Taking the leap into full time property investment

[Raddies]

Hi Guys,

First post from me! Must start by saying how good this forum is, it's so good to have a NZ specific property investment forum to read through with plenty of interesting topics.

My first thread is based around the ambition to take a year off work and focus solely on property investment in ChCh. I'm in my mid 20's, my wife and I own a property in Burnside ChCh which has about 200k equity, we are currently renovating two 2-bedroom flats on Bealey Ave in the ChCh CBD which once completed, will have approx 100K equity combined.

As my wife is working full time on a medium salary, I am considering taking a year off to focus on buying, renovating and renting a series of properties in ChCh to boost my portfolio before we take the leap into having kids etc. My aim would be to acquire approximately 5 cash flow positive properties, add capital value through renovations and hold as rentals in the year while living off my wife’s wage (we will need to restructure our own personnel loan to reduce payments etc).

Is there anyone active on this forum that has tried such a method before? Any advice/recommendations on the best way to go about it? I'm unsure if it would be best to set it up as a company etc so tax deductions on renovations could be applied etc?

Would appreciate any help/advice you can give me!
Cheers,
Nick

[milt1968]

Hey Nick,

Good luck on your quest. I am in Christchurch too and when I finish uni am hoping to go down a similar path.

Will follow with interest.

[elguapo]

You look awfully thin on equity to be losing an income....

[Raddies]

You look awfully thin on equity to be losing an income....

Thanks for the comment elguapo, I was thinking I'll probably need to work on a part-time basis, perhaps 3 days per week in a part-time job, and then do property Thurs/Friday and weekends if need be. The issue I have currently with the flats we are renovating is finding the time to do so in weekends etc which draws out the term of having the units un-tenanted, perhaps I need to see a broker to establish what I can borrow/service with different levels of income between my partner and I.

[Pim]

Thanks for the comment elguapo, I was thinking I'll probably need to work on a part-time basis, perhaps 3 days per week in a part-time job, and then do property Thurs/Friday and weekends if need be. The issue I have currently with the flats we are renovating is finding the time to do so in weekends etc which draws out the term of having the units un-tenanted, perhaps I need to see a broker to establish what I can borrow/service with different levels of income between my partner and I.

Also consider keeping your job, sourcing and buying property in the weekends and paying a team of tradies to do the renos. Unless you are an expert builder, painter, roofer, sparky, plasterer etc and can do all those jobs quickly you risk wasting time and money doing it yourself. The sooner you get good tenants in paying rent the better.

[Rosco]

perhaps I need to see a broker to establish what I can borrow/service with different levels of income between my partner and I.

Hi Raddies,

You have hit on the key problem that you need to address.

To buy more properties, you will need more loans. And to get a loan, a bank like to tick the boxes, and not having a job is going to seriously hurt your borrowing ability.

First step - go and see a good mortgage broker who specialises in rental properties.

Another option - could you take 2 weeks off for intensive renovations, but still keep your job? Even if you took time off unpaid?

Ross

[Damap]

I started with 150K equity but I got as many loans as I could in the first 6 months BEFORE leaving my job.
Just do it!!

[ScottSI]

As others have said you will need to talk to the broker / bank as the serviceability component of loans could become the issue. Making equity on renovations is all good but the bank needs to tick the box regarding income (which includes their safety buffers).

I would agree with Rosco and take leave in the early days if possible (even if unpaid) as some stable income helps buying power and allowed us to keep buying until I became fulltime after 3 1/2 years of investing.

The general discussion we have with other full time investors is around serviceability / cashflow so I would get that area sorted and of course will be based off your plan, if holding all or trading some etc. You have said you are after 5 so take five examples to a broker / bank and see if they can make the number work. You also need to check bank criteria for freeing up equity as many banks (but not all) you have to wait 3 to 6 months.

Our coffee group has one investor in the Hawkes Bay who is under 30 and a fulltime buy and hold investor, often we end up discussing the returns required to allow us to keep buying. 13.06 % gross average was the number but with the floating rates rising so has the yield required.

This investor organises trades but doesn't do work themselves. They are busy getting the deals and have got 20+ houses in the last 2 1/2 years.

All the best with your investing.

[kingkong82]

HI Nick

I started down the same road you are thinking of going down. My best advice looking back based on my experience, keep the job, pay someone qualified to do the work for you, eg> It took me three months to fully renovate my first investment....would have taken a tradie 2 weeks to do the work... so that's 3 months of no money coming in.. and i did this for three years... I smarten up and started hiring the right people to do the work I needed done.. Having a Job allows you to do this plus take your partner out for dinner or holiday...in other words makes life worth living....

Get an accountant > My accountant saves me thousands of dollars a year now, and she would have saved me allot of heart ache and trouble in the past.

