Bouncing around like Tigger!

[Nobleone]

Hi All,

It's been a LONG while since I posted here but I believe now is a good time to get back into it so that I can share my story with forumites old and new.

1 year and 10 months ago I bought 3 IP's in the north island. A 3-brm house in Waverley for $59K, 2x3brm flats on one title in Hawera for $120K and a 3-brm house in Wairoa for $42K. All cash flow positive.

2-months ago the Waverley IP was revalued at $82K and refinanced to release $19K equity... It's still cash flow positive at 9.5% gross.

The 2 flats have now been subdivided on to two titles, 478sqm and 603sqm, and revalued at $115K and $120K respectively. I am one week away from the bank refinancing to release 60K equity... Both are still cash flow positive at 10.6% gross.

Next move is to add either a double carport or double garage to Wairoa property, revalue and refinance. Based on figures so far I am expecting to release another 25K to 30K from that property and it will also still be cash flow positive at 11.37%

My intention here is not to boast but to firstly thank all the forumites who helped me with questions I had before I started this journey and along the way. Your help encouraged me to keep going so thanks.

Secondly to hopefully act as a positive reinforcement to anyone just beginning their journey, that IP's are a great investment tool and if you can handle a few headaches along the way then the end rewards are more than worth it.

Maybe later I'll go into detail about my teething problems with the subdivision.

Meanwhile, it's good to be back on the forum and sharing info.

Cheers, Nobleone

[David_W]

Nice to have you back Nobleone. Sounds like you have been doing really well in the past couple of years. Looking forward to seeing you back in the forums again.

[NZGEMS]

Hi Nobleone, I dont remember you so I guess you were before I joined, I just have a question for you, if you are keeping the houses why would you pull cash out (in doing so reduce your return on investment) when you could use your equity to borrow against? I just ask as I never do that always just use equity. Unless you had a need for tax free cash of course.
Robyn

[Nobleone]

Hi Robyn,

I'm pulling the cash out to pay down the Australian bank LOC I created to start buying the IP's.

Although my IP's are CF+, due to more than expected maintenance demands on the 2 flats over the last year and 10 months there has never been sufficient extra funds to cover the monthly LOC interest payments as well as everything else.

Even with pulling the cash out, which will more than cover the total amount of the original LOC, all my IP's will still be CF+ and will, hopefully, all be free from major maintenance issues from now on.

I'm working on a long term buy and hold strategy, which is why I am prepared to spend so much on getting the IP's up to scratch. My grandmother always said "a stitch in time saves nine" something that the previous owner of the 2 flats had obviously never heard of... LOL

Next step is to decide where to invest the LOC funds next!

Cheers, Nobleone

[Karter]

Hi Nobleone,

Good to hear your success storey, it's inspirational for people starting out such as myself.
Just a couple of questions, firstly how did you find the properties as you live in Australia? and were you worried about buying in smallish towns?

Keep up the good work

Cheers
Karter

[FatBelly]

Hi Nobleone,
Well done - its interesting to read of more people doing well from IPs in smaller areas rather than just in the main centres.

I have a question for you regarding the subdivision of your flats - did you do this from your base in australia? I'm asking because I have a block of 4 flats on one title that I also want to subdivide at some stage and would quite like to do this soon, however are a bit hesitant to do this while Im still overseas. Did you find this a huge hassle or was it not as bad as it sounds?

[Heg]

HI Nobleone,
I have one question re your Wairoa property. I have recently been looking at deals in the area but have found that what looks like a greatCF+ deal initially becomes quite poor once you deduct the rates (which are very high in the area)
What was your experience? Did you just buy exeptionally well? Or are your figures gross return?
Cheers

[Nobleone]

Hi Karter,

I sourced all three properties via the Internet and then made phone calls to the listing estate agent, then phone calls to other estate agents in the town or area.

Then I did some Internet research on the town or area.

Once I decided that I felt happy with the area I made my offer with DD clauses for valuation and builders inspection.

I have yet to actually set foot in New Zealand, but I plan to do that within the next six months.

Regarding smaller towns, I only consider the Waverley purchase to be a smaller town. But I bought the IP there because it had been owner occupied for 10-years, was in good condition, was constructed of low maintenance materials and once rented would give me a 12.33% gross yield.

As you can see the only 'problem' that I've had by buying in a 'smaller town' is that the growth has not been exceptional. That's why I was only able to pull $19K out of the refinance. But in my book a win is a win and even with refinancing it's still cash flow positive.

Cheers, Nobleone

[Nobleone]

Hi Fatbelly,

I have not yet visited New Zealand, but I plan to do so within the next six months.

