migrant that comes here either takes a rental or looks to buy,” he said. “So, we are going back into a situation where demand and population growth is outstripping supply. That is not good for affordability, it is not what we need, but that puts upward pressure on prices.” If the Reserve Bank begins lowering interest rates next year, that could further boost prices, he said. Stabilizing interest rates and strong net migration have long been key lead indicators of a market set to rise. Declining interest rates, whenever they come, are sure to push prices back up if accompanied by continuing population growth pressures from net migration. Generally, migrants seek jobs in the cities and once in a position to buy after their stand down period, can displace current city dwellers to the provinces. Strong migration from places like Auckland, Wellington and even Christchurch has led to Kerikeri’s extraordinary growth. A total of seventeen sales completed in Kerikeri during August down around 30% from July and about 40% from a year ago. Four of these were lifestyle blocks sold in late 2021/early 2022 which have been waiting for titles to come through. That is running a little under the monthly average of sixteen sales for the last 3 months. The election still has many people sitting on the fence whether selling or buying. Policies outlined by National, if put in place, could have significant impact on the feasibility of property investments versus other investment types and could open the higher end of the market to overseas buyers from countries other than Australia and Singapore. For our part we are gearing up for a busy summer by expanding our sales team, appraising properties, and advising vendors on how to get the best prices. It feels like the market is a coiled spring and we want to be prepared for the bounce back. Wayne at the head of our commercial arm continues to build momentum and offer advice to those looking to buy, lease or sell in the commercial and horticultural sectors. Pop in for a coffee and a chat or give any one of our team a call for free friendly advice. Follow these links for more information on the outlook for the property market and the economy. Economists see 'signs of further strength to come' in housing market Latest Tony's View - Tony Alexander (Economist)
Sep 13, 2023
What is Yield?
The dictionary defines yield as “something that is gained in return from an input of goods or services”. From a property perspective yield is the value of the net rental income divided by the current property value, this is also known as the capitalisation rate. It measures the cashflow that you receive on an investment normally calculated on an annual basis. The capitalisation rate reflects the security or risk associated. Higher risk = a higher cap rate which also equates to a lower market value reflecting the shorter expectancy of the return. Lower risk = a lower cap rate giving a higher market value reflecting the expected longevity of the return. Cap rate also indicates the duration of time to recover the investment value so 6% takes 16.7 years but 10% will only take 10 years. Simply put if you want a quick return then likely there will be a higher degree of risk associated with it such as short-term leases, susceptibility to governmental changes or other external factors. The key to effective use of yield in your decision-making process is the stability of the income stream. Commercial leases tend to be relatively stable but future risks from tax changes, market influences and zoning changes all need to be taken to account. Generally as inflation pushes interest rates up the cap rates tend to increase as the risk factor changes although the cap rate tends to operate in a narrower range as supply and demand issues often mitigate this. We are currently seeing this happening in our markets now. Cap rates tend to range between 4% and 10%, as while below 4% is very secure, the length of time to recover the investment is too long for most investors. The opposite occurs when cap rates go over 10%, the return is good but the implied risk is often to much.
Aug 21, 2023
Commercial Property Investing
Confused about the terms you see and hear and what do they mean and are they relevant to you? Whether you are looking from a purely investment point of view or are a business owner wanting your own premises the basic steps are the same. Rental yields on commercial property typically are higher than on a residential property and with leases ranging from 3-15 years there is more long term income security. Leases are often indexed to the CPI and/or periodic market review and tenants are normally responsible for the outgoings such as rates, water and insurance. Location is key and whatever type of owner you are your choice is important as it is the one thing that cannot be changed. Proximity to transport infrastructure existing or proposed, public transport options either for employees or customers, ease of access to the property for goods or services. To an extent the building structure can be changed to fit your requirements, but the location cannot. A buildings quality is defined as the physical resilience of the base build and the nature of the improvements and fittings together with the floor plan. More often now the importance of environmentally friendly construction and aspects such as natural light, play a part in the investment decision. Creating added value in a commercial property often involves working with your tenant as they go through periods of growth or shrinkage to adapt the space they need so the tenancy is maintained. For the owner/occupier the approach can vary a little as they have a more specific goal so the parameters can be set to fit their own requirements whereas an investor probably needs to have more flexibility. Over the next few posts we will try and explain some of these terms as simply as we can.
Aug 16, 2023
Have you had your say?
