Finally!!!

[Holly]

Hi Everyone
I just want to share with you all, that my husband and I have finally got our first investment property. We have just gone unconditional on a property in Gisborne, which is where we live. The property was listed for $89,000 and has been vacant and on the market for around two months. The vendors are from out of town. Anyway I have seen the property for awhile now and for some reason never rung up about it. On Monday last week I has flicking through our property press and saw this property again and for some reason decided to call the agent to view it. We got around to the house and the agent advised us that the vendor had just dropped his price to $79,000 as he wanted to get rid of it. It was to be listed in the Thursday issue of the property press at that price. We had a good look at the property and decided to make an offer of $74,100 conditional on finance. This was presented to the vendor the next day and he accepted it straight away. Our finance was approved yesterday and now we are the excited and abit scared owners of our first investment property.
The numbers are as follows:
Purchase Price $74,100
Deposit $7410
Loan amount $66,690
Int only @ 7.9% fixed 2yrs $5269pa
Rates $1564pa
Insurance $400
2wks vac $370
Maintance $500pa

Rental Income $9620pa

Not too bad for our first shot at investment property. Now we have to get a structure sorted out and start looking for the next one.

[drelly]

Congratulations Holly, that looks like a great buy

[donna]

Yeah - well done Holly! Very exciting stuff and thanks for sharing it with us

(Have you read the latest - 'My Story' thread - in this forum? It's truly inspiring for us budding investors)

Cheers,

Donna :P

[Kiwi_Investor]

Well done Holly that is a great effort first up !!
Those numbers look good, rates seem a little high though, at least it's an expense you can deduct !!
It sounds like a great ppty for a first time investor.
Is the ppty tenanted already ?

K

[JohnL]

Well done.

Taking action is one of the key differences between those who are successful and the rest.

Taking massive action is what will determine your momentum.


John

[SEIBU]

Congratulations, nice work.
Been to Gisborne once, 12 years ago. Great weather, hot and dry from memory.
I presume you and your husband are looking for number two then?
Once again, well done.

SEIBU

[Julian]

Holly,

Well done. Based on your figures you should nett $3081 pa.

Based on iningoings of $8,410 (I have assumed $1,000 for legals) this represents a 36.6% return before depreciation.

That's better than a poke in the eye. Don't forget to keep a little bit of cash on hand for contingencies.

And remember to be on the lookout for ways to increase the rent. Read over some of Steve Goodie's posts. You can ask your tenants, "Would you pay an extra $14 pw for a dishwasher? ($2.00 per day) or would you pay an extra $2 per day for a carport to protect your valuable car?" These things can often pay themselves off very quickly (you can buy 2nd hand) and then keep on putting money in your account.

Julian

[Dean@Massiveaction]

Very cool Holly,
You're on your way. Next time suggest you make your first offer considerably lower. You never know till you try!!

Congratulations on a great property!!

[Holly]

Hi Everyone
Thank you all for your words of encouragement. I must admit that being our first property we are more than a little nervous. We settle on the 14th July and are not sure if we will rent it out as it is or tidy it up alittle first with abit of paint and then rent it out.
Julian I was wondering if you could run me through the numbers you came up with for further reference. I wasn't sure how you got the nett figure.
Well thanks again everyone.
Holly

[janesco]

Fisrt off well done.

I for one know just how nerve racking the first one is. No doubt most other posters will agree. Your heart is quite literally in your mouth whilst you watch this huge pile of debt sitting looking at you. Of course good debt soon has a way of magnifying your worth very quickly.

As others have already said the figures look pretty good. I agree with Julian. Keep some money aside for unexpected things. It's amazing how these things always seem to raise their heads when you are a bit strapped for ready cash.

$500 dollars for maintenance seems a bit low to me. I would budget for at least $1000. This is based on my own experience. I found that tenants can "fair wear and tear" a place far more quickly than my own family. If you don't use the full maintenance budget at least you have more for next year.

I suggest you look very carefully at what maintenance you complete before letting the property.

If too much is done it changes from maintenance to a capital expense. Which implies different treatment by our friendly IRD people. A general rule of thumb for me is no maintenance in the first year unless really necessary.

And of course the longer you don't have tenants the longer you have to fund interest repayments out of your own pocket. If there is no income incoming you have to find the out goings from somewhere else.

Again well done. I look forward to hearing about your next one.

[Julian]

Holly,

I'd be happy to run through the figures:

Your gross income is $9,620pa

Your itemised costs of rates, insurance, vacancy, and maintenance and interest equalled $8,003

This leaves $1,617pa nett return on your investment

Your investment is the deposit and conveyancing: $8,410

Divide 1617 by 8410 and multiply result by 100 = 19.22%

Oops! Sorry Holly - I stuffed up somewhere on my previous calculations. I'm surprised none of the other eagle eyes out there picked it up. I think you did, but were very diplomatic in your response.

