Advice needed on my first property purchase

[Envesty]

Hi All,

Your thoughts and advice will be greatly appreciated on my current situation below:

1. Boarding at the moment for $160 a week including power,water and internet;
2. Salary of 65k before tax, working in MT Wellington
3. Stable job
4. No dependent, in a stable relationship for 11 months now. She works in retail on 35k a year
5. Savings of 95k
6. 29 years old (1985)
7. Only debt is student loan 6k left to pay off.

I am been actively searching for a property in Mt Wellington, realistically i can only afford a 2 bed unit, with a budget $370-450k.

I managed to find one i really like it is only 3min drive to work, it is a unit of 7, the one i like is unit number 2. Brick and tile with a internal garage. The kitchen and bathroom is outdated but i can live with that. The agent said it will go for high 300k's, the weekly rental is $400-410.

My plan is the following:

1. Buy in Mt Wellington closer to work, save on petrol;
2. I have sorted a flatmates, they are a couple willing to pay me $300 in room, that will include power,water and internet;
3. I will take the smaller out of the 2 rooms;
4. Live in it for 2-3 years, hopefully gain some equity and move on to a bigger house

Alternatively, I can rent out the unit out for $400p/week and save where i am now but i will end up still forking out $150-200 to cover the mortgage,rates,insurnace and water.

I know that i need to consider the following:

1.Mortagage repayments
2. Rates
3. Insurnace
4. Water, power, internet
5. Maintenance funds


Do you think above is workable? I know i won't be making in yields but hopefully capitial gains but heard units capital gains are very low and do you think life insurance and income protection insurance is a must given the value of loan and my age?

[artemis]

Sounds like you are well on your way, so good for you.

A couple of thoughts:

1. Are the units on cross lease or unit titled? Both types have potential fish hooks.
2. What happens if flatmates or tenants move out? Will you be able to cover expenses in the meantime?
3. Are you up to date with rights and responsibilities of landlords, tenants and flatmates?
4. Including power is a bit of an issue. If people are not paying for what they use then that can cost an arm and a leg. Probably better to split the power bill 3 ways.
5. Leaving aside capital gains, because who knows, most of us find that paying a table mortgage is hard work in the early years. But gets way better over time. Check out some amortisation tables.
6. Have you considered the tax implications? It is different for rentals and flatties, and I'd suggest that you work through both of your scenarios. Set up a spreadsheet and try different options. The IRD booklets Rental Income and Depreciation will tell you what you need to know about tax.

[Envesty]

[QUOTE=artemis;342727]Sounds like you are well on your way, so good for you.

A couple of thoughts:

1. Are the units on cross lease or unit titled? Both types have potential fish hooks - It is leased Hold for 999 years from 1972. Estate is Fee Simple.

2. What happens if flatmates or tenants move out? Will you be able to cover expenses in the meantime? - Yes i am still able to cover the expenses on my income, but will have only $50-80 left after paying all of the expenses.

3. Are you up to date with rights and responsibilities of landlords, tenants and flatmates? - I haven't look into that yet. I should be straight forward since its my friend and his GF.

4. Including power is a bit of an issue. If people are not paying for what they use then that can cost an arm and a leg. Probably better to split the power bill 3 ways - $300 is what I am going to charge them that includes everything. Shouldn't be a problem i will watch the power bill or buy a prepaid power if it goes over the prepaid power we will all have to chip in.

5. Leaving aside capital gains, because who knows, most of us find that paying a table mortgage is hard work in the early years. But gets way better over time. Check out some amortisation tables. - I have it works out that i need to pay at least $380. Please check my workings below:

Purchase price: 410k
Deposit: 82K (20% of 410k)
Interest rate: 7.1% (I put it on the high side to save me from getting burnt in the future interest rise)
30 year period
Weekly repayments on mortage: $506.50

Insurance: $1200 ( I don't know if i am over priced for a 2bed unit ) - $23 weekly
Rates: $1700 - $32 weekly

Power: Average $55 weekly ( sounds right for 3 people?)
Water: $25 weekly
Internet: $22 weekly
Maintenance: $20 weekly

Total outgoings weekly will be $682
Income: $847 in the hand from work + $300 from flatmates will be $1147

Leaves me with $465 a week to buy food,petrol, top-up card for phone and wee bit of entertainment money.

