Lots of low cost investments, or few at a higher cost...

[amimuir]

Hi all,

Have now bought a house in Gore, with a 10.5% return and a fantastic tenant. The house will need maintenance as it's a very old villa but in a pretty good condition. Bought for 89K, rents at 180pw.
Now looking at what to do for the next property.

What are your thoughts around having a lot of properties at the cheaper end of the scale vs a few at the higher end. I understand that if I bought at the higher end and had 1 or 2 vs 3 or 4 then I'd pay less rates and less insurance BUT would have to wait longer to get the deposit.

I'm looking at one now for around 220K in Te Atatu BUT I'm also thinking maybe I should should hold off and buy on in Hamilton for around 350, in about August. I'm looking at the good fixed interest rates at the moment though, and that's quite appealing. My buying rules are 30K below RV/CV with at least 7% gross return.

But as an overall strategy just wanted to see what your thoughts were regarding lots at low prices, or few at higher prices.

I'm very new to all of this, but LOVE it to pieces. Found something I really enjoy.

The long term strategy is (in 10 years time) to get enough from rent so I dont have to work. I'd like to do around 2 'projects' a year - renovation projects - for cashflow and have my long term holds to keep the rent coming in as income.

Thanks in advance.
Ami

[Dean@Massiveaction]

I sold down many of my original purchases, bottom end of market definitely a pain in the long term unless you really take a shine to it.

[eri]

look at these 2 extremes

1. many cheap, old, high maintenance places dotted all over the country with different PM's

2. a few expensive, new places in 1 city with the same pm

which looks likely to cause more problems?

[Orkibi]

what your thoughts were regarding lots at low prices, or few at higher prices.

I currently like medium to high price with high yields.
Location, tenant demand population growth and add value is key IMHO.

My buying rules are 30K below RV/CV with at least 7% gross return.

your buying criteria could be achieved in more central locations / cities then Gore.

[spurner]

Why focus on the number of houses owned?

Unless you enjoy saying to people "I own 10 houses", then surely the whole point of property investing is to generate the largest amount of cashflow possible. So start thinking "cashflow" and not "how many houses".

[CJ]

Why focus on the number of houses owned?

I dont think she is. She is focusing on two different stategies to acheive her goal ($X cashflow in 10 years). The number of houses is just a byproduct of the strategy choosen and not the focus.

[WGN ex-property manager]

My thoughts: Its the NET yield that hurts to low end properties, especially on the maintenanace.

If you need a new roof on a villa in Gore it costs $10K, which hammers your income for a whole year or more

If you need a new roof on a villa in Mount Cook, Wellington (purchase price $500K, full of students paying $900 pw), you pay $11K (higher labour + prices in Wellington), which sucks up 12.5 weeks rent.

Same roof, different market.

[CJ]

Robin - agree - should always focus on NET yeilds, not gross yeilds and include maintenance costs including a sinking fund for the roof etc.

[Ahar]

Well done ami.....nice to hear you found a great property and in good nick.

IMHO a min 10% yield should see you keep out of trouble......ie, you should have lots of surplus cash to meet those unexpected expenses.....I'm assuming you went interest only.

And of course you can use the surplus to pay off the mortgage....leaving you with an asset that hasn't really cost you anything other than time spent mananging it.

This is the stratagey I like.....get a house paid for by my tenants!

And it allows you to get the deposit together for another IP.

As for your buying rule of 30K below cv.....did you do it in this case? If so, that's really great.

But IMHO, I'd look at expressing your rule slightly differently.....eg, a min yield of X% AND buying at Y% below CV, (ie as a percentage of cv NOT in absolute terms)

You might like to try for a high yield AND 30% under CV in Te Atatu....then if you can't find anything in say, 6 months....adjust your rule, OR look at another area, OR wait! Sound like you are young....so why rush in.

Good luck

[buxlo122]

I sold down many of my original purchases, bottom end of market definitely a pain in the long term unless you really take a shine to it.

I think starting out it is a lot easier to get into cheaper high yielding properties. Once you start to build your property portfolio you will be able to get some better quality properties.

[Orkibi]

min 10% yield should see you keep out of trouble......ie,

YOU will be staying out of the North shore then Ahar.

There are few reasonable areas with good growth prospects which you could get 9.5% - 10% yields.

[amimuir]

Hi all,
Reading through your comments I was convinced that the higher price strategy was a better option, for rational reasons, i.e. less hassle and run around with fewer properties, less maintenance as they're better quality. until I read the comment about how it was easier to start on the lower end and build a portfolio... I think to start this little portfolio, I need to buy at least one more property at the lower end of the market. Can always sell it if it gets to be too much of a hassle.

Don't know if it's because I haven't been looking long at the higher end of the market but it seems that there are better deals at the lower end. By better deals I mean further under CV and better yield. Also really appreciate the comment about Nett vs Gross yield - I hadn't been looking at it that way, so I will change TO look at it that way. The comment regarding a % under CV rather than a figure under CV is also very useful. Will work things out that way too. Maybe around 10%? I'll have to work out what's closest to how I had been working it out.

Anyway, thank you for your feedback. I find it invaluable. What I will do, after listening to your advice, is buy one more at the lower end of the market. I will buy this property in West Auckland, it will be at least a 7% yield (hopefully higher) and have at least 30K in equity in it.. And my price range is 220 - 280K.

Then, when I get back to NZ in October, we will try and get another renovation project at the higher end of the Market in Hamilton.

Then I'll come back and ask you guys for advice again
Ami

[Ahar]

YOU will be staying out of the North shore then Ahar.

There are few reasonable areas with good growth prospects which you could get 9.5% - 10% yields.

Orkibi....actually hope to buy again on the Nth Shore.....one day

But until then, just playing the waiting game.....I'm sure one day soon the planets will realign

One day yields will creep up

One day prices will fall

One day interest rates will drop

Aaaaah one day

[CJ]

ami - cheaper properties have better yeilds for a reason.

[amimuir]

CJ - because they're more work?