How do I move forward from my current position?

[MGV]

Hi Kapitibeanman,

I think your right I am stretched but it doesn't mean I want to give up and do nothing. I am a 33yr old female who has limited knowledge of property and this maybe the reason I didn't buy right at first but would like to improve. I would like to grow as much of a nest egg for myself as possible which I guess it means taking a few calculated risk. I only have cash savings of about 26k and a small investment in managed funds which is really nothing to fall back on. I have an income of 87K a year so nothing else to call on if the properties did go down the toilet.

If the market was to move so quick to hit 10% interest rates and I hadn't kept up with the play and got myself into difficulties it would be my own fault for not reacting and making decisions faster to avoid that situation. Hopefully I can keep an eye on things and if I feel the properties are not supporting themselves move them on.

With the apartment I was trying to pay interest and principal to reduce the debt after pulling equity from the place. The idea was if I could get it back down around the $250k it would look after its self.

The property values are fair I think as the apartment would most likely sell around $310-350k in this market it is 100sqm, Manurewa needs work so $230k is fair as the next door place after a lick of paint sold six months ago for $305k and the Mangere place could possibly be overvalued but would still reach over $300k I think.

It only looks like a dog because it happens to be the one further loan money was taken out of. The real problem, as MGV
knows, is lack of capital overall, and the only cure for that is more net capital. MGV is stretched, just looking at his properties,
but would benefit from time and an element of luck.

If interest rates went to say 10%, MGV would need to pay the bank another $18 or 19k pa., and if this wouldn't be a problem I
suggest he/she should be able to sleep at night ok. If it would be insurmountable, perhaps steps should be taken now to head
off what would be a threat to the entire portfolio - imagine trying to sell in what would be a high interest rate sad market.

MGV, have you any other investments? Would they be substantial and liquid enough if you hit a bad patch? I notice your apartment mortgage
is capital plus interest - about a 20 year term? I would guess the bank liked that idea, maybe you had to do it that way to get the loan. At
least you know that all you have to do is pay your mortgage for a set time to become freehold, all organised!

Another consideration is current market values. The values you gave us, how real are they?

[MGV]

I understand what your saying. I could top up the loans if I had to with my income instead of selling them if the interest rates did shoot up. Reducing the debt would make sense but I was thinking that I would like to use my cash for another investment. Thanks for the advice.

[kapitibeanman]

I understand what your saying. I could top up the loans if I had to with my income instead of selling them if the interest rates did shoot up. Reducing the debt would make sense but I was thinking that I would like to use my cash for another investment. Thanks for the advice.

I actually think you're ok, since you are aware of where you are, and alert to the possibilities, and you have a cash safety cushion. In fact, I think you are doing well, as long as you continue to make sure you can hold the line as you go along.

My advice would be to hold onto the decent cash cushion, it's more important to stay in play rather than trying to extract the last brass rahzoo and increasing the chances that something coming out of the blue can knock you off your perch.

I've noticed that I've often done best when nothing seems to be happening. I reckon you've set the scene, you're wide awake, you don't need to put yourself under any more pressure, unless you enjoy it of course.

[Rosco]

Hi MGV,

1) Most people don't have $26k cash. So you are doing well saving this and it gives you a good buffer. Can you use offset mortgages or revolving credit facilities to effectively save more interest on it(ie in term deposit you might be getting 4%, but mortgage might be costing you 6%)

2) I think the average income is only around $45k, so $87k is actually a good income!

Your biggest risk as pointed out in the earlier posts is interest rates rising. You need to work out what will happen to you when interest rates go up. Increasing rents to keep up with higher interest rates is probably not a realistic option. If interest rates move from 6% to 8%, that could be $100 extra per week on a $300k mortgage, but I personally can't see rents jumping up an extra $100 per week! Maybe you could get $10-20.

I personally think that you are in a holding or consolidation stage. You need to look at simple ways to improve your cashflow with what you already have(like can you convert garage to sleepout to get more rent, convert lounge to bedroom, add extra bedrooms) and look at ways to reduce expenses so that you can survive through the next few years. One option is putting extra cash into paying of principal, so that your interest outgoings reduce over time. Also make sure you are maximising any tax deductions and refunds. A lot of property investors are hoping that property values will increase over the next 5 or so years, and if this happens this would dramatically change your position.

Selling or buying?? now is probably one of the worst times to sell, and I would only sell if you really need to. Otherwise in this market, you are likely to get ripped off and lose some of your equity. Buying now would also be very risky, as you have a high debt %, and buying another rental is likely to make this worse, and make you more at risk if interest rates go up.

