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AJ
19-01-2009, 10:50 AM
Hi,

We are moving back from the UK to start a family with about $300k deposit and another $50-$100k to come of residual income.

This is our first property and we've been looking for houses on the Auckland North Shore (Takapuna, Milford, Devenport) in the $1M GV valuation range and trying to pick something up for $700k - $800k. Which seems to offer a decent potential return.

However after the squalors of london living in the $1M house seems a bit too extravigant for us at the moment. So i've been toying around the idea of renting ourselves and renting out the house we buy to help cover the mortgage. And all the while have the house on the market to try and pick up a lucky buying at $1M and make a quick profit.

I've been trying to put togther a spreadsheet of the costs involved with this investment and have a few questions for those who may have done this in the past.

1) Is it possible to sell a house privately in the $1M range or will you not reach the right people? Ie end up only with savy investors looking for a deal. Also what are the agents fees like at that level? (I was guessing $40k?)

2) If you have a house on the market long term with a relatively high asking price (2 year period). Are estate agents interested in you? What are the marketing costs per month etc.

3) If you are in a fixed term loan and sell you house, do you still need to pay the banks break fees? What if you buy another house soon after?

Or if anyone has any other advice for me it would be appreciated.

Thanks
Andy

minimoke
19-01-2009, 11:10 AM
1)Yes; Barfoot and Thompson will charge around $24,000 including GST plus advertising.
2)Two years!!! Way too long. Agents will still be interested in you like a fly around a rotting carcass. But can they sell it for you??. Marketing costs are relative to the depth of your pockets.
3)You may need to pay a break fee – depends on Bank and circumstances. If you re-buy and mortgage with the same bank you may be able to avoid. A mortgage is just a loan secured by property. Keep the collateral but change the property and you should be OK.

Watch how you structure your mortgage. If you do it to buy your home you won’t be able to put the interest costs against any rental income. What about buying two $500k rentals or 4 x $250k. 1 house at $1m is going to limit your options.

mikeo
20-01-2009, 07:38 AM
Trying to sell a place with tenants in it sounds like a nightmare to me. Firstly the fact the house is on the market would probably put off most decent long term tenants. Secondly you can't rely on tenants to have the place looking 110% for viewings.
Also - to me if you want to sell then surely you want to sell. If you have a 2 year horizon then maybe a better option would be to rent it out for a couple of years and then sell it at some convenient time in the future (e.g. if the market picks up and/or the tenants move out).
Finally - be carefull from a tax point of view. If you are buying with the intention of reselling at a profit (as you state you are in your post) you would be liable for capital gains tax.
Hope that doesn't sound too negative! good luck.

fungus pudding
20-01-2009, 08:25 AM
Hi,

We are moving back from the UK to start a family with about $300k deposit and another $50-$100k to come of residual income.

This is our first property and we've been looking for houses on the Auckland North Shore (Takapuna, Milford, Devenport) in the $1M GV valuation range and trying to pick something up for $700k - $800k. Which seems to offer a decent potential return.

However after the squalors of london living in the $1M house seems a bit too extravigant for us at the moment. So i've been toying around the idea of renting ourselves and renting out the house we buy to help cover the mortgage. And all the while have the house on the market to try and pick up a lucky buying at $1M and make a quick profit.

I've been trying to put togther a spreadsheet of the costs involved with this investment and have a few questions for those who may have done this in the past.

1) Is it possible to sell a house privately in the $1M range or will you not reach the right people? Ie end up only with savy investors looking for a deal. Also what are the agents fees like at that level? (I was guessing $40k?)

2) If you have a house on the market long term with a relatively high asking price (2 year period). Are estate agents interested in you? What are the marketing costs per month etc.

3) If you are in a fixed term loan and sell you house, do you still need to pay the banks break fees? What if you buy another house soon after?

Or if anyone has any other advice for me it would be appreciated.

Thanks
Andy

Just what are you tryting to acheive? You certainly won't buy in that price range and get a 'decent return'. So I presume you are looking at the capital value. If so - it's a risky venture given that buying, holding and selling costs will all be high. There are many better options than flicking houses to make a profit.

kazza
21-01-2009, 06:28 PM
Hi AJ I agree with mikeo, although I have never owned a rental in that price bracket, I would think the rental yield would be very low, expecting to buy a bargain then selling it for a profit in the current environment would be VERY VERY hard, chances are the value would drop over the next year or two. I would wait a while (maybe a year or so) before considering buying a investment property when the yields are better because big increases in capital value is a thing of the past. However if you are looking for a family home to settle down in you will be able to find plenty without any competition at the moment. Good to hear you are coming back to NZ.

AJ
22-01-2009, 11:11 PM
Thanks for the replies guys.