Nevertheless a 19.22% return on yor investments is almost four times what you will get on a bank deposit. Also it appears you bought under true market value, and also you have the opportunity to add value to increase your return. Your investment will be indexed for inflation, both in return and in value.

You did well. May there be many more successes for you and your husband.

Julian

[whitt]

Or if you use the cashflow per $100,000 method of analysing figures. It Equates to around $3000 per $100,000. Which is really good alot of new minor dwellings in Auckland normally only get $1500 and at a stretch $2000.

Also accounting for tax deductions you now pocket an extra approx $40 per week in your pocket.

[Holly]

Hi Whitt
Can you explain the method of cashflow analysing to me please?
Thanks
Holly

[Holly]

Bugger!!! Julian, I thought you had added some $$$ to my bottom line that I wasn't aware of. It's enlightning to know that even experienced investors make mistakes sometimes

[RonHoyFong]

Hi Everyone
I just want to share with you all, that my husband and I have finally got our first investment property. We have just gone unconditional on a property in Gisborne, which is where we live…..

Our finance was approved yesterday and now we are the excited and abit scared owners of our first investment property.
The numbers are as follows:
Purchase Price $74,100
Deposit $7410
Loan amount $66,690
Int only @ 7.9% fixed 2yrs $5269pa
Rates $1564pa
Insurance $400
2wks vac $370
Maintance $500pa

Rental Income $9620pa

Not too bad for our first shot at investment property. Now we have to get a structure sorted out and start looking for the next one.

Hi Holly,

Just read your post and well done - You are both "Millionaires in Training"

You've gone and done the correct thing and bought yourselves a +CF IP.

SUGGESTION 1:
Since you haven’t settled yet I suggest going back to the bank armed with information to get that fixed interest rate reduced further. I reckon you should try to get somewhere around 7.4% to 7.6%. BNZ are offering 7.45% for 2 years fixed.

http://goodreturns.mailrun.net.nz/cgi-bin/mail.cgi?f=list&l=mortgage

http://www.interest.co.nz/mortgages.html

Don’t know what bank or mortgage broker you are using. If you don’t get satisfaction within 24 hours on Monday, I suggest while you have time up you sleeve to simply ring around and ask what other banks can offer. You may very well find that the first bank will be more than happy to match interest rates of its competitors and risk losing you as a client.

That .5% saving in interest may well save you $350pa

SUGGESTION 2:
Since you have placed a 10% deposit on the property, avoid if possible from allowing the bank to tie up your home (if any) together with the IP as one package, because this will force you into the “one bank trap” and stop you going to other banks when you want to refinance to recycle equity for other PIs later.

SUGGESTION 3:
Depending on your circumstances you may find that the Lender will require Mortgage Repayment Insurance because of the 80%+ borrowings. Increasing the deposit to 20% and reducing borrowings to 80% over the IP you will find the Mortgage Insurance is not needed.

SUGGESTION 4:
If you still have fears of whether on not you paid too much, no worries because at the end of the day you have a cash flow positive investment. Alternatively check out the QVNZ website:

https://www.qv.co.nz/

I'm sure you will find that there is alot of investors out there who will buy the place off you for a 10% return ie $96200.00

SUGGESTION 5:
Since the property is vacant, and you have gone unconditional, plus you are a little concerned about vacancies, try and see if you can get earlier entry to start doing and cosmetic renovations if necessary. This is probably good for the absentee vendor who must surely be worried about the property getting vandalized (a lot of House Owners Insurances may not pay out if the place is unoccupied for more than 2 months).

SUGGESTION 6:
Start advertising the property for renting now, and work in a deal with the Real Estate Agent for viewing with tenants. You may very well have it rented from Day1!

SUGGESTION 7
Start looking for your next deal now; don’t wait for the 15th July. If you are worried about being to soon just go for a long settlement. I have done many settlements as long as 3 to 6 months. You may be surprised what is out there and it’s good to do it now because you will find yourself less emotional whilst you have a deal on the go.

SUGGESTION 8:
Personally (not having seen the place) I would do some cosmetic renovation to add value to the place so that you can get a new valuation after settlement to demonstarte to the bank that place is improved in value and you want a top up on the mortgage for recycling to buy more IPs. Odds are you maybe able to get the place revalued to maybe $96200.00?

REMINDER:
Don’t forget to get a final viewing of the property on the morning of settlement to be sure that the place is still in original condition. Don’t want to find out the place may have been stripped, vandalized, or unrentable. (Check that you have insurance if you should get early entry)

After settlement don't forget to have a Chattels Valuation organised for depreciation purposes - VERY IMPORTANT

Cheers Ron
Email: [email protected]

RON’S DVD TIP: REMEMBER THE REAL DEALS OR NOT FOUND AT THE ADVERTISED PRICE; THE REAL DEALS ARE FOUND AT THE NEGOTIATED PRICE.