Hanging tough

Top international 'wealth coach' Dr. Fred Grosse has advice for New Zealanders on how to survive today's doom-laden market. He talks to David Killick.

Think today's property market is tough? It's like a tame pussycat compared with the positively gut-wrenching times the US market has been going through, according to international wealth coach Dr. Fred Grosse.

The 72-year-old native New Yorker, who is a qualified clinical psychologist and an ordained rabbi, travels the world holding seminars and talks, and is a consultant to leading sales professionals and entrepreneurs. He will be the keynote speaker at this year's Property Investors' Association conference in Rotorua, in October.

Dr Fred - as he likes to be known - is author of Black Belt for the Mind. And he believes today's doom-laden market demands the ultimate mental discipline.

Falling property prices have led to gloom and doom in New Zealand, but in the United States, the situation has become dire. "A bubble has burst in the market and property is now down to about 2002. There's certainly a negative hysteria. People are panicking, people are getting very frugal. Here's it's slowly squeezing; in America, they're really very nervous. "

US real estate firms have slashed staff. Many sales have been bank-owned property, mortgagee sales or "short sales" - where property-owners sell at a loss. "Imagine this: You're on a street where half the houses are now selling for 50% of the price [the owner paid originally], and the banks are giving back half the mortgage, but you've paid your mortgage and you've put in a big down payment... The new value is the mortgagee sale, not what the value was three years ago. "

Dr Fred talks of the "sadness of people choking…They can't move, can't walk away from their houses because there's just too much invested and people lose real equity."

Those with 100 per cent mortgages have the heartache of losing the house.

He predicts the bottom will hit the US market in about November 2009.

However, as tough as the situation has become, the depressed property market has created opportunities. In the States, a new business has sprung up for for bargain property-hunters. There's even a website called www.foreclosures.com.

"What this means is this is the perfect opportunity for buying distressed properties.

"In Minneapolis somebody came to me and said, 'I have 250 houses that were selling between $500,000 and $700,000 five years ago, and I can get them for you for $250,000. The mortgagor will give up $250,000 on a mortgage if you buy 100 at a time.

"People are buying that stuff up. The hard part is getting tenants, because America doesn't have rent rolls, so it's harder to find tenants, that's even at the lower prices, and you wonder where all the people that owned those houses went.

"But the fact remains that this is a major buy opportunity for people who have prepared themselves with cash…They are still foreclosing all over America, there will be amazing buying opportunities if you can carry them."

Is now the time to buy in New Zealand. "Not yet," says Dr Fred.

Lesson two: The property market is similar to the sharemarket. Sell when the market reaches its peak, buy when it falls.

"It's a cycle. We had the same thing in 89-91, and we had the same thing in 1932. "

What if you miss out? "There will be another cycle in about 15 years. We can predict these cycles. It's not a surprise. These are created by government, actually. This boom and bust is the history of the economy."

Here's the strategy: "Our work is to know the cycle and to put our money in position profitably. What happens is that people tend to buy when everybody else is buying. That's not a good time. This is the time to buy when the market is at its lowest. It's when wealth is accumulated. That's what I mean by wealth consciousness: knowing the cycles, knowing how not to deal with the mass hysteria, learning that the buy is everything, that most of the big money is made in these cycles. It's a perfect buy opportunity. It's a terrible sell opportunity."

However, investors must to study thoroughly which areas are likely to recover well. "Look at Detroit, for instance, there is no major industry to come back, most of the manufacturing has gone offshore. If you go to Arizona or Florida there's a diversification. If you go to Las Vegas, which has fallen way off, there's a lot of industries, which will bounce back. There's a base."

Where should you invest in New Zealand? "I don't know what the Christchurch market would be compared to Auckland, but there may be secondary cities like Hamilton, Tauranga, Nelson, for instance, which were very buoyant."

Cities like Queenstown, though, are where the bubble bursts. "Those are the ones that go down, wildly. When people extend, when investors bought a whole lot - like Florida, Arizona, Las Vegas, people bought 10 houses, they can't get tenants, and now they are letting them go at bargain basement prices, they are walking away from them.

