First Rental!

Hello,

I've been looking to get into the property market to complement my other investments. I've done the numbers on owning my own home and the investment potential in Auckland seems horrible once all costs are factored in. I was advised to buy rentals which stack up as better investments until I have equity for my own home.

So I'm going to look for some property, however I'm new to the property world and don't know the ins and outs and catches I should look for before buying. I was hoping some experienced property investors could help with my questions below.

- What types of properties have the best capital appreciation I can't find info on the capital gains by property type i.e flats, apartments, freehold sections etc. I don't want to over estimate this value in my calculations.
- Costs for buying and selling property like realtor and legal fees. I've never bought a house so I don't know how much fees to account for.
- Any other traps for new players.

Any and all advice is much appreciated.

Regards,

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Originally Posted by samdaman

Hello,

I've been looking to get into the property market to complement my other investments. I've done the numbers on owning my own home and the investment potential in Auckland seems horrible once all costs are factored in. I was advised to buy rentals which stack up as better investments until I have equity for my own home.

So I'm going to look for some property, however I'm new to the property world and don't know the ins and outs and catches I should look for before buying. I was hoping some experienced property investors could help with my questions below.

- What types of properties have the best capital appreciation I can't find info on the capital gains by property type i.e flats, apartments, freehold sections etc. I don't want to over estimate this value in my calculations.
- Costs for buying and selling property like realtor and legal fees. I've never bought a house so I don't know how much fees to account for.
- Any other traps for new players.

Any and all advice is much appreciated.

Regards,

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Buy your own home first - no matter how modest; it's obviously a first home. Don't overlook the advantage of creating a tax deductible mortgage on your home by doing this.

Plenty of traps for new players! Here are just a few -

- buying unit titles property (Body Corporate). Research carefully beforehand as many rules and fish hooks present and future. More legislation coming this year.
- buying cross lease property. Also rules, they will mostly be in the lease and can be very restrictive.
- check Consumer website for summaries around boundaries, fences, neighbours and trees - can be stressful and expensive.
- lots of new compliance (cost, hassle) for landlords coming, probably including increased protection for tenants, much of it in 2018.
- the government has indicated negative net rents will not be able to be offset against other income. Makes a big difference in returns esp in the early years.

To become more educated, suggest -

- read 2 Matthew Gilligan's books - Tax Structures 101 and Property 101.
- read the Propertytalk.com forums.
- join local Property Investors Association.

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Originally Posted by fungus pudding

Buy your own home first - no matter how modest; it's obviously a first home. Don't overlook the advantage of creating a tax deductible mortgage on your home by doing this.

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I think worth waiting to see what is to be offered to first home buyers by this government. Kiwibuild properties are (apparently) going to be sold more cheaply than others similar, maybe by ballot. Should know more details soon, even if the first Kiwibuild properties take a long time to come to market.

Also only FHBs can use Kiwisaver, and there can be additional subsidies available.

Buy the best house possible with little to no maintenance requirements (brick/aluminium windows...). The better the address the better the tenant. Buying outside of Auckland is probably advisable.

Expect capital gains to be moderate to flat in the near term. With current climate it may be beneficial to build.

Thoroughly vet prospective tenants. Every single one has the ability to destroy your asset. The fairer the rent, the more selective you can be. i.e. high rents attract desperate people.

Too much capital in a property is dead money. If you don't think you'll see 30% improvement per annum on your capital outlay then I'd say it's probably not worth the hassle and you'd be better off investing elsewhere. Remember that it can be time consuming. You need a return on your capital and your time.

The land agent will take far more than their fair share.

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Originally Posted by samdaman

Hello,

I've been looking to get into the property market to complement my other investments. I've done the numbers on owning my own home and the investment potential in Auckland seems horrible once all costs are factored in. I was advised to buy rentals which stack up as better investments until I have equity for my own home.

So I'm going to look for some property, however I'm new to the property world and don't know the ins and outs and catches I should look for before buying. I was hoping some experienced property investors could help with my questions below.

- What types of properties have the best capital appreciation I can't find info on the capital gains by property type i.e flats, apartments, freehold sections etc. I don't want to over estimate this value in my calculations.
- Costs for buying and selling property like realtor and legal fees. I've never bought a house so I don't know how much fees to account for.
- Any other traps for new players.

Any and all advice is much appreciated.