Personal spending - A different area you could look at is your personal spending. As I put earlier you are actually earning good money. You could review your personal spending and you will probably find that you could be putting some more aside. I'm not trying to be harsh with this, but if you are trying to get ahead, a little bit of hard saving now could set you better for the future.

Ross

[MGV]

Thanks so much Kapitibeanman for the advice. I think I will try and save a little more before trying to buy but will keep watching the market. As you point out a decent cash cushion might be best to focus on till the time is right to buy another property.

[MGV]

Hi Ross,

Thanks so much for taking the time to write. I do agree with you and after the advice given here consolidation might be the best thing for me right now. I often get itchy feet and feel like I'm going nowhere hence looking for that next step with wanting to buy another property. I think I will focus on my savings and eventhough I'm pretty good I'll try and put more aside each week which should serve me well in the long run.

I will still get my eye on the Hamilton market as I believe it is growing quickly and could be a good area for investment when the time is right for me.

Thanks again Ross your advice was very helpful.

[ENP]

If you had "Equity of 138K" which Harvey pointed out in the first page of this thread sitting in a bank account...

Would you be happy to buy your three properties you currently own with the money?

Or would you own something different? Why?

[MGV]

If you had "Equity of 138K" which Harvey pointed out in the first page of this thread sitting in a bank account...

Would you be happy to buy your three properties you currently own with the money?

Or would you own something different? Why?

Hi there,

I would be happy to own the Manurewa Pl as it creates good income however the other two are not so good. The apartment was more location and could use as a home if I had to but I guess really I would look at other properties with better returns or capitial growth.

[mortgage broker]

MGV any chance of getting better rentals on the existing properties by spending a little money on a tidy up, paint new bathroom etc?

[Commercial Dan]

Sell them all as you are in a very poor cash flow situation!

Then buy a multi flat property for 800-900k somewhere and work towards getting a 10% yield after doing it up, holding on for a year or so. Easy to do if you know what you are doing! You will have increased equity and have more cashflow, otherwise you are stuffed and will be stagnant for years!

Don't fall for the absurd ego problem that some fools have on this site have which is the 'number of properties' ego trip, this is a mantra for mugs!

[TomW]

Firstly, Go get market valuations on all the properties. CV'S mean F*CK all to everyone including banks.

Apartments are hugely undervalued in auckland. Every other developed city (including close ones like melbourne, sydney etc) apartments are expensive and in high demand.

[kapitibeanman]

Firstly, Go get market valuations on all the properties. CV'S mean F*CK all to everyone including banks.

Apartments are hugely undervalued in auckland. Every other developed city (including close ones like melbourne, sydney etc) apartments are expensive and in high demand.

Possibly because of more affluent residents than what you tend to get in Auckland, hence higher rents.

[speights boy]

Apartments are hugely undervalued in auckland. Every other developed city (including close ones like melbourne, sydney etc) apartments are expensive and in high demand.

Most apartments in AKL are rubbish as far as the rich owner occupier is concerned.
Also, AKL CBD is not a pleasant living environment compared to cities around the world where apartment living by the rich is far more common.

[kapitibeanman]

Most apartments in AKL are rubbish as far as the rich owner occupier is concerned.
Also, AKL CBD is not a pleasant living environment compared to cities around the world where apartment living by the rich is far more common.

Yes speights boy, daresay you're right, but it's a catch 22 situation, if the dosh ain't there, why would it change? Everyone has to live somewhere, and if you're pretty broke by some standards, your accommodation will reflect that little fact. What's TomW seeing that the market is missing? Fairy dust, in my opinion.

[The_Dog]

I think your apartment is the dog here... and your LVR is a bit high for investment side, and you dont have personal property to back that up.

You called??

Hi MGV,

You have got received good advice here. You have done well, and done a hell of a lot better than 95% of the population. To a certain extent the questions "would you buy the same properties again" are hypothetical as you are where you are, which as stated is not a bad place to be. It's better to have a reasonably performing portfolio than none at all.

Don't sell (in the current market) but think about the good and bad points of each current property and apply them to the next one. Keep studying the market with these criteria in mind and after your period of consolidation, you will be fully up to speed and the purchase will be easy!

Lastly, there are people on this site that will give foolhardy advice under anonymity. At the end of the day, you are the person best equipped to make the decisions. What makes it easier is when you have 9 people giving a fairly consistent message, you then know the 1 person giving a diametrically opposed message is dubious.

TD