NZ 1st homebuyers are ScReWeD...

[fungus pudding]

Hey shrewd,

Just starting at your first post, as I haven't had time to read all 90 pages that this monster of a thread has turned into, but:

I'm in a similar position to yourself- i'm a student, have some capital but no regular income from a job yet (other than part time tutoring/scholarships/sharetrading income etc; nothing a bank would consider reliable!), and have been following the housing market for a couple of years. I have some vague thoughts as to how/when it's going to be possible for me to eventually buy property:

- I think the aim for me initially has to be to buy a property to rent, and for it to be a cashflow positive arrangment, because: 1.) If you're buying to rent, the costs are cheaper; interest costs, depreciation, etc are all tax deductible. If you're buying a property to live in these things aren't. 2.) As others have mentioned (i think) you're using other people's money- the bank's for the loan, and the tenant's for paying off that loan. This takes some of the sting out of paying all that interest that your post focuses on!

- Finding a property that brings in more in rent than the outgoings is pretty tough at the moment. However, I think things will improve slightly in the next couple of years, and I don't think the apparent difficulty should be cause for despair. Interest rates are lower than when you started this thread, and there's a fairly good chance they'll come down a bit more. Prices are likely to drop, or are likely to go sideways for a number of years- which is the same thing, as inflation at around 3% (say, it's actually higher atm) will eat away at those prices that are going "sideways".

- Beyond this, I think it will probably require some creativity, and some hard work and patience to find the right kinds of properties. Being a student and having rented flats, it's a market I have some familiarlity with. Something i've seen a few times is houses that would have sold as 2 or 3 bedroom places, which have an extra lounge or something, that was turned into an extra bedroom with very little extra capital outlay and rented to students or the younger/flatting market. This is just an example (probably a poor one at that)- the point is you have to be creative when actually looking at properties, and finding a property that can be modified with modest costs to create a cashflow positive rentable situation. Finding properties like this is no doubt tough, and they're unlikely to be advertised as "GRATE INVESTMENT OPPORTUNITY" by real estate agents. Nevertheless I think it is (or will be) possible for someone who perseveres, is able to be fairly clinical in their assessment of properties and patient enough to only commit when the figures line up (this may be a few years away given the current market).

- If you can manage to pull this off, you've got a property that has the tenants paying off your mortgage, it's costs are tax deductible, and the end result is each week that passes, you (and the bank) are getting a little bit richer. Any capital gains in the value of the property are just icing on the cake. And then you can start again and find another one

It's all a little simplistic. All the charts and tables and various forms of analysis almost always ignore the huge costs of repairs and renovations and the occasional bit of modernising. All very well to talk of property doubling every ten years or so, but without constant attention can you imagine a house after twenty or fifty years? Especially one full of tenants - they are a little rougher on a dwelling than the owner (massive understatement) Of course repairs can be deducted from profit, but not so capital improvements. Residential landlords are a little like those who follow the horses - you tend to hear the good, and the bad gets forgotten. For many years I have made my living as a property investor, but flagged residential houses and flats away many years ago. Not a bad lark to get started in the 60s and 70s, when inflation was always in double figures and interest rates were low; mortgages were obtained through your lawyer, and were limited to two thirds of valuation. Those of us with no money always looked for a sale where vendor finance was a possibility. Most of the first few houses I owned were 100% financed. These days being a residential landlord is a mug's game. Commercial property offers miles higher returns and nowhere near the hassles. Get a copy of the old 1970s classic - Jones on property. The basic rules he covers are much the same.

[Ketel One]

It's all a little simplistic. All the charts and tables and various forms of analysis almost always ignore the huge costs of repairs and renovations and the occasional bit of modernising. All very well to talk of property doubling every ten years or so, but without constant attention can you imagine a house after twenty or fifty years? Especially one full of tenants - they are a little rougher on a dwelling than the owner (massive understatement) Of course repairs can be deducted from profit, but not so capital improvements. Residential landlords are a little like those who follow the horses - you tend to hear the good, and the bad gets forgotten. For many years I have made my living as a property investor, but flagged residential houses and flats away many years ago. Not a bad lark to get started in the 60s and 70s, when inflation was always in double figures and interest rates were low; mortgages were obtained through your lawyer, and were limited to two thirds of valuation. Those of us with no money always looked for a sale where vendor finance was a possibility. Most of the first few houses I owned were 100% financed. These days being a residential landlord is a mug's game. Commercial property offers miles higher returns and nowhere near the hassles. Get a copy of the old 1970s classic - Jones on property. The basic rules he covers are much the same.

