What direction to go in now

[SleepyTiger]

My partner and I (23 years old) have a house with boarders we have 430k left on the mortgage with a registered valuation of 540,000
Our combined income is 110K, One of our boarders is going to move out and rent a whole house with his new partner but is interested in renting it from us.
We have a new boarder lined up to replace him.
As it stands I have only a few thousand in savings however plenty of disposable income, about 700 dollars a week between us after everything is paid that I currently spend on renovating our house.
Is it possible or even advisable to get another house on 100% finance in our situation. I have found one nearby that I like as it is a huge 4 bedroom house 2 lounges etc that could easily be a 5 or 6 bedroom house, however it could cost me upto 500k I wouldnt pay any more, this would return 600 per week from the best and most reliable tenant imaginable.

I know the return is mediocre but it is an exellent tenant in a good area and the property has great prospects for renovation and I would have no trouble selling my current place and moving in to this one if I had to.

Or should I save until I have another deposit?

Thanks in advance

I would personally prefer a cashflow positive or neutral property to reduce the risk. Also remember if you do 100% finance the bank has the control over your other property.

But sounds like you have got a plan and contingency plan, and the properties has good capital growth potential. So the decision is ultimately yours.

Also even though your combined income is 110K, from banks perspective your/or your partner's income may still be relatively low , you are still judged by your sole serviceability because say if something happens to one of you , the other half is liable for all the debt. Or say if you lost all your boarders somehow , can you still survive with two mortgages?

I am in the similar situation (similar age, income) as you so I share your drive (I just want to go out and invest!!!!). Having boarders in my own home and bought my second property in May, I m quite Conservatively geared though so both my properties are above 20% threshold........anyway, for the rental everything was excellent on paper and everything went wrong, unexpected things always happen! I have learnt so much through my mistakes, just turned it around (so fingers crossed)! So always have a back up plan, have a back up plan for the back up plan, but ultimately it is not about buying another property, it's about racking up more experience so you can become wiser and better! So if you reckon you can do it just DO IT! If you think you haven't got it all mapped out then wait. There are always good deals.

[Craig Pope Mortgages]

I think the first thing is to determine you are getting into property investment for the right reasons, is it to build wealth over a long period of time, or help out an old boarder?
You need to crunch all the numbers and all the worst case scenarios as mentioned by some comments already. Factor in interest rates rising as well.
If you borrow $500k at 100% finance secured over two properties, it means you will be around 89% geared (initially). This means you may have to pay a low equity fee on the $500k.
Given this is your first investment property could you buy something cheaper to lower the overall borrowing?
Cash flow could be tight to spend too much on improvements as at 89% borrowing you need to ensure you still have that buffer of cash.
Though you do seem to have a handle on your income which is your strength, I think you just need to re think your budget and try and keep it under 400k.
All the best!

[MS NZ]

Hi Andrew
whatever you decide to do, make sure you satisfy yourself that the property you are buying is not one of the tens of thousands out there which come with free meth contamination. Given your gearing, that will be a sure fire way of losing the existing house!

[Ghouly]

Lol MS NZ, you're plugging your anti meth pretty hard now aren't you. Start subtle, then hit hard.

If I was in your situation Andrew, I would be looking at lesser amount of borrowing to keep yourself a little safer and sane. The way you have come across is that you like to be doing properties up, and have been able to throw a bit of disposable income at them.

I would be looking for the worst house in the best street(if only it was this easy to find), and do that up, rather than a higher valued property that needs small tweaks. Lower priced property that can reap the rewards of $300+ a week thrown at it -- less up front borrowing -- less risk -- Capital Gains -- Profit.

I don't know much beyond Dunedin, but down here its very easy to get rent to cover the mortgage(especially while rates remain so low!), but capital value only really goes up by improvements and not time.

[spaceman]

^^lolz....Tens of thousands???????