"We have a worldwide loss of confidence. What's hardest now is to get money. A lot of finance companies are dysfunctional: they just can't roll their debt any more."

Dr Fred says now is a time for either "great caution or great optimism". What is certain is that, for many, the financial outlook has gotten a whole lot tougher.

"Everyone's experiencing the variable interest going up. It could be $50 or $100 a week more. Then comes the squeeze with petrol, food prices; wages are not matching that.

"It's a sophisticated business. Now is the time for pros. There were times like a few years ago when everyone made money in property." Those times have gone - for now at least. "There's the pros who know where to go and to look for distressed properties, mortgagee sales.

"It requires real sophisticated knowledge, or a good adviser. It's like before the fish jumped into the boat, and now you really have to know how to do it. If you are naive it's very dangerous."

Dr. Fred believes investors should not over-extend themselves, and should work from low or positive gearing, keeping enough money set aside to cope with shortfalls. "Even if you had to lower rents and you had a little negative gearing you're OK and you have enough equity in the property so that you can fund it for three to five years."

What happens in this kind of market is that rents go down often, depending on the availability of property. Rents may go up if there's a shortage of property. That's during a boom. When the market starts to tumble, people accept a lower rent.

Dr. Fred has a commonsense approach to investing in property: Pay off your mortgage first, then buy an investment property. Otherwise, go into a property management firm, or become part of a real estate company or trust. Investing locally makes sense. You know the rules. Other countries have different rules, currencies, and complications . "Stay with what you know. Just because the percentages look big means the risks are high."

Who do you trust? Some advisers don't follow their own advice. "Yourself. And a group of colleagues, what I call a mastermind group of people you can trust, just like the property association. You need people who are in the field, who have a track record, and you can tell if they are making it or not."

The outlook for New Zealand? "It will keep growing. and a big plus, which is a challenge in itself, is if one suburb of Hong Kong moved to New Zealand, prices would double. Also the culture would change."

Dr. Fred remains buoyant about living some of the year in New Zealand. "We have Godzone's country - I'm here because I love it. It's a beautiful place. I could live anywhere. One thing you've got here is a lifestyle and the ability to make money in real estate exists with caution.

"You really have learn how it works, but it's not university kind of education, it's street smarts and knowing what works and hanging with people who have been successful. People think you have to be wealthy to make money. You have to be smart."

Top tips

1) Remember it's a cycle. Like shares, the property market rises and falls.
3) While it's gloomy in New Zealand, it's not as bad as the US.
4) Depressed market is an opportunity for buyers.
5) Don't over-extend yourself. Keep enough money in reserve for shortfalls.
5) Study areas extremely carefully to see which ones are likely to recover well.
6) Today's market is the time for pros, not amateurs.
7) Invest locally. You know the rules.
8) Join a group, such as the Property Investors Association.
9) Have a wealth strategy.
10) Remain positive!

About Dr Fred

Dr. Fred Grosse - Dr Fred as he likes to be known - has a fascinating background. Describing himself as a "business psychotherapist", the 72-year-old native New Yorker travels the world hosting guidance sessions for sales professionals and entrepreneurs. He maintains bases in Christchurch and Arizona. His clients include top names in business and real estate. The author of Black Belt for the Mind, Dr. Fred is also an ordained rabbi, a trained biochemist, a former archaeologist, a business owner, "self-supported since age 13", a former marriage counsellor, and a clinical psychologist with a PhD from International College in Los Angeles. He and his wife, Victoria, are also funding an orphanage in Cambodia.

His specialist field was psychosomatics - how the mind influences the body and health and wellness. (Dr. Fred practises what he preaches: he ran his first half marathon in Christchurch in June.) He went on to focus on how "the mind creates wealth and poverty."

Everybody needs an independent wealth strategy. First comes "wealth consciousness" - knowledge and awareness.

"Property is one of the ways of wealth creation. A good financial planner can steer you as well. Some people invest in currency, some people invest in commodities, some people invest in dividend-bearing stocks. Ideally you would have some sort of mix. "

More information: See www.drfredgrosse.com

[ Return to Feature Articles ]