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How much less for a Cross lease and reclad house

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  • How much less for a Cross lease and reclad house

    Hi there

    I have come across a house which has 2 drawbacks

    1. It's a cross lease with 3 other houses
    2. It was built in 1999 but was reclad in 2008 and had obtained a compliance certificate from the city council after completion

    How much less should I price the house over fee simple and standard houses?
    i was thinking of 100k for the reclad and 50k for the cross lease ?
    am I being reasonable?

    Thanks for advising

  • #2
    It doesn't work like that James. Pull comps on other cross leases of same sizer dwelling in the surrounding km or so and use that as a basis for value. Just like a valuer would do.
    If it has eaves and soffits etc. and reclad was properly done in weatherboard or similar that would not reduce the value anymore at all.

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    • #3
      Hi Bob

      Till last year around this time most properties were being sold around the RV price.
      But suddenly now every one is expecting and getting 25-30% above RV
      The house in which I am staying, the landlord bought at RV March last year and now he thinks he can get a cool 40-50% profit, if he flips it
      its an insane market, which unfortunately I can't afford
      When I started searching for houses, I could find plenty of monolithic cladding houses on sale which were advertised several months back. The buyers were just not willing to even consider buying such houses
      Now you can hardly find an old ad which means that all those houses have been sold.
      So in this market, based on what others paid, is just impossible to justify.

      Old Articles on the web advocate that a cross lease should be discounted by at least 100k over similar fee simple titled houses

      If am expected to pay the same price for a cross lease via a vis fee simple, it doesn't make sense.
      also the stigma that it was once a leaky home would be there for perpetuity as its recorded on the LIM

      The owner has now cladded with weatherboard and provided eaves, soffits and external guttering, so the chances of future leaks are reduced, but to what extent the frame was damaged during the decade it was leaking will it not be always be a sword hanging over the next buyer ?
      Dont you think that this requires some sort of discounting in prices ?
      Is my reasoning flawed ?
      Am I wrong to expect to pay 150k less for this house had it not been a sellers market?

      Thanks for advising
      Last edited by jamesnz; 24-07-2016, 01:30 AM.

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      • #4
        Old Articles on the web advocate that a cross lease should be discounted by at least 100k over similar fee simple titled houses
        That is simply not true James. A house in Eastern Beach that is cross lease can be 250K under and cross lease in Papakura for example as long as it is the same size will not have any price reduction often.

        You need to rethink your thinking I think :-).

        The property is worth what it's worth. You don't compare it to other types of property and then try to work out a discount. You need to know what THAT property is worth. Comparable sales of similar properties is always the base.

        Reclad was 7 years ago so if moisture test is completely dry then its history will not affect its value in Auckland.
        I have owned many cross leases in Auckland. If they have decent yards their value reduction is minimal and you can't put a dollar value on it as values vary so much. It would be more realistic to assume say a 10 to 15% reduction in value if you insist on valuing it this way.

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        • #5
          Hi Bob

          I am told that with single glazed windows and a 20 year old house, there will be some high moisture readings at least in 1 or 2 places around windows or in bathrooms no matter how well built the house is in Wellington in this rainy season especially in extra high wind zones

          is it true ?

          If so then moisture readings would not help me take a decision?

          thanks for advising

          Comment


          • #6
            Originally posted by jamesnz View Post
            its an insane market, which unfortunately I can't afford
            When I started searching for houses, I could find plenty of monolithic cladding houses on sale which were advertised several months back. The buyers were just not willing to even consider buying such houses
            Now you can hardly find an old ad which means that all those houses have been sold.
            So in this market, based on what others paid, is just impossible to justify.
            sounds like you're in wellington and yes since about Jan/Feb the market work from a 7-8 year slumber.

            A year ago you could have used your logic method... Property in good condition is worth$x but being a cross lease and monolithic etc I will offer you less than $x - as bob says a set dollar amount for these two types of issues is not possible to provide...
            For instance using your discount level example, the the property was worth $300k that discounts would be 50% while for a different property with $1.5million the discount is 10%.

            In time where markets are running hot, comparable sales are hard to use as well given they're time delayed 4wks+ After settlement date so could be 8-12 wks old when you get the data so times like these you need to be patient and disciplined. Work out what the property is worth to you...if for investment based on your own investment rules, if for a home based on what you need and what you're prepared to pay for the lifestyle/conveniences you're after forgetting what others may or may not pay!

            This is approach will ensure you don't over pay but could result in lots of disappointment as others out bid you. But will keep you safe(r) because when things settle down and the market cools cross lease and monolithic building will again be unpopular... You don't want to be the guy holding one of these that you paid too much for if you need to sell fast when the market comes off the boil.

            Last thought - while Wellington market is going strong I doubt very much you can't afford to enter the market - I think you can't buy in your favorite location. I could show you houses that still sit below $300k and offer strong cashflow at their current prices in Wellington...
            Last edited by Don't believe the Hype; 24-07-2016, 09:06 AM.

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            • #7
              Originally posted by Bobsyouruncle View Post
              The property is worth what it's worth.
              You don't compare it to other types of property and then try to work out a discount. You need to know what THAT property is worth. Comparable sales of similar properties is always the base.

              I disagree - the property is worth what someone is willing to pay you for it.

              Two thoughts:
              - Be careful when the herd is serving forward FOMO kicks in and people are prepared to pay over the top but as things cool down and you decide rationally you might find its not worth what was paid... And that's too late

              - There is a reason why every property is on the market for sale - some people want to cash in on a high market, others have life changes happening I.e moving for work, deceased estate etc - their motivation may not be top dollar so if you're a skilled negotiator you can identify motivations and structure an offer to purchase lower than comparable sales - more difficult in a fast moving hot market but still possible.

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              • #8
                I disagree - the property is worth what someone is willing to pay you for it.
                Which is what it's worth.......

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                • #9
                  Originally posted by Bobsyouruncle View Post
                  Which is what it's worth.......
                  i guess you got me on a technicality. But comparable sales won't necessarily help you find that number.

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                  • #10
                    True but what I meant was we are both saying the same thing :-)

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