HOW TO BUY A PROPERTY INVESTMENT

[Studson]

Just wanted to say thanks to Sauce, aspex, macdunk and others who contribute to this site. I'm young and am doing whatever it takes to get where I wanna be 10 yrs (net worth of 500K). I love taking all this stuff in and I dont always understand it all but I do my darndest. Why dont they teach any of this stuff in school?? How the F*%k is algebra gonna help me get ahead in this cut throat world?

Thanks again and keep those opinions flowing. Studson.

[stephen]

How are you going to do your books, or make financial plans, or figure out whether you're ahead or not, without algebra, studson? If you hand off the accounting to someone else, how will you trust them if you can't understand the numbers? How will you see if a property deal is going to work if you can't understand compound interest?

You want to do whatever it takes, well decent maths is one of the things it takes. I bet macdunk knows how many beans make five.

[Studson]

Stephen, you miss the point!! I used algebra as an EXAMPLE, it could have just as easily been geometry, matracies or calculus, or even chemistry. The question was 'why dont they teach us this in school?' It would seem to be alot more useful than algebra or have you used algebra in the last 10 yrs? [] I'm pretty sure accountants dont use it either.

Five beans make five stephen, five beans (eyes closed)[:0][^].

[Steve]

quote:Originally posted by Studson

The question was 'why dont they teach us this in school?'

Because if they did, scammers like Entrepreneurs Success Centre & Investors Fourum would not be able to take advantage of the 'uneducated' and then they would miss out on all those expensive course fees...

[stormrose]

Train harder than the race. That's why you learn 'useless' things.

[morpork]

There was a program on TV last night about property investment , it had a formula for working out return , was hoping someone was watching and noted it down

[port hills]

quote:Originally posted by morpork

There was a program on TV last night about property investment , it had a formula for working out return , was hoping someone was watching and noted it down

I saw most of the programme but the only formulas I recall was the suggestion that the annual rent should be 9% or more of the purchase price or if you like the purchase price should be 11.11 X annual rent or less.

And they said money spent on a property should add 4 x what spent too the value eg spend $10 000 to add $40 000 to the value.

It wasn't too bad a programme, not too over the top positive.
They were calling this a falling market (probably the first time I've heard anyone on TV say it's here now)

I wonder how many developers and shisters go under over the next 2 years.

Port Hills & Morpork that formula only acceptable for a low maintence home in excellent condition and with interest rates increasing you would still be pushing money into it. Myself I would want 12% to 15% and close to 20% for an old villa.

[Sauce]

12-20%!

If you were to buy at that kind of yeild in any of the major cities in NZ you would most likely be ripping off an old lady. Rental yeilds at less than 7% in most places.

I'm not saying its impossible, but you would be buying way below "current" market value and could turn it instantly for a profit.

whether currnet market value turns out to be over valued is another story. Probably. Still we have some of the highest rental yeilds in the world (along with high interest rates of course).

Tony Alexandra the chief enonomist from the BNZ released a great graph showing how property was 20% over inflation adjusted long term trends. I will see if i can post it tommorrow.


Morepork: The simplist back of the envelope property investment analysis is the following:

1. conservatively estimate your outgoings i.e. rates insurance maintanence etc then calculate your total interest bill on your borrowings for the year and add these together. (to quickly calculate interest payments try multiplying the borrowing amount by 0.075 if you are borrowing at 7.5%pa. I.e. $200,000 * 0.075 = $15,000 - this will not include principal repayments but you should go interest only on your loan anyway).

2. Multiply your weekly rent by 48 (weeks - this allows for 4 weeks in the year with the property vacant). Now subtract your outgoings caculated above and what you have left is a consevative estimate of your annual earnings before tax and depreciation.


This should be enough to figure out if its on or its not pretty quickly - if its a negative figure then you better hope the bubble doesnt burst after you buy it

Your equity position (or lack of it) will heavily influence the bottom line (more real equity down will mean more cashflow), but you will make a higher return on your equity if you can find properties that will pay for themselves with very little money down. Though this is much easier said than done in the current climate. 3 years ago it was easy.

Regards,

Sauce [}]

Good stuff Sauce. Four weeks vacancy provision's a bit tough and the 400% return on improvement/refurbishment figure was startling although I've heard 300% commonly enough and even struggle with that one.
I have an interest in a 7-bedroom furnished & serviced new house. Currently 6 of the 7 rooms are let and the net return is about 12% pre-tax. We're (mainly me I guess) getting together a price for me to divide one of the rooms into two en-suites so the the adjacent two rooms can use them. We believe the additional en-suite and storage rent will compensate for the loss of the room and as there will be fewer people sharing the bathrooms now a little rent increase for the non en-suited rooms is justified. Quite important for many people to have an en-suite now and we're happy to meet the mkt. I reckon $15K tops would do it and the best thing is that it wld take only two years to pay back the capital outlay.
Anyone else have a similar letting situation with high en-suite/bathroom ratio??