I wasn't completely clear in my first post. By a decent return I meant a potential capital gain. I'm only expecting to rent it out for max 1 year before moving in once I've paid enough mortgage off to get the interest down to $500 a weekish.

I'm not really keen getting into rentals in general, but it seems like a good option to begin with to get a headstart on the mortgage.

I'm interested in the higher ban of houses for capital gains as from looking around they seem to be dropping prices alot more dramatically. I've been following one house that first listed at $1.4M and the asking price has dropped right down to $980k but will likely now accept an offer in the high $800's. Another that started at $1.25M and is now looking for $950k. Both are decent looking homes less than 100m to the beach so land should definately improve in value long term.

My comment about flicking it early in the first couple of years to make a profit was only an idea. I would happily bring up the family in the place for the next 10 years if needed. But thought because of location there is the possibility of someone "too rich" just having to live in the street :) hehe.

Minimoke : Was that a yes that one can successfully sell a $1M home privately? Is trademe the best forum?

Ketel One
23-01-2009, 12:08 AM
Thanks for the replies guys.

I wasn't completely clear in my first post. By a decent return I meant a potential capital gain. I'm only expecting to rent it out for max 1 year before moving in once I've paid enough mortgage off to get the interest down to $500 a weekish.

I'm not really keen getting into rentals in general, but it seems like a good option to begin with to get a headstart on the mortgage.

I'm interested in the higher ban of houses for capital gains as from looking around they seem to be dropping prices alot more dramatically. I've been following one house that first listed at $1.4M and the asking price has dropped right down to $980k but will likely now accept an offer in the high $800's. Another that started at $1.25M and is now looking for $950k. Both are decent looking homes less than 100m to the beach so land should definately improve in value long term.

My comment about flicking it early in the first couple of years to make a profit was only an idea. I would happily bring up the family in the place for the next 10 years if needed. But thought because of location there is the possibility of someone "too rich" just having to live in the street :) hehe.

Minimoke : Was that a yes that one can successfully sell a $1M home privately? Is trademe the best forum?

It sounds a little like you're trying to pick the bottom in a falling market. How do you know the price won't fall another 200k once you've bought it? (edit: I only say this because the fact that they're a much lower price now than they were not long ago, doesn't mean they don't have further to fall. There's plenty of reasons to think housing's still overpriced e.g. price vs. avg. incomes, price vs. rental yield, etc).

minimoke
23-01-2009, 07:33 AM
Minimoke : Was that a yes that one can successfully sell a $1M home privately? Is trademe the best forum?
The answer is yes. – though the last place I sold wasn’t quite a mil but not far off. I haven’t sold a property through an agent in ages so I have a bias against agents and am very pro private sale. The last place I sold was through “homesell “ because it gave net access to photos and gave a potentially wider coverage then newspapers – which are a bit old fashioned, I know, but still effective. My last buyers saw my ad in the newspaper.

Housing affordability is dropping – now needing 59.5% of one median income to pay for a median value property. And today Kiwibank will announce a new low in loans – 5.99% for a year fixed mortgage. This is getting closer to the theoretical ideal of 40% so the closer we get to this mark the more we will see the market start to take off again. Falling interest rates also means rental yields are looking a lot better.

To get capital gain you have to be working in a market that has some liquidity. There isn’t much of that IMO at the $1m + mark. But loads more at the $500 mark. If you wanted capital gain I’d be going for 3 x 350,000 properties. Just good old supply/demand and there is a fair bit of supply already at the $1m mark which isn’t being matched by buyers. At the moment we are seeing growth in sales of properties up to $400k and the $400 - $1m is flat whereas $1m+ is dropping away. And thats one of the drivers for the lower median sale prices. But if you want to trade on capital gain you have to pay your taxes and that will knock off any potential gain and increase your risk exposure.

AJ
23-01-2009, 04:01 PM
Thanks for the advice minimoke.

Ketel One:

I'm not trying to pick the market bottom completely, but there seems to be quite alot of noise in the agreed value of houses in the higher bracket range so any short term sale would only take advantage of this.

The price I'm willing to pay does take into account holding onto it long term and what i think the value of the house would be in 5-10 years time.

fungus pudding
23-01-2009, 04:58 PM
Thanks for the advice minimoke.

Ketel One:

I'm not trying to pick the market bottom completely, but there seems to be quite alot of noise in the agreed value of houses in the higher bracket range so any short term sale would only take advantage of this.

The price I'm willing to pay does take into account holding onto it long term and what i think the value of the house would be in 5-10 years time.


And that's the best investment you can find? Have another look.

Skol
12-02-2009, 07:28 AM
I built a house in 1989, about the time the property market took a dive, which I didn't mind too much because I got a reasonably good deal on most things. I thought the bad times would end after a year or so but actually it took 4 years for the property market to get into gear again, so I think on this recession we aren't even at the end of the beginning, it's going to be a lot worse than this before it's over.