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  1. #1
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    Default Coastal apartments secured for 5K down - too good?

    Hi fellas

    I could use an experienced investors opinion here. I am looking into an apartment investment in Tauranga for just 5K down. Contruction is yet to commence and prices go up as soon as this happens. I have to make a quick well informed decision as soon as possible. The remainder of the 10% deposit (31K) is payable on completion of construction which I think is all pretty normal (?). I have heard of these people selling these apartments on for good capital gains prior to completion of construction.[8D] Now Im not into this for the short term but rather for the long haul as I think inner city apartments on the coast have got to be a goer. The rent would have to be in the $650 - $675 per week depending on what the body corp are asking for the investment to pay for itself. Is that ridiculously high rent or 'normal' for that type of lifestyle.

    There are not many left and was hoping you could all help me out and tell me what your thoughts are surrounding this type of investment strategy.

    Thanks in advance. Studson.

  2. #2
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    Studson

    Perhaps if you give the name of the proposed apartment complex, it may give you a more meaningful answer?

    Death will be reality, Life is just an illusion.

  3. #3
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    Cityside Apartments, Tauranga CBD. Graeme Rogers is the man behind it and I know that he was behind the Anchorage which is a holiday accomdation in Tauranga also. I understand too, that he has his fingers in the retirement village pie and owns a few of these as well although I could not find a heck of a lot else on the net about the guy. Is he a shark or is this a genuinly reasonable offer.

    Steve, have been burnt by disclosing information, if it is as good as it looks on the surface I dont want to be missing out again!

    Cheers

  4. #4
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    In most apartment developments there are normally some apartments that go for "wholesale" prices as the developers have to presell a certain percentage before the banks will approve funding.

    The fact that you are looking at holding for the long term is probably
    wise at this stage as many inveestor are still trying to make a quick buck through deposit bonds a la the Henry Kaye way of investing/

    You might want to check out how many other developments are going on in the area as if a lot come on the market around the same time over supply will push your rental prive right down.

    What are you estimating the body corps to be because the rent shouldn't have to be that high to pay for itself.

    Are you looking at it as an investment to provide cashflow(using an interest only loan) or more for capital gains/equity (P & I)?

  5. #5
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    PJ

    Thanks for that. I will suss out the amount of other similar developments that could cause a drop in prices due to supply/demand. I have also learnt that a carpark is a must from these threads!!!

    Estimating 4 - 5K for body corp p/a. Well thats $75 - $100 p/w! I have only worked out repayments on 324K (360 less 10%) over 30 years, so not as an interest only loan at this stage but not opposed to the idea. So it wont be providing cashflow for a wee while yet!! LOL

    I hope to make handsome capital gains but will use this as leverage to get my hands on more cash to trade in stock and perhaps other investments. Circumstances depending, it may be wise to flick it sooner rather than later but I do like the idea of it in my portfolio for the long term.

    Im heading to the UK for a couple of years and will be returning when construction is almost complete so Im just trying to build something here before I go. I dont know anything about the UK markets and from what I understand I wont be getting into any property deals over there in a hurry!!.

    Cheers

  6. #6
    Senior Member moimoi's Avatar
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    personally i'd be seeking some form form of independant analysis of the likely rental to be obtained.

    your whole investment is based on what rent will come to you.

    cheers
    moi.

  7. #7
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    Hi

    I have learnt since that it is actually 5K to secure the place and then the reaminder of the deposit to be paid within 20 days with either cash or bank bonds. After disecting the info pack the apartment I think is a better deal is actually worth $459K.

    I only have $26K with which to invest. I was thinking of borrowing the other 20K and pay this off aggressivly before the development is finished, so that the banks may assisst with 90% fiance once complete and the title can be signed over to me.

    The rent is based on a per night system at $175. It is a two bedroom, 101sqm apartment with two decks on the third floor of this 'yet to be built' development. The Devonport towers are the newest and most similar development in the Tauranga CBD and the two bedroom rooms there are going for $180 per night except there are no gym or pool facilities. Both have conference facilities.

