Update on Relocated house project - just completed

[Pegasus]

Hi guys,
We have now completed our first relocated house project in Whangaparaoa. After looking at doing this many times we were never quite sure of the risk/budget to go ahead and do it but this particular site was very suited to it so we went ahead. I thought others may be interested to hear of how it stacked up.

We bought a site with 2 separate small 1 bed houses and subdivided this first so that we were left with 1 house on a small site which we will resell. The other house we made sure had the majority of land - 600m2 which was enought to meet the requirements for a home and minor dwelling. We then did a resource consent to reclassify the existing small house to become the minor dwelling to allow us to relocate a second hand house onto the site to become the main dwelling. So after selling one of the 1 beds we will be left with one site with a relocated main house and (existing) minor dwelling.

The figures for the relocation ended up a total spend of $140k incl GST made up of $70k for the second hand house resited with foundations, and the remaining $70k for resourec/engineering and building consent, council contribution, engineers, extending stormwater connection, drainlayer, other services etc, building deck, baseboards and steps, concrete drive.

The cost of the site originally plus the first subdivision was $442k, plus the relocation comes to $582k. We will resell the first small house next for $280-$300k leaving us with a cost of $300k aprox. We then will rent the 3 bed relocated house for $445/wk and the other 1 bed (now minor dwelling) is currently rented for $275/wk.

Its been a bit of work but it has met our aim of creating better yield in this market. You can get relocate houses cheaper but this one suited our site, was in good condition - ok kitchen, new bathroom and carpet and a solid weatherboard house in excellent structural state so that was the best choice for us. Some nervous moments as it was delivered during the small hours of the night on the night of the big storm before Easter, but it arrived in good condition and went well. We have done a lot of renos in our jobs as traders and figured this would be a step up but surprisingly it was actually an easier project than a lot of our renos where we have had many tricky repairs on rough old houses. This was a solid house with few surprises and easy for us with the house movers (Craig Walkers) doing the foundations and move on.

We would be happy to do it again for the right site.
Cheers
Pegasus

[Maccachic]

Awesome thanks for the update.

[Leftette]

Would that be the site with the 2 small 1-bed places on the corner section overlooking Placemakers? If so, t'was a bit on the steep side.

[Pegasus]

Thats the one Leftette - well spotted! Luckily the existing places were built on the slope and we could put the new place on the flatter land altho still had to raise it up quite a bit to meet requirements. Are you a local then? We are Manly based.

[Leftette]

Orewa-ish. I looked at that place when it first came up but obviously didn't have the vision you had. I saw it for what it was - which at the time was a negative c/f set of fairly hideous looking (no offence) cheaply built units.

The lack of trees and 'openness' of the site on the corner was an offput (lazy on my part) and the view over Placemakers was one I'd not have liked personally (I have a rule not to invest in places I'd not be prepared to live).

Isn't there some big plans to change that area in the dip where Placemakers and their neighbours are?

[Pegasus]

Yes indeed its the ugly looking one on the corner! hard to imagine why they built them like that in the first place isn't it. We do have to repaint them to match the new one and I am hoping with the modern colour scheme, fencing trees etc planned that it will be better. For us its the yield and profit we go for though and thats all good for this one. The ex Placemakers site has resource consent for a New World plus shops so hopefully once that is all done it will have more appeal.

[Leftette]

It certainly will. I feel like I missed out, now. Good on you.

[Bluekiwi]

Could you give me 3 sums.
Current value of full site and what your total spend is.
Total rent ($720?)

[Pegasus]

Hi Bluekiwi - hows it going?
Total spend $582k with 3 rents - total rent $995/wk ( being $275 for each 1 bed with longterm tenants in and $445 for new house) but we plan to sell one of the small 1 beds for around $280k leaving us one site with the home and income (other 1 bed) for total cost of $300k aprox with 2 rents totalling $720.

Thanks for that Leftette and Maccachic
Cheers
Pegasus

[Bluekiwi]

Hi Bluekiwi - hows it going?
Total spend $582k with 3 rents - total rent $995/wk ( being $275 for each 1 bed with longterm tenants in and $445 for new house) but we plan to sell one of the small 1 beds for around $280k leaving us one site with the home and income (other 1 bed) for total cost of $300k aprox with 2 rents totalling $720.

Thanks for that Leftette and Maccachic
Cheers
Pegasus

Yeah we will have to catch up for a chat Pegasus.
Going very good, settling one house, bought one last night, and trying to buy another today, and looking for number three mid July.

Okay so Cost is 300k, and rent $720 now, so huge yield, very impressive.
But I was also wanting to know what the value is now, how much capital gain you have made on the project.

[Rosco]

I thought I would add a couple of tax notes, and have guessed the land split to work this out.

1) Property that you sell is obviously taxable, and as you are in the business will also be GST. Profit around $78k from my guess, with around $26k tax to pay. GST to pay of around $12k

2) So leaves around $52,000 of cash to put into second part mortgage

3) cost of second part around $394k. Rent around $36k, so yield of 9.1%

4) If all done 100% financed, from the project you would have a $340k mortgage left on the remaining house with minor dwelling

5) Depending on how you have structured this, then the house with minor dwelling could be taxable (for life) or tainted (10 year rule)

Even after tax and GST, the yield and profit are very good! Well done.

Ross

[Pegasus]

Hi Bluekiwi,
well Im guessing if we were to sell the home and income it would be in the mid $500s right now maybe a bit more as has some positives and some negs so good profit there of about $250k. Would be GST and tax to pay on that of course which is a big chunk.
You sound like things are going well - yes we are pretty close to you, we must do coffee - I will PM you sometime
cheers
Pegasus

[Rosco]

If you sold both, and have structured as trades with GST and tax.

Then Profit on first one $78k as above

Profit on second one after GST around $135k

Overall profit around $213k which is good!

Ross

[Pegasus]

Hi Ross
Was bought as one property through our trading trust so we received the GST refund. Then subdivided so we will sell the new title and repay the GST on that and tax as usual depending on how the rest of our year's earnings go.

One thing I was wondering though is as we will still hold the remaining GST refund from the rest of the project if we do keep the remaining Home and Income longterm if there are any GST issues with that seeing as it was bought in the trading trust entity. Do the IRD have any issues with the holding of that refund over time if we do not onsell it within a set time frame? We could not buy this under our buy and hold entitly because it was going to be developed.

This is a tricky area for us as we find now to get good yields we have to do some sort of development to create a good rental usually by subdivding and selling off a part of it to leave us with a good rent on the remaining one. But even though we are trying to create a rental we have to pay GST as its a development and can not buy it thru the rental entity where the buy and holds should be. This is my basic understanding of it - if you can shine any light on that , would be great.
thanks for your comments
Cheers
Pegasus

[Rosco]

Yes, there is GST consequences.

They have been described in some other threads.

Used to be Lundy rules and they still apply for older trading properties. But new rules a couple of years ago for new trades. Basically have to repay a portion of the GST each year if renting property while still trying to sell. But if you have changed use, then most likely have to repay all GST. You would need to get full advice on this, as slightly messy with the trust doing other trading and still being GST registered.

Ross