Cheers
Spaceman

[Andrewm]

This is in auckland by the way,
Keep it rolling in guys, and thanks for the posts thus far,
The street this house is on is full of nice houses but most around 3-4 bedrooms 160-200sqm mid and high 400s this is one of the few un renovated places on the street 4 bedroom but 260sqm.
Either way I think maybe I should up my buffer to 10k, see if this house is still available and try get it for sub 500 or look for other sub 500k properties.
Judging by the effort gone into decorating 2 bedrooms in ghastly pink and purples and kids wall paper and all the toys in the photo I will take my chances that it is no meth house.

[NovInvestor]

I say go for it!

[MS NZ]

Trying to raise awareness Ghouly

[MS NZ]

Spaceman - couple gone down for +$80K on a property in Christchurch in the last few days.

Best of luck!

[spaceman]

^You said there were tens of thousands of homes out there with meth contamination....... I call BS.....want to provide some evidence.

It's fair enough that you want to peddle your product, but you'll need credibility to make any decent number of sales and I'd say you're on the fast track to losing it.

Cheers
Spaceman

[MS NZ]

Irrefutable evidence doesn't exist Spaceman and the exact number of properties that are contaminated by meth is unknown. Its easy to look upon my comments as cynical and self serving. That this is all about money. Believe me, there are easier ways to make a living.

So is it simply hype or are my numbers based in some sort of reality?

Here is my rationale
- Cops have busted around 2,000 meth labs since 2000
- media estimates (and private conversations with Police) suggest these are 5 to 10% of total number of labs that have been operating - 20-40,000
- a 'lab' can fit in a suitcase and move around - How many places has one lab operated in?
- over time, meth use will contaminate a property over Ministry of Health Clean up Guideline limits
- Official estimates put current use rates at between 1 and 2.8% of the working population (40 to 90,000 people)
- Peak official use rates were around 5%
- unofficial use rates from a guy who talks to meth cooks when he does testing for territorial authorities are 10 to 20% of the population in some areas
- One of the leading insulation companies under the EECA scheme refuses to work on 1 in 20 South Auckland properties due to obvious signs of chemical contamination
- 50% of motel rooms in the North Island (3rd party rentals where the owner is on site 24/7) are testing positive for meth contamination - some from manufacture some from use (same forensic testing guy)

Like I say, nobody knows the actual number, but it is more than a handful. And, because the costs of cleaning the mess up are so great, lots of people have 'self managed' the clean up. As a result, cleaners and trades people have died because they worked unknowingly and without the proper personal protective equipment on meth contaminated property. And, lots of people, like the family down in Christchurch and many others like them, have bought meth contaminated nightmares rather than dream homes.

Think leaky buildings, plus asbestos and package it up in such a way that not even experienced police offices can be guaranteed to pick up the problem, and that is what you face every time you buy a home.

For some people, it is not until they get burned that they are prepared to look at life through a different lens. All I want to do is raise the question in peoples minds. If people are real happy it is not an issue, fair enough. At least they made a conscious decision. I get to hear too many sob stories from people who got burned by ignorance.

[Wayne]

- 50% of motel rooms in the North Island (3rd party rentals where the owner is on site 24/7) are testing positive for meth contamination - some from manufacture some from use (same forensic testing guy)

As a result, cleaners and trades people have died because they worked unknowingly and without the proper personal protective equipment on meth contaminated property.

50% of motel rooms??????????

You have evidence that people have died as you say?

[TheLiberalLeft]

Glad I only stay in hotels, then.

[MS NZ]

Wayne - 50% ff rooms that the forensic guy has stayed in as he has traveled around. I'm waiting for the final report to be issued.

As for evidence of people dying - others have made the connection between working in/on meth contaminated property. I appreciate that I can be seen as having vested interests Unlike me, these people cannot.

TheLiberalLeft - you are not the first to make this statement. Do a search for the Quadrant hotel and you will see an example of a hotel that has had problems. They are not alone - just very good at covering up the potential for bad publicity

[TheLiberalLeft]

Not sure what's worse. The previous P user or the "film crew" working on the latest rhythm-flick.