Finally on the Board - First Investment Property Purchased

[exnzpat]

Well since my 1997 little property frolly into folly.

I would like to thank everyone who has answered my endless questions and for all the other posts they have put on this site (Even Kiwi)

This has been invaluable.

Mortgagee Auction (The strangest I have ever been to)
Price 236K
CV 350k
Nice Rosehill / Opaheke area of Papakura
Full site, 4 bedrooms, 2 bathrooms, garage
Rental estimate $400 per week

With a CV 350k and a Sale Price at 236K this equates to a 33% difference.
Unwittingly, your purchase has helped lower the Median Sale Price across NZ. But, more importantly, you should realize that even with a 33% fall in CV this home is still overpriced for a rental.

Monthly Outflow with 20% deposit ($47,000.00)
@ 6.5% 25 year loan = $1,275.75
Taxes and Insurance = $250.00
Total Monthly Outflow = $1,525.75
Total Monthly Income = $1,600.00


Monthly Outflow with zero deposit
@ 6.5% 25 year loan = $1,593.00
Taxes and Insurance = $250.00
Total Monthly Outflow = $1,843.00
Total Monthly Income = $1,600.00

The goal in any profit making venture is just that – profit!

My point, not to sound like a broken-record (or a kill-joy), but the CV’s, QV’s, Asking Prices and actual Sales Prices must fall for all rentals across NZ, and must fall even further than a mere 33% to be a viable profit making enterprise.

[Xav]

1 month does not equal 4 weeks. Monthly income is $1,733.33 not $1,600.00.

6.5% seems about right for 5 years fixed.

For a 30 year term, 100% finance, that is $1,491.68 instalments per month, $1,741.68 if we include your figures for rates and insurance.

It therefore appears to be cashflow negative when you add maintainence (but probably not by much when you account for depreciation).

However, you have made the loan P & I, so BK will be increasing equity by $2,637.84 in the first year due to paying principal off, and obviously more for the years after that as the interest falls.

So it may well be cashflow positive (after tax).

It is tighter than I thought it would be before running the figures though.

[exnzpat]

1 month does not equal 4 weeks. Monthly income is $1,733.33 not $1,600.00.

6.5% seems about right for 5 years fixed.

For a 30 year term, 100% finance, that is $1,491.68 instalments per month, $1,741.68 if we include your figures for rates and insurance.

It therefore appears to be cashflow negative when you add maintainence (but probably not by much when you account for depreciation).

However, you have made the loan P & I, so BK will be increasing equity by $2,637.84 in the first year due to paying principal off, and obviously more for the years after that as the interest falls.

So it may well be cashflow positive (after tax).

It is tighter than I thought it would be before running the figures though.

Four weeks is fine for an example. Yes, I know (12/52)*400 = 1733.33’

But, I’m sure you would agree that I used Rates and Insurance numbers that are pretty low. So that will make up the difference.

If interest rates go down it will help BlueKiwi. And yes, maintenance and management will cost. But, added up he will probably run at a small loss but it should be manageable as long as he keeps his day job. Probably, no more than $200 per month based on what he has told us so far.

BK may be increasing his equity but if the market continues to slip (his purchase price does affect all Selling Prices in the area now), then his equity gain will be reduced at the ratio that his property value decreases. An interest only loan (if he can get one in this market), in my opinion, is always a bad idea.

The key to a positive cash flow on his property (or any property for that matter) is a decent deposit, not borrowed, but in cash. And cash is the one thing I have noticed lacking in the NZ property market. To me, it is this lack of cash, expressed as equity, which is undermining the market place.

BK, how much will you be putting down? Will it be in cash or equity from another property? Also, what interest rate are you expecting and what type of loan are getting?

[Bluekiwi]

Didnt want to get into this "with you expat" but.........

Rent $400 per week = Expenses $400 per week = PERFECT !!!

Expenses: Interest $300 + Insurance $20 + Rates $30 + Maintenance etc $50

PP incl. Cap Expenses 240k vs Estimated RV 350k = 110k Instant Equity

10 to 15 year game plan: Property will "Likely" double in value over this time frame to 700k v.s 240k debt

Thats $460k gain to me that some maths guru can inflation adjust.

As an example: If I have 10 such properties at the end of 15 years I can sell 5 and keep 5 that are now debt free.

Does this sound like financial suicide to you Expat ?

In addition to this I could start property trading through cosmetic renovation when market is more liquid, to provide additional funds to provide greater solvency to the buy and holds.

The agents also told me they have several gutted clients who didnt bid and will take the property of my hands right now for $40k more if I wanted to sell.

[Davo36]

Not worth it for $40k BK (but always nice to know) these things are too hard to find.

[k1w1]

I'd say "make it 60k and you have a deal". 60k just like that.

Would that be taxable? You're not a trader officially, and one does not a trend make - you've just got lucky with #1.

[Hawkeye77]

Interesting story, yeah looks like a good purchase to me.

I get at 6.5% interest only (5yr rate), a $1354 monthly payment, well below your income $1733 per month (just without considering other expenses).

[nzfrazer]

You could always throw some paint around and put back on the market BK, but this might make you a trader, so prob best to hold it long term and bank the equity.

[exnzpat]

Does this sound like financial suicide to you Expat ?

No. It sounds great but,,,

Did you stop to think that maybe your dream is the exact same dream of the guy you bought the house from? Where’s his dream now? And what makes you think you are any smarter or luckier?

[Bluekiwi]

No. It sounds great but,,,

Did you stop to think that maybe your dream is the exact same dream of the guy you bought the house from? Where’s his dream now? And what makes you think you are any smarter or luckier?

I hope I am because he is dead.

And why I have life insurance.

[Green Fish]

"AIG assures that the policyholder will not die."

I like the advice of k1w1: A 40-60k trading profit in the current environment should be taken. That's where the "instant equity" resides.

I suspect that you might have had some smoke blown up your back passage, but if not: Do the trade, and take the profit. You will then be able to approach your next deal with a better balance sheet.

[k1w1]

I'm guessing his wasn't the same dream, then. hahahaHAAAA

[Munga]

Originally Posted by exnzpat
No. It sounds great but,,,

Did you stop to think that maybe your dream is the exact same dream of the guy you bought the house from? Where’s his dream now? And what makes you think you are any smarter or luckier?

I hope I am because he is dead.

Nice comeback!

[exnzpat]

I hope I am because he is dead.

And why I have life insurance.

The first step on the path to riches is humility.

You should pray for that man.

[exnzpat]

I'm guessing his wasn't the same dream, then. hahahaHAAAA

You! You of all people should be praying for yourself!