In my original post I did make mention of my subdivision 'teething' problems so I guess now is a good time to go into details.

In August 2005, based on a recommendation, I contacted a surveyor in New Plymouth and asked them to process my subdivision application through to completion. They said no problem; it'll probably take about 4 to 5 months all up.

The section is 1081m2 and the 2 flats sit right on the dividing line, they each have separate water, gas and sewers. They each have their own road frontage, driveway access and separate garage. They are separated by an intertenancy wall.

As you can see no big dramas really, the only 'problem' was that council had no records of what the intertenancy wall was constructed of and therefore had no idea of its fire rating.

Surveyor spends 2 and a half months allegedly chasing paperwork via council... It doesn’t take that long, I made most of my enquiries via phone and council were very helpful... Finally on October 25 he decides that he'll have to engage an engineer to go to the flats to assess the wall.

I wait... and wait... and wait...

December 2 and the engineer finally goes to assess wall.

Christmas and New Year happen... So I wait....

January 17 engineer announces that he's going to get a builder in to assess wall...

At this point I start phoning every week in the hopes that I can annoy them into action... February 14... 7 months and 1 week after my initial contact with surveyor I have finally had enough so I says that either A) I get some action and a phone call by end of business this week or B) I'll assume that you cannot action the work I have asked you to do and get someone else who can do the work.

Upshot was that I didn't get anything so I wrote and told both the surveyor and engineer not to bother sending me invoices for work so far as they would not be getting paid... They didn't.

Deciding to take matters into my own hands I phone the local builder who did the building inspection report for me when I bought the flats and he manages to visit the property within 2 days, inspect the wall and give me a written report detailing the walls construction materials etc.

Next I check the New Zealand Yellow Pages on the Internet and choose a surveyor in Wanganui called MWH New Zealand. I check their web site, they are a multinational company with all the staff they need to get the job done.

I was concerned that such a big company would not be interested in such a small job and that their fees would be sky high... I was wrong on both counts... They accepted the job on March 23, submitted the proposal to council March 31, had council approval by May 22 and I am now 1 week away from the bank releasing the equity... The MWH fee? $5K which my solicitor thought was very reasonable.

So Fatbelly like anything else, if you get the right people to do the job it's easy, painless and hassle free... I would recommend MWH New Zealand and I will certainly be using them in the future.

Communication is the key, backed up by instant action. So make the phone calls, reply to e-mails instantly and fax paperwork immediately.

Cheers, Nobleone

[Nobleone]

Hi Heg,

I bought my Wairoa IP for $42K with a gross yield of 14.8%.

The annual rates are $1,382 compared to Hawera of $1185 (for each flat) and Waverley of $1,216... So they are not really that high.

IMHO I think that Wairoa has seen most of its growth now so the yields may not be that good, but if the right IP at the right price came up I would certainly buy again in Wairoa as I believe the town has a lot of potential.

Cheers, Nobleone

[Heg]

THanks Nobleone.
Great buying! Well done

[FatBelly]

Nobleone,
Thanks for all the details - a very interesting story! Im impressed at the fee from MWH, I also would've expected this to be much higher.

I definitely will get in touch with them regarding the property I want to unit-title, from the look of their website they look to cover most of the country.

Glad to hear this whole process wasnt totally impossible to achieve by not being in the country!

[Monkeyboy]

Hi Nobleone

Just a thought, why take your equity out of NZ at much higher interest rates in NZ to pay off your presumably lower interest rates in Aus. As you say you can take the money to pay off your LOC just use the LOC NZ Money to pay it off when you need to. Any money you have borrowed in Aus get it locked in now out the cheapest rate possible and use the funds in NZ when you need them so you are not paying unnecessarily high rates. On $100K you pay $1000 per annum on 1% so could save yourself 2-3% or $40-60per week. Therefore you should use as much Aus borrowings as you can before NZ borrowings. (is borrowings a word)

[Monid]

Yep borrowings is a word...

One reason to be cautious of this cross country borrowing strategy is it relies on the respective values of the Kiwi/Aussie dollar remaining roughly the same whcih may well not happen... Now this could be good or bad depending which way it goes...

David

[Monkeyboy]

Good point David

Would that mean if the drop was one cent in the dollar one way or the other that would be the equivalent of 1% cahnge? Now the calculations and forecasting has to be pretty good. Now the Kiwi dollar is worth at least 10c less to the Aus than it was 6 months ago. Does that make it good or bad to use Aus borrowing as the kiwi will probably strengthen (maybe) as it is a cycle especially with Aus/NZ?