Coastal apartments secured for 5K down - too good?

[danchop]

dont know if this helps but seen a 5 month old apartment(3bed 2 bath)in braemar villas in bethlehem,has shared pool and tennis court,presently rented for $325week asking price $309000 private sale,dont know if it stacks up cause im in the south island moving to tauranga on monday and just looking at options as well

[Capitalist]

Hi Studson. I wouldn't touch it with a barge-pole.MacDunk is quite right. These sort of investments are not for the young investor - you will almost certainly get burnt - you have to go into too much debt, you won't get the rental they say you will, and the apartment market isn't all that good, although Tauranga is more insulated from any decline.

These sort of things are suited to the 'retired farmer' type investor. Thatismyopinion.

[Studson]

Thanks to all for the advice. I will be taking it all in and following up on it. Quite like this idea of hassle free investing from macdunk so will be delving further into that. I am curious tho, why go interest only? Is that to ensure that the rent covers all expenses or is it best to try to slam some principle along the way if possible? I would appreciate some insight as to when it is best to go interest only and when it is best to pay off principle aswell and what factors help determine the descion one makes surrounding this. TIA.

Danchop, sounds interesting but that would leave me in 'up to the eyeballs' which I cant really afford to do while planning a working Holiday in the UK, and again I think as cap said, Tauranga may be more insulated but I'm unsure of the direction of the apartment market in general. Appreciate it tho and I'm sure it is an opportunity for someone. Sounds to me like a better opportunity than what I have been looking into re: Cityside!! And they look quite nice too! Cheers.

Capatilist, thanks for your words too. Point taken and as a compromise I will be looking around the Tauranga area for a 3 bdrm place with a gge close to schools and the like as an investment while in the UK. I appreciate now that this type of investment is more for someone who has money with which to make a more risky but potentially more profitable investment.

I will be keeping an eye on the progress of the Cityside venture just for interests sake. Thanks again, Studson.

Studson if you can find one that the rent will even cover the interest you will be very lucky. You will probally be feeding in at least another $100.00 per week out of your pocket. Do your sums.

[duncan macgregor]

STUDSON, Interest only with the reason. Horses for courses it is a business venture not a private home to live in you are buying. The ultimate goal is to use as much of the banks money with the maximum capital gain, and the least outlay. Enigma raised the point that at the beginning you may have to contribute a bit yourself, but that is short term. Do some rough sums. A $300000 property will increase in value at the borrowing rate or roughly double in value every ten years. Lets presume Enigma is correct, and you have to stump up a hundred dollars a week for the first year. So what by the third and fourth year it is paying you a hundred dollars a week. In ten years time the house might be worth [lets be conservative with the price]$550000. It only means you have used the banks money with your deposit, which all being equal the rent reimbursed with you collecting the capital gain. With this as with everything, there are traps. Interest rates might increase, so at this moment in time with low rates lock in a fixed rate for as long a term as you can. It will cost a bit more but keeps you in an understandable position. The idea is to borrow on your first property after a few years and do it all again. Paying the loan off contradicts the business purpose, you can become a property magnate starting with a deposit on your first house. macdunk

[ananda77]

I am new to the property market and have not much knowledge about it. However, recent thoughts revolved around buying a place somewhere for investment.

I started looking on the internet for houses in the category: cheap around $50k - $100k and found that there are quite a few places to be found, but most of them needed substantial repairs done.

In general what I found was that houses in the above price category being generally in tidy and good condition (no repairs needed for at least another 10 years) were selling like hot cakes anywhere in the country and the only chance to secure a buy would be to have finance in place and put a contract on the house immediately conditional only on a LIM and Builder's report.

After a few weeks I bought a solid 2-bedroom house for $53k in Taumarunui with 820 sqm of land. I was on the internet the day it came on the market (reason for selling: a deceased estate) and imediately secured it with a contract.

The place is tenanted returning 9.9%/year which easily covers mortgage-payments and rates.

A sure investment??...it seems to be so having read the story Studson shared with us.

[ananda77]

duncan macgregor:

Paying the loan off contradicts the business purpose, you can become a property magnate starting with a deposit on your first house. macdunk

Excuse my ignorance but what does that exactly mean???

[Studson]

Thanks. I have read the post over 3 0r 4 times but, what I dont quite understand macdunk, is how one can ever expect to be gaining money from the situation you have described while only paying interest. I think that if it were costing you $100 p/w for arguements sake, unless you are paying off some level of principle then you can't expect the rent repayments to put money in your pocket (?). It would stand to reason that you would continue paying money into the property at the same rate each week unless rental income goes up or your interest rate or drops - which is'nt likely if you are tied into it for e.g. 5 yrs. (I think its fair to assume council rates
wont be coming down!!).

The only other way I can see the place putting money into your own pocket is if the rent goes up proportional to the capital value of the property. A 550K place today is going to rent for alot more than a 300K place today. Is that what you are getting at?

Please explain in further detail. TIA.

Studson

[duncan macgregor]

You have got to differentiate between buying a house for personal use where paying it off is a priority, and the smart thing to do, and a business deal. A person in hudsons position starting out with a rental property that is not a smart thing to do. The smart thing to do, and remember age is on his side,is to get the first property paying its way. The house price inflates, the rent inflates, sooner or later his initial deposit is sitting on a real bargain. The house is worth much more than he paid for it, and the rent more than covers the out goings. Let us be super conservative and say this takes five years. If he is a wise person, he will get the house revalued and take out a bigger interest only loan that just covers the outgoings, and buy his second house. The thing to remember is you are useing the banks money making money, never pay the principal back until you sell up. Selling up is the next step, always at the top of the cycle, and try and buy at the bottom with silly underpriced offers to desperate vendors. To buy your first house, dont worry about the cycle, get on the ladder. When buying a house that you really like but think the price is slightly to high, BUY IT. The price is to high this year, next year the price is right, and the year after its a bargain. If you do that who cares what you earn in a job you will end up rich without even trying. macdunk

[clips]

i,m not a fan of this interest only idea... what has worked for me - buy a 3bd+gge house on int+principal, rent out, chip in out of you own pocket weekly/monthly as much as you can, get the principal down, get the interest bill down (and pay more principal), build up capital in the property, build up the value (in 2,3,4yrs of owning this will happen without any input from you), then borrow again, buy again, and repeat....and repeat. which ever way you go about it - do something "get on the ladder"