Do the Know alls Know??

[fourbytwo]

Just been looking at buying new home and income in Hamilton. All looks dandy...nothing like fresh and clean.

Offer came thru a Property Investment company. Very nervous of following "black box" solutions so asking around.

Would anybody care to comment on the current flock of Property investment companies in town. They know it all, do it all and tell you not to worry, just count the cash!!.

Plan is long term investment not hook and flick!

My concerns are:

New is nice but there is a lot of competition for tenants. A new property is built down the street and they are off, cos they like New". Then it comes down to money....you have to drop yours!

New is nice but theres a problem with competition when you come to sell. What differentiates yours from so many others built at the same time to a very similar design? Altho sales are at least 10 years away you never know if you will have to sell earlier...I may fall off my perch and the missus needs to cash up!

New is nice because no maintenance for a while...and it's all concrete and clay! (Bricks)

A friendly competitor tells me multiple tenancy properties breach the building ties for the area! But there are a bunch of others built to a similar concept in the area. If they all breach subdivision rules, whose going to take them on?

Always nervous when buyers "flock in" on a new build concept....but Home and incomes have been around forever...just seems popular at present.

Above friendly competitor commented that builder netted over a mill last year building these designs? And he doesnt build many! Maybe I should do it myself?

Appreciate any other comments.

[Keys]

Spend five days solid, 8 hours per day, on here.

Read all the threads you can.

Best investment in time you can make at this stage.

[donna]

Hi fourbytwo,

As Keys says spend lots of time on here - you don't know what you don't know - there are lots of options to consider.

New builds are often the introduction to property investment however they're rarely the preference of property investors meaning look around, suss out all the options for your investment and what gives the best return.

cheers,

Donna

[Rosco]

Hi fourbytwo,

Great thread with great questions.

Over the weekend I was thinking about starting a thread to get others opinions about rents on new houses, units, townhouses etc, with the questions being similar to yours. I suppose the overall question is, do new homes rent stay high and increase over time as well as others?
1) Are new properties rent generally higher as sort after initially, but then drop within 6-12 months? I have a client who purchased a couple of years ago(1-2 years), brand new and was getting great rent. But now seems to be struggling to rent and property managers are suggesting about $50 per week less than it was to start with. This is a unit/ townhouse.

2) I personally built a new investment property(5 bedroom, in good area) about 4-5 years ago. Easy to rent, no tenant hassles etc. But while the rent hasn't decreased, I also haven't noticed that it has increased much (if at all) over the 4-5 years.

So I'm wondering (kind of thinking aloud), that for new house you should discount the rent that you are looking at, because in 1-2 years you probably won't be getting the same rent!

Ross

[Rosco]

Couple of other important things to consider

- Will a house and income property (presume you are looking at a new four bedroom, with attached 2 bedroom) go up in value as well as a normal house?

- With these new dual incomes, or house and income properties, is the rental return good enough? Obviously it willl be better than a standard new house, but is the rent paying all the expenses such as rates, insurance and interest? If interest goes up long term, what then? Over the past 5 years, through the hard times, I've really noticed that life is so much easier if the rental property can cover say a 7% interest rate, plus all the expenses.

- The amount of cash returned required depends a lot on your cirumstances, but I would normally suggest looking for at least a 7.5% gross yield. What gross yield do these properties give you?


Ross

[fourbytwo]

Thanks for your replies.

Rosco, yes I am looking at that sort of property. Being in Hamilton you will have seen these.

The total rental is about $700 a week. On a 3X2 bedder the buy rate is around $530000. So yield before expenses is close to 7%.
My interest was in selling some Auckland property and trading down. Increasing equity and boosting takeout.
However, I really feel that "bright shiny things" can bedazzle buyers. The reality is that resale is going to be limited to investors or new homeowners wanting help with the mortgage. And while I see heaps of activity I have never felt Hamilton beats Auckland for capital growth. But clearly yields are higher. Hamilton also has some sad stories about investors not realizing capital growth. Tenants for these properties will also be a special breed. Having to share land with someone for the same money as exclusive use favors the exclusive use option when looking for something to rent.

So, I am continuing to look for better options. Any suggestions?

[fourbytwo]

Keys,

Thanks for your reply.

I have spent many years talking to property people, reading the books, building and buying property. The climate is continually changing and the options too. Clearly you can never know enough.

I have recently rejoined the Property Investors Association which will no doubt be a source of more quality advice.

However, at the end of the day actually doing something will make the difference.

[fourbytwo]

Donna,

Thanks for your comments.

Do you have some specific suggestions of property deals that currently make sense?

There are always heaps out there with lots of advice but what we all need to know is what is the best option right now in todays climate.

What works for you?

It all depends on what your strategy is, are you interested in cash flow or capital gains? (If cashflow then you can get better than 7% in the current market) are you interested in generic growth or manufactured? Buying a new house means there is nothing else you can do to it to manufacture any more profit.

I personally would not get out of the Auckland market at the moment (although I don't know your full circumstances).

Also as you are buying through an investment company everyone has already taken their cut so how much is left for you?

Take a look around the area for houses that are currently 10 years old and that will show you the equivelant of what your house is likely to be like in 10 years time.

[fourbytwo]

Kyron,

You echo my thoughts. I prefer to buy wholesale not retail...investment companies are retailers.

Auckland has always been a strong market. But there has been huge growth outside. A new 3 bed home now costs much the same no matter where it is? 20 years ago there was a big differential but property has caught up in many towns like Tauranga, Rotorua, Hamilton etc.