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  • Buying a "Bargain" now

    I am just curious to see how people are getting on buying property now.
    I have heard a lot lately about how the bargains are now out there, and to get in quickly before prices take off again (form your own opinions as to whether this will happen in the near future........)

    Personally I see that prices in most areas have dropped but only to 2005-2006 levels. And prices of bread and butter IP's back then were way over the top.

    Example:

    A 3 bedroom home on 650'ish sq m with double garage in West Auckland (Massey, Henderson, Royal Heights) was worth around $375-$395K. The same properties are now asking about $330-$350K. You find a desperate seller and get it for the Absolute Bottom Bargain price of $260K. It rents for $340 per week. ($17,680 PW not allowing any vacancy - based on 52wks/yr rented)

    People would say that this is an awesome buy. And it probably is, pricewise.

    However to buy the property as above, just to have it cash neutral, you would need to stump up at least $80K deposit, and have a mortgage of $180,000. And the rent would only cover interest only for this amount (assuming you got 8.5%), plus about $2500 for rates,ins,maint etc.

    These figures are very light too, and are just to illustrate my point. Not a bargain at all in my book........

    So how are you getting on folks? There is only so much you can buy that you have to keep topping up from your own funds. How are people buying IP's now and funding them? Are you getting better figures than my example above? I personally wouldn't go for a property as detailed above, there is little prospect for capital growth in the near future, and in the meantime you have to keep shelling out to keep the place going. Even after you have paid up a large deposit.

    These are the so-called bargains that we should be "rushing in to buy". Not for me thanks.

    Perhaps I am too old-school, from the days when rents covered everything, and you didn't have to resort to all this lease-optioning , on-selling, assigning stuff to prop up IP's.

    So-how do you do it now?? Open to discussion, abuse and beatings........

  • #2
    Well, according to the full time hunters, there are definitly better deals than that out there, much much better deals.

    You just have to get out there and find them (according to them)

    Comment


    • #3
      Hi Kalovatt,
      the number you presented us with are: $17,680pa gross income With purchase price of $260k. this is $17,680/$260k =0.068% x 100= 6.8% gross yield.

      In this market in my view one should look at 8%+ yield, for a property that value can be add or over +11% for naturally geared- Cash flow.

      this is achievable if you look out of the main city areas or properties with a twist.
      another way to achieve cash flow is Vendor finance or Lease optioning a property, or just by offering very low offer.

      In my view prices will not drop across the board that most properties will go back to be positive cash flow the way it was 5-7 years ago. Yield are going up as prices go down..

      Cheers
      New Zealand's #1 Marketplace for Property Investors & Sellers!
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      Comment


      • #4
        Personally, I can't see any "deals", even at 2005 levels. A half-million dollar property in NZ would barely return the equivalent of 250K in the bank (for non-tax residents anyway). I would think that the only bargains out there are for the top rung of professional investors, not the leveraged
        punter relying on the allure of capital gains or tax avoidance. Mind you, there could be some benefit for those on high salaries (over 150K p.a.) to take on property for tax purposes. And as we know, those salaries are more likely to be found in Australia or Dubai.

        Comment


        • #5
          Can anyone answer me thisquestion in simple terms.

          Why do you buy property for investment purposes?

          i.e the simple answer is to get some capital growth.

          or another may be to generate an income.

          I think some people overlook the fundamentals of why they are investing.

          Another often misunderstood principle of investment is the correlation between capital growth, income and risk.

          Generally capital growth and income are inversely proportional to each other unless you factor in some other form of leverage in which case you increase risk.

          So what are you buying property for? This will help you determine if now is a good time to buy or not.

          cheers

          Comment


          • #6
            Originally posted by tanmedia View Post
            Personally, I can't see any "deals", even at 2005 levels. A half-million dollar property in NZ would barely return the equivalent of 250K in the bank (for non-tax residents anyway). I would think that the only bargains out there are for the top rung of professional investors, not the leveraged
            punter relying on the allure of capital gains or tax avoidance. Mind you, there could be some benefit for those on high salaries (over 150K p.a.) to take on property for tax purposes. And as we know, those salaries are more likely to be found in Australia or Dubai.
            I couldn't agree more. Thats why I ask the question: What do people do now.