Regards,

---

I HIGHELY RECOMMEND you do more research before making the leap as its much harder to sell and get your money back if the market has a negative move south ...I see sales numbers in Auckland dropping like a stone of late >> Fed increasing rates with talk of another three rate increases next year ...if so we could well see 7%+ floating rates sooner than many think ...that will cause many overleveraged to hit the wall and you will see some ripping bargains >>

IMHO Cap growth is very limited for the next decade or so .. so in my case I have just purchased a High yeild commercial property with a 10.55% net yeild (all costs paid by tenant) now the location has nil Cap growth potential but solid yeilds on prices..

There are some good first time buyer guides on here . http://www.reaa.govt.nz/Pages/default.aspx
Agree with JB imo , Auck prices have definitely topped out for now . Who knows what a foreign buyer ban could do to the market ?? What if 5000 or so people are disappointed that their families /friends can't come and join them and they all decide to goto the next best place ....that amount of property , plus less immigrants could mean a serious pullback ....

Whats the reason for going with a rental over buying your own home? Is the idea that you will get a rental that is lower/higher than your personal renting circumstances? I'd be interested to see your numbers as typically I've found it hard at the moment to justify due to high house prices and relative low rent. Also you will be required to have a larger deposit (generally).

I'm a great fan of property and used to post regularly on these treads in days goen by. But today - its a different story. I've been thinking about getting back into rentals having lost mine a few years back. But no matter how I try I cant get teh numbers to stack up. So in that context

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Originally Posted by samdaman

- What types of properties have the best capital appreciation I can't find info on the capital gains by property type i.e flats, apartments, freehold sections etc. I don't want to over estimate this value in my calculations.

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I don't see there being any serious capital appreciation in the residential property market for some time. I reckon we are now coming off highs here we wll see a flat lining with a major risk of depreciation in some areas (take Rolleston as an example of near where I live - wouldn't touch it with a barge pole)

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Originally Posted by samdaman

- Costs for buying and selling property like realtor and legal fees. I've never bought a house so I don't know how much fees to account for.

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Real estate commission 3.5% of sale give or take + plus what ever they try to rip you off by going to auction. $1 - $2,000 legal fees. Depends on complexity of transaction. I always sel lmy own propery and keep it simple. Add to this tax as you are very clearly thinking of being a trader wanting to make money on trade rather than investment. So loose 33% of any gain

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Originally Posted by samdaman

- Any other traps for new players.

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Some of the traps are shown above. The other one is considering property as your only investment vehicle. I already have my own home so well placed in "property" (and yes I do see this as a valid part of an asset portfolio). I'm moving belatedly back into shares as I see much better opportunity there. If you are looking at traps shares are great. You cant easily see your house depreciation - with shares you can so can trigger a sell at a moments notice. You cant sell property instantly. With shares you can - minimising potential loss (I've just set up a second share portfolio. In a month its up 6.9%. I'll be happy if its up 10% in a year)

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Originally Posted by minimoke

But no matter how I try I cant get teh numbers to stack up. So in that context

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I've been looking at picking up another property but no matter how I run the numbers I can't get it to work, maybe I need to look elsewhere, but 320k house renting for $300pw just isn't a big enough return in my book. Even with no mortgage, tax, insurance, maintenance, a month or so of vacuancy... I'm not sure how anyone does it?

Am I just looking in the wrong area?

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Originally Posted by FIsaver

I've been looking at picking up another property but no matter how I run the numbers I can't get it to work, maybe I need to look elsewhere, but 320k house renting for $300pw just isn't a big enough return in my book. Even with no mortgage, tax, insurance, maintenance, a month or so of vacuancy... I'm not sure how anyone does it?

Am I just looking in the wrong area?

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Could take a medium plus view. Ten years, even five, of rent rises, principal paid down a bit each year, increased value should change the return from then onwards.

It does not cost you anything to buy a property through an agent. Fees are only payable when selling. When selling you should always consider all your options but to say agents are rip offs just shows you may not understand how the market works. I'll never forget my neighbour skiting to me how they saved 15k in agent fees selling privately and that i was silly selling with an agency. Once they had finished i was able to tell them i had just recieved an offer for 64k more than they got selling privately. I was very happy to pay for the agents fee. I'm now an agent also and i don't get paid nearly as much as I'm worth.

Advice

Buy properties close to good schooling as they appreciate more in value when the market moves and are also less volitile when the market slows.

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Originally Posted by Topagent

It does not cost you anything to buy a property through an agent. Fees are only payable when selling. When selling you should always consider all your options but to say agents are rip offs just shows you may not understand how the market works. I'll never forget my neighbour skiting to me how they saved 15k in agent fees selling privately and that i was silly selling with an agency. Once they had finished i was able to tell them i had just recieved an offer for 64k more than they got selling privately. I was very happy to pay for the agents fee. I'm now an agent also and i don't get paid nearly as much as I'm worth.

