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toffee
19-07-2006, 08:51 AM
Hi All,

Treat me gently now as I am a newbie...

We came to NZ from the UK 2 years ago now and something has got to change in terms of investment and savings for our future. So, property is currently attracting us and I have a few questions:

We have researched some possible areas of investment for our $250k max budget and come up with a shortlist.

Flatbush is a prime contender as there is much development happening and due to happen over the next 10 years or so. Plans to build 7 new schools have been widely reported.

Question that's nagging us is: is now a good time to buy an investment property. The sentiment on the board suggests otherwise I feel?

Because we are new to this, our plan is to use the services of an agent to manage the administration; is this a good move and do they provide a good service for us; any recommendations?

I know there are good deals to be had outside Auckland, but our feeling is to stay local, at least with the first purchase. The tax incentives seem to be greater if we are able to 'drive by' to check the property every so often. I guess this could enable us to extend the area we consider down to Hamilton.

What is the ideal yield figure. I've seen 8% or 9% as the target to aim for. Using the yearly rental figure divided into the purchase cost, I have actually seen properties of 15 and 16% yield. Is this the right formula to use or am I going wrong?

We have a meeting with our own mortgage broker to discuss the whole approach next week so should be a lot clearer then, I hope.

Thanks in advance for any valuable advice offered.

toffee.

duncan macgregor
19-07-2006, 10:35 AM
TOFFEE, Answers to your questions.
1, any time is a good time to buy, bargains can be found right round the investment cycle.
2, Real estate agents are normally honest people that know absolutely nothing about the product and will sell you anything.
3, Use them up to run you about, show you a selection then [you being a newbie] have your lawyer go over anything before signing.
4, Mortgagee auctions are a good way to get a good rental investment.
5, Have a builder give you an inspection before you sign anything.
6, Ideal yeild is the smallest deposit with rent covering outgoings.
7, Where you make the money is capital gain.
I think thats enough for starters other than at this moment in time, get a fixed interest rate for the first few years. macdunk

toffee
19-07-2006, 11:30 AM
Thanks for the information. Appreciated. Now I have just got to sell my TEL shares to cover the deposit. LOL :D Got out of those 2 days before story leaked. Hunch or something, but lucky nonetheless!

minimoke
19-07-2006, 03:34 PM
Toffee
Can’t comment about Flatbush as I don’t know it but one thing you might like to look for is the number of Housing NZ Corp. homes being built in this area and if their tenants are the type of people who will add value to the neighbourhood. Same can be said about Prisoner Rehab and Mental Health trusts.

Are you “handy”? If so weigh up the cost / benefit of using an Admin Agent rather than your own skills and time. If you aren’t a hands-on person then use an agent.

An investment property is going to be your own wee business. Can you offer a better service and product than your competition? And still make sufficient profit that properly recompenses you for your risk and efforts!

Beware the tax incentives. You spend a dollar doesn’t mean you will get a dollar back.

Look carefully at any potential renovation / refurbishment costs that you could be up for. Can your total cash flow tide you over if something like a leaking hot water cylinder hits you.

Head down to Whitcoulls – lots of property investment books on their shelves written by people with the bottle to get their views published.

Think about joining your local Property Investors Association – learn from others experiences in your area.

wns
27-07-2006, 08:49 PM
quote:Originally posted by toffee

What is the ideal yield figure. I've seen 8% or 9% as the target to aim for. Using the yearly rental figure divided into the purchase cost, I have actually seen properties of 15 and 16% yield. Is this the right formula to use or am I going wrong?


Hi toffee,

The way I calculate the gross rental yield is:

rent per week x 52 / purchase price

Do that calculation and let me know what the answer is. If it still comes out as 15-16% please let me know where the properties are!

The 15-16% figures sounds like its "too high", normally yields work out to be in the order of 3-4% for inner city and up to 10-11% in small country towns.

To answer your question, the higher the yield the better (in my opinion) because it means your cash flow situation will be better.

For each property you look at, work out what the annual income and expenses will be. Make sure you include the following expenses: loan repayments, property manager's fees, rates, insurance and an estimate of what maintenance will be.

Take away the expenses from the income. Is the number positive or negative? You want the number to be positive.

Make your decisions on the facts - the numbers. Do the numbers work or not? If you can't get them to work (low enough purchase price), move on to the next property.

I'd suggest you look at properties throughout the whole country rather than just within driving distance. The drive-by's cost you money anyway. There may well be better deals in other parts of the country.

Also, get familiar with the prices in an area. See if there's an information service in NZ where you can buy information on recent property sale prices in the areas you're looking at, then look up the properties that sold and drive by them with the sale prices in your hand to get a feel for values.

Hope this helps.

toffee
04-08-2006, 04:37 PM
Hi wns,

Thanks for the information, greatly appreciated.

Our advisor has forwarded a spreadsheet through breaking down the areas you mention and I'm just playing with some figures to see what works. Proving tough at the moment!

Once I have the figures in mind, I'll start to look at possible areas of interest. Did you look at the Kiwi Property Investor this month? Certainly changes my automatic opinion of looking within Auckland! You are right, I would rather now look further afield to a more affordable property in a high rent area, if such a place exists.

Thanks again and all the best.

toffee