            I also haven't seen a "deal" for years now. As some on this forum do, the only way to buy more property now is to top it up - significantly - by lease options, on-selling or some other advanced property dealings (if not from J.O.B. income)

            I look at the properties I used to own a few years ago and had I kept them, I would have been quite a bit more worse off now. So I am reassured I did the right thing by selling them when I did.

            Comment


            • #7
              Whats wrong with a something yeilding 12% and at half what it would cost to construct said property?

              Comment


              • #8
                Originally posted by tpr2 View Post
                Whats wrong with a something yeilding 12% and at half what it would cost to construct said property?
                Absolutely nothing. Thats the sort of return I am used to seeing, most of my past properties were bought on this sort of yield back then.

                But I'd love to see where you can get this now....................

                Comment


                • #9
                  But I'd love to see where you can get this now....................
                  as an example anywhere when you can buy a property for $100k that would rent for $250-$260 PW.

                  The good old days are gone and INMH not going to come back anytime soon.

                  so if one wonts to stay in the game, one needs to adapt...
                  New Zealand's #1 Marketplace for Property Investors & Sellers!
                  FREE Access to HOT Property Deals
                  CLICK HERE FOR MORE INFO.

                  Comment


                  • #10
                    hmmmmm
                    I know this will get a fair bit of flack but this is a great example of peoples prejudices getting in the way of fundamentals.

                    The Auckland CBD has deals like that popping up all the time.

                    Last year it was published that the cost of construction for these apartments are up around 8k per m2. At the moment you can buy at 4k per m2 and in many of the properties the yield is over 10%.

                    Take into consideration that escalating fuel prices will force people towards city centres and rising unemployment will see people making decisions that are less about ego and more about shelter and I think Auckland CBD is poised to recover faster than anywhere else I can think of.

                    cheers

                    Terry

                    Comment


                    • #11
                      Originally posted by tpr2 View Post
                      hmmmmm
                      I know this will get a fair bit of flack but this is a great example of peoples prejudices getting in the way of fundamentals.

                      The Auckland CBD has deals like that popping up all the time.

                      Last year it was published that the cost of construction for these apartments are up around 8k per m2. At the moment you can buy at 4k per m2 and in many of the properties the yield is over 10%.

                      Take into consideration that escalating fuel prices will force people towards city centres and rising unemployment will see people making decisions that are less about ego and more about shelter and I think Auckland CBD is poised to recover faster than anywhere else I can think of.

                      cheers

                      Terry
                      It's a possible scenario Terry; however rents are too high in the city center in my opinion. The quality of accommodation is appalling and cannot justify the rents. I think one of the biggest mistakes made in the Auckland apartment market by the developers was not focusing on building apartments that people actually want to live in. The same mistake was made in Japan, but the scenario is different now.

                      Also, in the case of Auckland, living in the central city is not necessarily an advantage when it comes to access to employment and reducing fuel costs. In the big Asian cities with developed transportation infrastructure, yes; but Auckland, I think the story is different.

                      That being said, I think Takapuna will come into its own in the future as a significant "node". The closer to central Takapuna, the better. Compared to Auckland central, it has a better lifestyle and probably better amenities. It's already a junction for the Shore buses.

                      Comment


                      • #12
                        Originally posted by tpr2 View Post
                        hmmmmm
                        I know this will get a fair bit of flack but this is a great example of peoples prejudices getting in the way of fundamentals.

                        The Auckland CBD has deals like that popping up all the time.

                        Last year it was published that the cost of construction for these apartments are up around 8k per m2. At the moment you can buy at 4k per m2 and in many of the properties the yield is over 10%.