Advice

Buy properties close to good schooling as they appreciate more in value when the market moves and are also less volitile when the market slows.

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This wil get me going!!

Havent used an agent in all but one of my property sales and quite content with the out come. But heres a "rip off" test. Take a $500,000 house. Approx how many hours labour does it take to sell? (it hasnt taken me any more than 40 for any of my properties). How much of a $500,000 goes to a real estate agency?

Heres another test. "go to auction as the market will dictate the price" says our local agents. Duh! So what are we paying yoiu for if you dont know the market you work in?

On average $15000 plus gst. So on many houses there would be quite often a difference of value from buyer a to buyer c greater than this. Just sold a property for $46,000 more than the asking price. We received 5 in total the worst being 10k under asking. The two best offers came from agents who had been working with their buyers for some time.

Sorry one more point most of you would be the worst buyer in this scenario as you don’t use agents. But when your selling who do you want to sell too? An investor active in forums like these or a motivated buyer working with an agent. When you are successful it will be because no one else wanted the house, probably not the best choice when you are looking for gains.

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Originally Posted by Topagent

Sorry one more point most of you would be the worst buyer in this scenario as you don’t use agents.

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As a buyer I don't need an agent. There are enough networks already available to identify most properties on or coming to market.

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Originally Posted by Topagent

But when your selling who do you want to sell too?An investor active in forums like these or a motivated buyer working with an agent.

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I want to sell to a motivated seller. Motivation is easy with private sales as buyer / seller can talk direct. Or if a buyer prefers to work through an agent thats fine to. I'd also sell to an investor active in forums like these - I presume we are both going to be well informed on he market through our own skill.

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Originally Posted by Topagent

When you are successful it will be because no one else wanted the house, probably not the best choice when you are looking for gains.

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We are successful when the Golden Rule is met: that is a willing buyer and Willing Seller come together as one.

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Originally Posted by Topagent

On average $15000 plus gst. So on many houses there would be quite often a difference of value from buyer a to buyer c greater than this.

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OK. Lets call it an average 3% on a $500,000 property.

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Originally Posted by Topagent

Just sold a property for $46,000 more than the asking price. We received 5 in total the worst being 10k under asking. The two best offers came from agents who had been working with their buyers for some time.

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When selling I allow a 10% buffer that I might need to be willing to drop to meet market at the time of sale. That makes me a Willing Seller.

10% is also a nice round number to negotiate around. ( I laugh at these UK property shows where they sell for 395,850 pounds and they dick around of multiples of 50 pounds. to me its value is $395,000 or $396,000 - who can be bothered arguing over a grand?)

Asking Price is not settling Price. Its purely a market indicator. It might mean the vendor is under or over valuing property.

I could put my $500,000 property on the market for $500,000. Through the process I reckon I reckon I would attract bids of between to $450,000 to $550,000 (because I am 10% out in my estimation)

An Agent doesnt magically conjure up an extra $46,000. The $46,000 was already sitting in the market. So there simply was a Willing Buyer who saw value at $546,000. (though in reality probably saw it at $550,000 and wanted to knock of a bit in the negotiations - we all love to deal!)

That said, receiving 5 offers on a property (without knowing any other detail) seems to be quite the result. Most properties I watch from time to time are luck to get one. Probably an indication the owner had under pitched value. But if he was a willing seller at $500,000 should Agents be interfering with the market - a purely rhetorical question but one I ponder from time to time when discussion about Auctions comes up)

I think it all comes down to perceived value. I know I add value and make my clients money. Maybe your yet to find an agent who can add value for you. The top 5% make 95% of money.

Also when buying my time as an agent is free and costs the buyer nothing. So buyers working with me get the knowledge and expertise of an agent negotiating in excess of 200 contracts a year.

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Originally Posted by Topagent

I think it all comes down to perceived value. I know I add value and make my clients money. Maybe your yet to find an agent who can add value for you. The top 5% make 95% of money.

Also when buying my time as an agent is free and costs the buyer nothing. So buyers working with me get the knowledge and expertise of an agent negotiating in excess of 200 contracts a year.

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So you’re saying you don’t get any commission for introducing a buyer?

I offered a commission to an agent once that was structured to only pay out if we surpassed my expectation of sale price. With their many decades of experience they stated that they do not believe they could negotiate a buyer to pay anymore than what they wanted to pay or what the house was worth...

We get paid by the seller commissions are halved sellers/buyers