My Latest Buy - Auck +cashflow @ 8%

[Shane D]

Dear PTers,

A few PT posters recently poo-pooed the idea that cashflow positive properties could be purchased in reasonable areas of Auckland.

Well I am happy to report that it is definitely possible. And I researched and bought from abroad while stationed in Taiwan.

My search was focused on Papatoetoe, Manukau. On my last trip back to my old home town (Mangere East/Papatoe) I was impressed with the growth of the area around Manukau City. All the national big brands had set up huge warehouses and the place had the feeling of becoming the new big-box shopping hub of Auckland. I am bullish on the employment and growth prospects in the area as well as the excellent transport links (new motorways and train station within 10 mins walk).

On Mar 4 2011 I finaly settled on a legal 4+2 Home and Income on Puhinui Road.

Here is how the numbers stack up

Purchase Price
$460K + $5k Reno = $465k

Rent
$750 a week rent for $37,500 @ 50 weeks

Expenses
Rates $1,772
Insurance $1,007
PM fees (7.5% incl GST) $3,000
$5,779 total

Finance
$465k 100% finance at 6% would be $27,900 interest

The numbers
$37,500(rent) - $27,900(finance) - $5,779(expenses) = $3,821 cashflow positive a year

I know Maintence will eat up a portion of this cashflow but for me the important thing is the house will not cost me anything to hold.

Hope this is some food-for-thought for the cashflow+ forum doubters out there.

Would be happy to expand further.

Regards

Shane D

[Momo]

Congratulation! Shane! and thanks for sharing your story!

[splato]

Yeah thanks for sharing the stats, good to see reality laid out like that.

[spaceman]

Yay for you...well done.

I've a question if you don't mind........ What's the max you would've been prepared to pay all else being equal????

Cheers
Spaceman

[Shane D]

Yay for you...well done.

I've a question if you don't mind........ What's the max you would've been prepared to pay all else being equal????

Cheers
Spaceman

Spaceman,

8% gross yield is a hard-and-fast buying rule for me so $460k is the max I would have gone to. Even then I was stretching it to think I could squeeze $450 a week out of the 4 bdroom house at the front of the section.

It turned out the 4bdrm was more a study...and that was stretching it (the downside of buying from abroad). I dressed up this pocky little room with a new waredrobe from Bunnings to give the impression of a bedroom.

I based my offer on the following calculations
$750 rent x 50 x 8% (12.5) = $468,750 purchase price

$8,750 was a buffer for reno and tenant downtime etc .

Shane D

[freezinhot]

Shane, did you have problems financing this deal, do you have x amount of income to enable the loan.

Have the banks eased up on their lending?

FH

[Shane D]

banks ..grrrrrrrrrrrr

Shane, did you have problems financing this deal, do you have x amount of income to enable the loan.

Have the banks eased up on their lending?

FH

Freezinhot,

From my experience.....NO ...banks have not eased up on lending.

I had a hell of a time with finance as I am kiwi based overseas. Banks put me in the too-hard-to-deal-with basket. I had to put down a 30% deposit.

In the end the bank did not even take my overseas income into the picture. The deal (rent potential) had to stack up. Fortunatley this one did. I think I remember my broker saying banks caluclate on the basis of 8% interest rates (could be wrong here).

I stated figures in my opening thread using 100% finance, just for cashflow positive calculation purposes.

Shane

[Shane D]

Yeah thanks for sharing the stats, good to see reality laid out like that.

Thanks Momo and splato,

I hope this thread goes a little way to getting people discussing deals and buying again. There doesn't seem to be much of that kind of discussion on the forum anymore.

Shane D

[Davo36]

Well done Shane, and yes thanks for posting this. It does seem to be quite a good deal. I make it 7.47% net return (after expenses but before management). Which is not bad at all.

Can I ask, did you come over to do the refurb? Or handle that from overseas too?

[freezinhot]

I think I remember my broker saying banks caluclate on the basis of 8% interest rates (could be wrong here).
Shane

Yes your correct here, went thru that process with a broker recently.

So basically you still need a big deposit these days or large income & equity to qualify.

FH

[Ivan McIntosh]

Well done Shane, looks good! Hope it pays off for you

[NovInvestor]

Well done Shane, good deal!

[WGN ex-property manager]

Freezinhot,

I think I remember my broker saying banks caluclate on the basis of 8% interest rates (could be wrong here).

I stated figures in my opening thread using 100% finance, just for cashflow positive calculation purposes.

Shane

So if you do end up paying 8% ( or 10%) a few years down the track, are you relying on rent increases to keep you covered?

[Davo36]

Shane, any photos?

Oh and also, how did you find this deal? TradeMe?

[Orkibi]

Good job Shane D,

can you please give brake down of the rents in terms of for the 4b House and 2b Unit / MD?

Is it currently tenanted for 2 separate tenancies?

well done!