                        Take into consideration that escalating fuel prices will force people towards city centres and rising unemployment will see people making decisions that are less about ego and more about shelter and I think Auckland CBD is poised to recover faster than anywhere else I can think of.

                        cheers

                        Terry
                        Hi Terry, hope you don't ind me asking. Have you ever tried to sell one of these above-mentioned apartments? If so, how did you go?

                        We used the same reasoning as yourself (yield, construction costs etc) but sold (privately) about 18months ago. What a drama it was. I even tried to show one lady through who suddenly realised she was afraid of heights. All character building stuff.

                        Comment


                        • #13
                          Originally posted by tanmedia View Post
                          It's a possible scenario Terry; however rents are too high in the city center in my opinion. The quality of accommodation is appalling and cannot justify the rents. I think one of the biggest mistakes made in the Auckland apartment market by the developers was not focusing on building apartments that people actually want to live in. The same mistake was made in Japan, but the scenario is different now.
                          • City rents are well down on what they were a few years back but yes still very high relative to the rest of the country. However is this not an indication of supply and demand forcing the price up and if prices of renatals go up then eventually the price itself must surely go up.
                          • I agree with you on the developers not building what people actually want to live in however I guess that becomes the balancing act, making it something you want to live in and making it affordable to most, for example my apartment is 308m2 in total including decks and I love living in it. To build that these days though will cost well over 2.5 mill and not everybody has those sorts of funds to invest in, also you can buy it for a lot less than that in todays market.
                          Originally posted by tanmedia View Post

                          Also, in the case of Auckland, living in the central city is not necessarily an advantage when it comes to access to employment and reducing fuel costs. In the big Asian cities with developed transportation infrastructure, yes; but Auckland, I think the story is different.
                          • lol.... it depends where you work. I can hit a tennis ball off my balcony and hit my office.... I haven't tried it as that would be irresonsible but I am pretty sure I could..... and if not with a tennis ball then certainly with a golf ball using a 9 iron.


                          Originally posted by tanmedia View Post
                          That being said, I think Takapuna will come into its own in the future as a significant "node". The closer to central Takapuna, the better. Compared to Auckland central, it has a better lifestyle and probably better amenities. It's already a junction for the Shore buses.

                          • Not only that but easy access to the city on the ferries if you work in the city. The shore is pretty expensive already though.
                          hmmmm not sure why I have to write something here....but when I hit submit reply it said my message was to short
                          Last edited by tpr2; 25-08-2008, 01:51 PM.

                          Comment


                          • #14
                            Originally posted by watchful View Post
                            Hi Terry, hope you don't ind me asking. Have you ever tried to sell one of these above-mentioned apartments? If so, how did you go?

                            We used the same reasoning as yourself (yield, construction costs etc) but sold (privately) about 18months ago. What a drama it was. I even tried to show one lady through who suddenly realised she was afraid of heights. All character building stuff.
                            Hi watchful.

                            yes I have. They went very well however I was able to sell at the levels I was talking about and buy even further under that.
                            I may have mentioned earlier that the deals do pop up, not all that frequently but they do and if I can jump on them I do.

                            cheers

                            Terry

                            Comment


                            • #15
                              Originally posted by tpr2 View Post
                              • I agree with you on the developers not building what people actually want to live in however I guess that becomes the balancing act, making it something you want to live in and making it affordable to most, for example my apartment is 308m2 in total including decks and I love living in it. To build that these days though will cost well over 2.5 mill and not everybody has those sorts of funds to invest in, also you can buy it for a lot less than that in todays market.
                              OK, but aren't the majority of apartments seem like they're built for students and low-income workers with no families? That's how it looks to me. I can't imagine many people "wanting" to live in them.

                              Pesonally, I think you have the foundations for NZ's first inner city ghettos. The price you pay for poor planning and foresignt.

                              Comment

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