    I talked to an apartment valuer from Tauranga yesterday and he told me of an available apartment at 150sqm going for $439 but it was 6-8 yrs old. Both seems to be resonably priced wrt the maket based on the info gathered so far.

    There are however about 4 apartment developments at the moment going up around Tauranga (and more likely!) which should be ready within the next 2-4yrs so this will put strain on the market price, the fact that Cityside is due to be completed by Dec 2006 is in my favour but I would think it may be wise to look at selling it on prior to the completion of the other similar developments. What are your thoughts?

    I also talked to my soliciter which was interesting. If there is a drop in the market price of apartments exacerbated by supply and demand and other factors such as immigration, building material costs it could be crippling. If I was to go ahead with this, pay the 10% deposit of 46K but in Dec 2006 it has actually LOST value then the bank would only lend on 90% of the valuation at that time effectively leaving me seriously short of the amount I would require to purchase the property and I would inevitably loose most if not all of my initial deposit. Ouch!. Of course if it goes the other way.... I think its fair to say that with the current state of the economy and the looming slowdown and the housing market the way it is the property Im considering, may not hold its speculative value.

    On another note, the banks are pulling out of the apartment market in Auckland as an apartment 'crash' is imminent within the area. Lack of students, net immigration outflow, housing slowdown, pinch of the interest rate rises in 12-18 months time, building materials likely to increase as crude oil prices continue to climb etc etc.

    All opinions and thoughts appreciated and welcome.

    Cheers. Studson.

  8. #8
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    STUDSON, One golden rule in property is, it is much better to buy what you see rather than buy what you might see. You being a young guy starting out i think would be wise to buy what is already built. I dont know anything about your intended purchase, but beware. Lots of people get promised all sorts of bargains that seem to fall over, and leave them with nothing. I have been in the building game for half a century watched it all happen so many times. Why risk it.
    best of luck macdunk

  9. #9
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    Thanks for the advice. Much appreciated, but luck is for the ill prepared!. I think you are right tho Macdunk, it is a high risk venture with potentially devestating consequences. Its all good for the developer who has all their assets protected in trusts but for the small man who becomes nothing more than a blemish on the sole of a developers shoe, it can break him...me!

    I have started to look around for 2-3 bedroom homes in the Papamoa, Tauranga area. I have been informed by my bank manager that friends of hers took what they could get which is a three bedroom hardy plank place with a reasonable section and and a gge ansd they pay $360. She said that cause of the shortage people are willing to pay what ever it takes to secure a home.

    Macdunk, I'm interested to hear what you think is going to happen to house prices and what the influence of interest rate rises of late will be. Where might some of the better cap gains be? Is it better to wait to purchase a place, i.e will it become a buyers market as opposed to a sellers market in the near future or are things just going to slow rather than stop and head the other direction?

    Thanks in advance, Studson.

  10. #10
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    Studson, whatever happened to house prices in the last fifty years will happen in the next fifty years. Will average up 10pc a year or there abouts. Buying a house is the best way for a young person to get filthy rich without trying. Rules as with anything must be strictly observed. For rental purposes, Transport and schools with handy work locations are essential. Never buy a good house in a bad street. Always find out rental valuations in the area from a neautral source. Find out from the housing corp what type of house and in what areas they will lease a house from you and set up a deal with them before you sign the dotted line. They will do maintenance collect the rent and fix up malicious damage which is on them. Place the lowest deposit on an interest only loan which might only leave a token ammount at the start to stump up. Buy low maintenance if pos brick and tile is best hardiplank is ok exterior plaster over a timber frame avoid like the plague that is where the leaky home syndrome resides. In five years time get the house revalued and take out a bigger loan and buy your second house. It dousnt matter if you are a factory worker thick as pig poo if you carry on doing that you will end up a very rich person indeed. Always buy 3brm with a garage. macdunk
    PS The property must be cleared by the council or dont buy.

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