FNDC has called for further submissions to the PDP, with the submission period closing on 4 September. Submissions are your opportunity to provide comments to Council as they refine the District Plans that affect where we live. Our Kerikeri emphasized the importance of community participation in the planning process at the well-attended Town Hall Meeting earlier this year. Too often people complain when it is too late or when a change directly affects them. This is the only chance to “Have Your Say” up front into the most important document affecting peoples lives in the district. Once in place, the rules of the plan are the main factors dictating the future growth of our town. Council has summarized the main threads in the various submissions. You can log on to Proposed District Plan - further submissions Far North District Council (fndc.govt.nz) to make further submissions supporting or objecting to submissions already made. There is no opportunity for adding new submissions as this deadline passed last year. “Be a voice in the district planning process, not an echo in the aftermath”
Aug 16, 2023
Market Update: August 2023
Signs of optimism are returning to the real estate sector. The media is reporting signals of FOMO returning to major centres and quarter-on-quarter price declines are slowing signalling the bottom of the market in those areas is being tested. A steady July in Kerikeri with a total of 23 unconditional sales reported albeit 3 of these were lifestyle blocks sold in late 2021/early 2022 where titles have just recently been issued. That’s still up from the monthly average of 16 sales for the last 3 months. The house price index has dropped around 10% from the peak in the 3rd quarter of 2022 in the Bay of Islands ward. All eyes are on the election this year as many investors wait to see if policy changes will make investment in housing more desirable. Section sales, usually a good indication of changes in consents and construction starts, are down nationally and locally but there appears to be enough work ahead for construction companies in the meantime. Some have already shifted focus to commercial or government contracts. Net migration figures have been higher than expected putting pressure on the rental market in Auckland. Some of these people will be eligible to purchase homes in a year or so. It is yet to be seen how the impact of people transitioning to higher interest rates as their fixed terms end will impact the market around the country. According to one recent report from ANZ, the number of people unable to pay their mortgages is less than projected. It also helps to see the sunshine a bit more often than in the first half of the year. This lifts the spirits and starts to get people thinking about making their next move. It is this time of year when we are busy preparing appraisals for the usual Spring rush of listings. Our advice is to move ahead of the herd and position your property on the market now while the stock is relatively low. In the end, prices paid are all relative to the economic principles of supply and demand so be ahead of the game to win.
Aug 3, 2023
Thinking about buying a business?
According to a recent RNZ article, we have hit a 35-year high in people who have an interest in buying. Unfortunately, most are sitting on the sidelines awaiting more certainty in both the political and financial sectors. A major business broker said they had generated over 3000 confidentiality agreements in the last quarter but that had not generated to sales which were down by 8%. Locally we are seeing something similar with a high level of enquiries from both investors and working proprietors but within the current market either the actual return is not great enough or the financial risk for the potential return is too high for the banks. It is common for business decision-making to go into a holding pattern in the months prior to an election and we can only hope that once a result is known, confidence returns and prices have had some resilience. As the saying goes “Good things take time”, so if you are of going down this track take the time to properly research your venture, so you have all the necessary information to make the right decision. Make sure your business plan is complete, not just the financials but showing you understand where the market is now for your venture and your strategies for future growth but also how you will handle any negative aspects that may occur. We are always happy to have a chat about our listings, or talk to us about your venture and maybe we can help you locate that base of operation.
Jul 31, 2023
The Myths of International Marketing
As real estate salespeople, we’re often asked “Why should we list our property with your agency?” Every agency and salesperson has their own response to this question. Some will try to sell you their glossy marketing magazines and advertising programmes often resulting in a hefty vendor-funded campaign. Some will tell you their brand presence in other national towns, particularly Auckland, gives them greater access to buyers. Others will say they can reach international audiences inaccessible to other agencies. Well, it’s all codswallop and here’s why. The reality is, there are hundreds of marketing channels. Some are costly and not effective, some not costly and not effective, and some affordable and effective. Now obviously, there are few things on god’s green earth less torturous than having to spend more money than you have to and we understand that selling property can be expensive – legal fees, accounting fees etc. That’s why at REAL, all marketing is FREE. Plus, there are no base fees, a competitive commission rate and no added charges. In other words, we’ve identified the marketing channels that actually work and we refuse to talk the misleading language of ‘far-reaching, international web portals’ and the like. Let’s take a moment to look at the facts. This week alone, we are seeing website traffic from within New Zealand, Australia, USA, UK, Austria, Singapore and a variety of other countries. Do you still want to waste your money on a costly ‘international campaign’ that somehow has the power to defeat the facts and the reach of a proven method? To be clear, there is no such thing as an exclusively international web portal – every website is accessible worldwide and as you can see from the facts, it is a small international portion at that. Let’s look at some more facts. The online channels that REAL has chosen to advertise on, are BY FAR more effective than any other. We’ve been there and we’ve trialled it. This has led us to identify where we can achieve the most reach in order to develop a combination of ‘affordable and effective’ advertising in order to offer our free marketing package. After all, it’s a no-brainer to focus our funds and energy on the online channels, supported by effective offline channels, that we know work. Since millions of New Zealanders are on the internet daily, it’s safe to say that online marketing is extremely important. However, it’s important to mention too, that online marketing is only successful if it results in people communicating with us offline, or in other words, face-to-face. Selling a much-loved property is a big decision, with many factors to consider before taking the plunge. We’re here to help make this process as seamless and well-informed as possible, so that you can focus on the important things, like finding your next dream home or business opportunity. As the top-selling agents in the Kerikeri area, there are a few important things that set us apart. Listing with REAL will secure the services of not just one, but all of our agents, so you will have access to the collective and proven selling power of our entire team. Another refreshingly real difference is our free marketing package, which includes the most important promotional activities you need to sell your property. So how does this relate back to our marketing shake-up? Well, nobody can deny that established, strong, meaningful connections with people holds the most impact, especially in business. Hence, our vendors adopt the connections of each individual in our team along with our strong, proven, marketing methods. Don’t be fooled by the kafuffle of international marketing speak and other marketing myths. If you’re keen to find out more, why not pop in for a coffee and a chat.