Have i missed out anything from my above workings?

6. Have you considered the tax implications? It is different for rentals and flatties, and I'd suggest that you work through both of your scenarios. Set up a spreadsheet and try different options. The IRD booklets Rental Income and Depreciation will tell you what you need to know about tax - No need to work on scenarios, moving in and rent out the room is a no brainer for me because, I rather spend that $160 (what i am paying now) towards the mortagage somthing that i will own.

[Gladdynook]

3, and often 4 (including your GF) will be very tight in a unit. Do you think you can make that work? And finding another person or couple who will pay$300/wk would be difficult I believe. Be prepared to have a few arguments with your friend.

That aside, even if you were to get one person at a lower rent, I still think it's a good idea. So many people expect to buy their first home and live on their own with spare rooms for visitors, study etc. Good to see you're willing to compromise some comforts to get ahead.

[Envesty]

3, and often 4 (including your GF) will be very tight in a unit. Do you think you can make that work? And finding another person or couple who will pay$300/wk would be difficult I believe. Be prepared to have a few arguments with your friend.

That aside, even if you were to get one person at a lower rent, I still think it's a good idea. So many people expect to buy their first home and live on their own with spare rooms for visitors, study etc. Good to see you're willing to compromise some comforts to get ahead.

My goal is to compromise and pay more than expected into the mortgage repayment. Because I want to up size but keen this unit as a rental in 2-3 years times hopefully.

[Rosco]

Have you done the figures on renting it out and stay boarding?

Your board cost seems very cheap, so I would try to keep this.

My quick figures were a $100 per week cost/deficit for the rental, based on interest only. Plus your board, the cost would be quite small for you!

Also check with a property manager, as the rent might be a bit higher!

Ross

[mortgage broker]

Also Rosco, the I am guessing there will be no tax breaks for having a boarder.

[BigDreamer]

The main risk in your calculation is assuming your friend is happy to pay $300 for one bedroom in a small 2 bedroom unit. He might be OK with this arrangement to start with but I am doubtful if he or any other person/couple would be happy to pay this much for one bedroom (I could be wrong, however).

[PTILoveYou]

I would personally buy the unit to rent out as a whole, and board and save on living cost.

I think either way is fine, but the most important thing is to buy.

[Envesty]

I will be better of living in the unit than board because if i board that $160 is dead money going out weekly.

Taking the step of owning a property is very exciting, i am way to late to climb the ladder at age 29.

[Gladdynook]

I will be better of living in the unit than board because if i board that $160 is dead money going out weekly.

Taking the step of owning a property is very exciting, i am way to late to climb the ladder at age 29.

$160 is not dead money, because if you rented the house out in its entirety then you'd get some rent for the room you would occupy. This would easily offset the $160. Add on top of that the tax deductions for rates, insurance, mortgage interest, maintenance, etc and you'd come out way better financially.

If you can get over the "i must live in my own house", then you'll succeed financially much faster owning rentals and flatting yourself. Have a chat to an accountant and they'll show you quickly how this works, or read any NZ realestate investor book.

Oh and 29 is not too late. I was that age when I bought my first rental, and stayed flatting until I was 36. I could never have built up my portfolio by living in the first house I bought. And I wanted to live city fringe where I couldn't afford to buy!

Even now, i'd rent if my wife would let me!

[Rosco]

I will be better of living in the unit than board because if i board that $160 is dead money going out weekly.

Taking the step of owning a property is very exciting, i am way to late to climb the ladder at age 29.

You need to do the full numbers as I already put.

You will probably find that boarding and fully renting the unit leaves you with more free cash.

It is not dead money, as it is probably cheaper to board then own for you , as your $160 is so cheap!

Ross

[BigDreamer]

Envesty - how did you go with the Mt Wellington purchase? Did you go ahead with purchasing this property?

[Envesty]

Envesty - how did you go with the Mt Wellington purchase? Did you go ahead with purchasing this property?

Auction 2 weeks away.

Just sort out my mortgage via a broker, I can't believe he got me a very good deal 15% deposit with $1,500 free cash but with standard interest rates.


I am very exicited, I never thought i would actually own a property. My plan is to pay as much as i can afford gain the equity hopefully 3-4 years times i can purchase another property