First mortgage, investment property.

[o4owesome]

Hi, thanks for reading. this is my first post on the forum.

I am 29 years old. I have recently returned to New Zealand after living in London for 6 years. Soon I will be inheriting $65,000 and have personal savings of $10,000.

I now wish to buy my first home.

About me

I am male, single, no dependents and living with family. Weekly spending is $80-100 pw on food and transport. I do not own a car and have no monthly utilities payments. This allows me to save $200 - $300 pw.

Unfortunately my income is low. I have been employed by New Zealand Post for 3 months and make $30,000 per year. Before this I have worked as a sound and mechanical technician in London earning around £20,000 per year.

Having lived abroad for 6 years, I have no NZ credit history.

My UK credit history is very bad. I left England in the red with a £2,000 unsecured overdraft to a UK bank. Before I left I sent the bank a letter informing them that I was of no fixed abode and dire straits and that could not afford to keep up payments at that time. And that I would contact them once my situation improved.

I have not contacted this bank since. As far as I know they are under the impression I am still living in the UK.

I have a $11,000 student loan

No other debts

The home
I wish to buy my Grandmothers home as an investment property. The home is located in Christchurch. The government valuation is $370,000. A recent appraisal has given the median value of $380,000.

The home has 3 double bedrooms, one single bedroom. Huge back yard. Single garage with storage/workshop space. After a recent rental appraisal the lease on the home would be $510pw.

I plan to convert the garage into a room for myself and lease the 4 rooms out individually. The four rooms combined would generate $600 - $700 pw. This income would go directly towards paying the mortgage.

After 3 - 5 years I hope to have built up enough equity to build 3 small homes on the property, sell them and make a small fortune.


Summery:

Me: 29yr old, single, no dependents
My income: $30,000
My job: NZ post, 3 months
Debts: $4,000 UK bank lender (effectively defaulted)
$11,000 student loan
NZ credit history: nil
UK credit history: Not good
Deposit: $75,000
Price of the home: $380,000
Type of home: Investment, leasing out the rooms to pay the mortgage


Questions I have
In my current situation how much would a bank be willing to lend me?

Can I let out the rooms to offset my lack of personal income?

My UK credit rating is very bad. How will this affect me?

Would it be necessary to pay my UK debt off in full, in part?

Are there any alternatives that could strengthen my chances? guarantor, LMI ect ect?

Thank you.

[charlotte30]

First step would be to see a mortgage broker to see how much you can borrow.
Yes, you can lease out the rooms.
Might be better for you to live in the single room in preference to trying to making the garage habitable.
Instead of pulling the house down in the future you could look at building in the backyard and keep both properties. This depends on zoning. What area is the house? The Council has increased housing density in areas near the malls in Christchurch.

Cheers
Charlotte30

[Craig Pope Mortgages]

Hi o4owesome, I think its possible with a 20% deposit - so with $75k that equates to a budget of $375k. So try and stick to the 20% deposit as using less than 20% will change the dynamics and make it harder and possibly more expensive.

Pitching an application with you living with family rent free and buying the property as an investment with $510 pw rental appraisal could work, though a little tight on the servicing calculator.

The other question is the moral obligation to clear your debt in the UK. It's unlikely a bank here would see that but technically it needs to be on your statement of position as a debt. The debt is now in the public domain ie this post - if the banks get wind of it being a bad debt it doesn't help build a solid character trait. I would recommend paying it with your spare cash or asap by sending money regularly to the UK.

Hope that helps. Cheers CP

[BigDreamer]

Hi o4owesome, what is the rental appraisal for the Christchurch property you are considering? If it is good then you might get a chance to purchase and have it paid off although it might be very very tight.

Quick calculation - Weekly mortgage repayments on a $305k mortgage (assuming purchase price of $380k - $75k deposit) at 6.5% over 30 years term is $444.

If you could rent out your property for *over* this repayment amount (ideally over $500 per week) then you should be OK. Keep in mind you need to pay for maintenance, rates etc

[DazRaz]

Any earthquake damage still to be repaired? Zoning of the land? Valid insurance on the property?

[o4owesome]

Hi, no earthquake damage. We had a bit of concrete break up on the driveway and some plumbing issues. Received $16,000 from insurance company to which there is still $14,000 left to spend fixing the driveway. Insurance is valid yes. We are located not far from the Northlands mall.

[Rosco]

Hi o4owesome, what is the rental appraisal for the Christchurch property you are considering? If it is good then you might get a chance to purchase and have it paid off although it might be very very tight.

Quick calculation - Weekly mortgage repayments on a $305k mortgage (assuming purchase price of $380k - $75k deposit) at 6.5% over 30 years term is $444.

If you could rent out your property for *over* this repayment amount (ideally over $500 per week) then you should be OK. Keep in mind you need to pay for maintenance, rates etc

Hi o4owesome,

I always look at the overall cashflow. In your case, you have low income so need the property to pay for itself.

At 6.5% that the poster used above, and interest only, using my figures I get a $5,060 loss. I have included property management which you might want/need at some point. If interest rates go up to 7.5% which is the long term average in NZ, then a $8,110 loss. I have put further info below.

While this looks bad, I would work on you paying a fair market rent, which would improve this situation.

Ross

	Expected Rental Return -
	House Value		$380,000
				$380,000
	Less Deposit			$75,000
	Total Borrowed			$305,000
	Income:
	Rent -	Weeks	50				25500
		Per week	510
			As a % of total house			6.71%
	Less Expenses:
	Accounting					1200
	Bank fees					50
	Body Corporate					0		If interest goes up
	Insurance					1000
	Interest		Rate	6.50%		19,825		7.50%	$22,875.00
	Property Management at 7.5% plus GST					2,199
	Rates					2000
	Repairs and Maintenance					3800
	Seminars					100
	Subscriptions					300
	Travel					86
	Total Expenses						30560.38		$33,610.38
	NET CASH SURPLUS (DEFICIT)						-5060.38		-$8,110.38

[Rosco]

Further, if you wanted to pay this property off, you would need more money to make the loan interest and principal.


Lastly your idea of making mega bucks of building 3 units and selling, often doesn't work for most people. They often make more just onselling it to a developer who knows what they are doing, with the potential and basic plans.

Ross

[o4owesome]

HI Rosco thank you for your response.

What exactly do you mean by "working on a fair market rent"?

How could I improve this situation?

[o4owesome]

Also I notice your figures above do not include my personal income of $30,000 some of which will go towards expenses.

[Wayne]

Also I notice your figures above do not include my personal income of $30,000 some of which will go towards expenses.

You need to do a bit more work before you get into property.
Your personal income has nothing to do with the numbers on the investment performance - which Rosco has tried to show.
Your income will help offset the losses - give you an ability to stay above water - but offsetting losses is a continual investment increase in the property.
The property is going to cost you money each year - when will you get that back? Maybe as the vaue of the property goes up? Rents will rise - or will they when Christchurch returns to normal and people won't be so keen to pay above the odds.

Have a read of some similar posts on this site to get a feel for what it is all about.