I agree it is probably overly simplistic. But some of the main points are still valid I think:

- It's cheaper to buy property for the purposes of renting
- It's better to use other people's money for it
- You're not going to be able to just buy something and start renting it at a profit. You need to do something to increase the potential for rental income, and as you point out, this will be a capital expense and so not tax deductible. What this amounts to will vary for each person depending on your skills, the kinds of property you're buying, what rental market you're looking at etc.
- The market/conditions ARE moving in the right direction for things to become more affordable- even if they aren't there yet.

[arco]

Things must be pretty bad to get to this price level


http://www.zillow.com/homedetails/photos/11453714_zpid/

[arco]

I have a friend in the US who just purchased a nice property near his home for $35,000 cash and is getting 14% rental return........now that more like it.

Even Cheaper......................for $19,000
3 beds, 1.0 baths


21 Mckinnie Ave Mc Kees Rocks PA 15136


http://www.zillow.com/homedetails/21...40478905_zpid/

[lakedaemonian]

I have a friend in the US who just purchased a nice property near his home for $35,000 cash and is getting 14% rental return........now that more like it.

Even Cheaper......................for $19,000
3 beds, 1.0 baths


21 Mckinnie Ave Mc Kees Rocks PA 15136


http://www.zillow.com/homedetails/21...40478905_zpid/

Median income for that area is only approx HALF the state average, which would put that house at a bit less than 1x annual median gross wages.....


If that home were within spitting distance of say University of Pittsburg it would probably sell for 5-10x that price.

Just my 0.02c

[lakedaemonian]

Our old beach house up the street closed a month ago.

We sold at 98.5% of asking price(a quite reasonable and fair one in my opinion...a "win/win" for all )

I think the buyer has SERIOUS buyer's remorse......since it went unconditional in November some of the other sellers in this great wee suburb have been starting to display signs of seriously "dropping their pants" on price...some houses on the market for 6-9+ months and going nowhere.

She keeps dropping nasty notes in our letterbox about mail redirects that are the problem of NZ Post.

There have been only 3 known completed sales in our suburb in the last 6 months....2 of the 3 being the house we sold, and the home we purchased.

We just recently held our first two BBQs at our "new" home...lots of fun had by all, but I now have several months worth of wine/beer bottles to recycle

[Serpie]

Good work Lakedaemonian,

We've sold 2 (we hope) in the last couple of months.

First one sold at the asking price within 10 days, and we also got a back-up offer at the asking price. Has confirmed.

Second one was under offer within 7 days by the first person that looked at it. Within 2% of asking price. To be confirmed soon (again, we hope).

Both due to settle before the end of January.

I've got another couple that we didn't price as aggressively (because I'm not bothered of we sell them or not at this stage) and they're still sitting there.

If people really want to sell they can sell most standard houses quite easily I believe. Stuff that's a bit out of the ordinary may take longer, because it's a specialised market, but other than that it just comes down to motivation.

[lakedaemonian]

Things must be pretty bad to get to this price level


http://www.zillow.com/homedetails/photos/11453714_zpid/

Pittsburg, while affected to a certain extent by the crashing housing bubble, is a bit different from other regions.

It got destroyed in the Version 1.0 deep recession/job losses/offshoring of the 70's-80's.

Although the economy there is a bit better diversified, it still hasn't fully recovered.......especially in terms of real estate prices...so since the Pittsburg region had less real estate upside....they will likely have a good bit less downside.

It would be quite common to find older, reasonably well constructed homes, but likely poorly maintained, for the price of a car in former manufacturing hubs in the US.

My guess is that there are limited/declining job prospects for a reasonable radius away from that house.

Also, local property taxes(rates) play a HUGE factor in the US in terms of local school district catchment areas. Disparity in resources between public school districts can be at times FAR wider than in NZ. IF the local school district is POOR, it would further hinder the marketability of this property.

Sort of like a run down house selling for $50k in a prospectless outer suburb of Gore would be the closest analogy.

Just my 0.02c

[minimoke]

So, can we take it that neither Serpie or Lakedameon have taken a loss on their recent house sales?

As for my neighbourhood, there are lots of “sold” signs up but I haven’t checked the sale prices yet and not so many for sale signs around.

And Pegasus Town – I’m not sure they have dug the heavy equipment that got lost in the sand out yet. I wasn’t in the least bit tempted to buy when this town went to market and I’m less inclined now. I’m picking another “Rolleston” – 20 years before we see anything substantial. But in the meantime buyers will take a hit on their land purchase on resale and covenants will get slackened.

[Serpie]

So, can we take it that neither Serpie or Lakedameon have taken a loss on their recent house sales?

We bought ours as investment properties before the market went silly (8-9 years ago), so have made good money. Not as much as we would've if we'd sold a year ago, but the glass is still 90% full.

And we're looking at houses to live in that would've been out of our reach a year ago, so maybe the glass is completely full!

I think you've raised a fair point about the convenents at Pegasus Town MM. Once they relax the standards out there then it's all over.