New to PI

[eWok]

I am hoping someone here can help with a couple of questions I have.
Background: My partner and I are both retired and are looking at purchasing a townhouse for cash at $340,000 with a potential rent of $340 pw in a highly-desirable area. We have determined (using QV) that our net yield will be about 3.5%.
First question: Does this seem a reasonable return?
This calculation does not include any deductions we may be able to take on the rates & insurance etc. Which leads me to the next question: Is a property tax accountant recommended for first-timers, or, after some research, could we (relatively) easily complete our returns ourselves. I've tried to ascertain from other threads here how much is involved in filing returns as landlords, but it's all new to us.

Any and all comments or suggestions are welcome. Thank you in advance!

[Rosco]

What city is the townhouse?

340 *50 week = 17,000. Divide by $340,000 = 5% gross yield. Generally you would buy townhouses or apartments for cashflow, but 5% isn't high cashflow! For example just meet with a client this afternoon and townhouse he was looking at was 7.6% gross yield.

I would prefer a free standing house, as have full control and probably can get similar gross yield to what you are looking at. Also no body corporate!

Net yield of about 3% after tax is normally achievable, so this is rent less rates, body corporate, accounting, repairs, bank fees, travel, property management etc from a 5% approx gross yield. This stacks up quite nicely when compared to investing in the bank at say 4% less tax, so about 2.7% net.

Structure - There are different structure options and it is unlikely you would buy in your personal names. Different structures give different advantages and disadvantages, so I suggest having an initial meeting with me for $245 incl GST, or a similar chartered accountant who specialises in property, GRA is about the only other one I would recommend.

Ross

[rocket]

Good areas good build & low yield go hand in hand.
Which town are you looking at. ? What is your ultimate goal. ?

[artemis]

You might do just as well investing in property companies, including retirement companies, listed on the NZX. Much more liquid especially if investing in a range of companies and simple tax situation. You can easily find out the yield (dividendyield.co.nz) and see the capital gain over the years with a wee bit of research on the NZX site.

Mortgage interest is usually a big slice of rental property expenses for rental property, but not if paying cash.

If looking for income, there are managed funds which invest in income producing assets and pay a regular amount to investors.

Rental property management can be easy, but often is not even with a property manager. One bad tenant can cost very dearly. Suggest serious research starting with the DBH tenancy site. and the Residential Tenancies Act.

Tax returns - again when starting out needs an experienced property accountant or plenty of research. IRD booklet Rental Income is a good place to start.

[eWok]

Thank you both for your responses!

This is a free-standing townhouse on a cross-lease with another similar townhouse, so no body corporate.
The town is Nelson city.

We are living off our savings & investments plus my husband's pension. Our primary goal is to improve on bank interest rates (currently 3.3%), with potential gain on the capital within 5 to 10 years as our secondary goal.

Forgive my ignorance Ross, but why would we not buy in our personal names?

[eWok]

Thanks Artemis - we have looked into managed funds but baulked at the fees - which amounted to a minimum of 10% of our 'expected' income, with no income guarantees, and we would be handing over control of our money. (Bernie Madoff et all, plus the current market has made us nervous).

In the past, in Australia we invested in a couple of rental properties with bad tenants in one and another property that was destroyed, but still came out on top. So we feel that we have some experience in this area. And we like the 'tangibilty' of property as an investment.

[Wayne]

Thanks Artemis - we have looked into managed funds but baulked at the fees - which amounted to a minimum of 10% of our 'expected' income, with no income guarantees, and we would be handing over control of our money. (Bernie Madoff et all, plus the current market has made us nervous).

10% - not sure what you were looking at.
It would be possible for you to invest directly - look up the NZX website or Craigs and Co.

If you are looking to improve on the bank interest you need to look at all the costs of ownership - rates, interest, maintenance, insurance etc - and take these off the income.
See what you come out with as a % on what you put in.
You don't want to negative gear (top up the rental) as you need the income.
It comes down to the numbers - but don't forget the risk.
Banks generally don't trash your property!

[eWok]

10% - not sure what you were looking at.

Gareth Morgan - $4000 p.a. (not including start up or other fees) for a $40,000 estimated return (on an investment amount much > $340,000 of course).

It would be possible for you to invest directly - look up the NZX website or Craigs and Co.

Will look into those - thank you!

Banks generally don't trash your property!

Lol - true. But then interest rates drop, rents rarely do. Looking at the U.S. and Australia bank interest rate at the moment at 0.2% and 2% respectively, so the prospects for bank investments don't look that great.

[Wayne]

Gareth Morgan - $4000 p.a. (not including start up or other fees) for a $40,000 estimated return (on an investment amount much > $340,000 of course).

Wow - far lower fees around I think.

[ScottSI]

Why don't you just buy some commercial property syndicate shares, they generally have 7 to 8 % returns & some have additional capital growth on top. Usually 50k shares but some run in at 250k or 500k.

You have to have cash (or equity elsewhere to get cash) as generally can't borrow against them.

Look up Augusta or Oyster groups - sure some others out there too.

[eWok]

Thanks Scott. That is definitely is worth considering.