Renovations> only do the stuff that is needed to increase a properties value... don't fall into the "looks good" trap... I wasted thousands of dollars doing this, I spent over 30k on one of my property's doing unnecessary stuff ..... only increased the value by 16k....

consider renovating and selling... that's all I do now....

so... at the moment I own 7 rental properties.... 2 free hold and the other 5 paying for themselves..... I make all my money now by buying the worst house in the best areas,,, and selling it at a premium price////...

hope this helps and wishing you all the best

[Raddies]

"Also consider keeping your job, sourcing and buying property in the weekends and paying a team of tradies to do the renos. Unless you are an expert builder, painter, roofer, sparky, plasterer etc and can do all those jobs quickly you risk wasting time and money doing it yourself. The sooner you get good tenants in paying rent the better."

Cheers Pim, I'm a project manager so my strenghts are in co-ordinating the works etc, another bonus I have avalible to me is a large pool of close mates which cover many of the trades - builders/sparkies/painters/plumber etc. I was invisaging doing the monkey work/prep work for these trades during the day along with the landscaping which I can fully handle myself, and also hunting out other properties/deals etc. Perhaps I'm not quite at the level yet though and need to get some more properties/equity under my belt first before leaving my job.

[Raddies]

Hi Raddies,

You have hit on the key problem that you need to address.

To buy more properties, you will need more loans. And to get a loan, a bank like to tick the boxes, and not having a job is going to seriously hurt your borrowing ability.

First step - go and see a good mortgage broker who specialises in rental properties.

Another option - could you take 2 weeks off for intensive renovations, but still keep your job? Even if you took time off unpaid?

Ross

Hi Ross,

Yea I was thinking a part-time role may have the flexibility I need here.

Any reccomendations for a good mortgage broker in Christchruch?

Cheers,
Nick

[Raddies]

I started with 150K equity but I got as many loans as I could in the first 6 months BEFORE leaving my job.
Just do it!!

Ballsey - I love it.... Would like to hear more about your journey some time...

[elguapo]

I'm a project manager

I was invisaging doing the monkey work/prep work for these trades

Question; why would you leave what should be a well paid profession to do minimum wage monkey work?

[Raddies]

As others have said you will need to talk to the broker / bank as the serviceability component of loans could become the issue. Making equity on renovations is all good but the bank needs to tick the box regarding income (which includes their safety buffers).

I would agree with Rosco and take leave in the early days if possible (even if unpaid) as some stable income helps buying power and allowed us to keep buying until I became fulltime after 3 1/2 years of investing.

The general discussion we have with other full time investors is around serviceability / cashflow so I would get that area sorted and of course will be based off your plan, if holding all or trading some etc. You have said you are after 5 so take five examples to a broker / bank and see if they can make the number work. You also need to check bank criteria for freeing up equity as many banks (but not all) you have to wait 3 to 6 months.

Our coffee group has one investor in the Hawkes Bay who is under 30 and a fulltime buy and hold investor, often we end up discussing the returns required to allow us to keep buying. 13.06 % gross average was the number but with the floating rates rising so has the yield required.

This investor organises trades but doesn't do work themselves. They are busy getting the deals and have got 20+ houses in the last 2 1/2 years.

All the best with your investing.

Hi Scott,

Would be keen to hear more about your 3 1/2 years stratagey before you could make the transition to full time, and essentially what allowed you to make this change to full time - capital gains/adding equity or number of cash flow positive properties etc?

You mention the 13.06 % gross average - Is this rental yield? My two flats at present will be reaching 8% rental yeild which is far below this figure... Or is this 13.06% overall capital gain +- rental yeild per annum?

Cheers,
Nick

[Raddies]

HI Nick

I started down the same road you are thinking of going down. My best advice looking back based on my experience, keep the job, pay someone qualified to do the work for you, eg> It took me three months to fully renovate my first investment....would have taken a tradie 2 weeks to do the work... so that's 3 months of no money coming in.. and i did this for three years... I smarten up and started hiring the right people to do the work I needed done.. Having a Job allows you to do this plus take your partner out for dinner or holiday...in other words makes life worth living....

Get an accountant > My accountant saves me thousands of dollars a year now, and she would have saved me allot of heart ache and trouble in the past.

Renovations> only do the stuff that is needed to increase a properties value... don't fall into the "looks good" trap... I wasted thousands of dollars doing this, I spent over 30k on one of my property's doing unnecessary stuff ..... only increased the value by 16k....

consider renovating and selling... that's all I do now....

so... at the moment I own 7 rental properties.... 2 free hold and the other 5 paying for themselves..... I make all my money now by buying the worst house in the best areas,,, and selling it at a premium price////...

hope this helps and wishing you all the best

Hi Kingkong,

Great post thanks for this, you're not ChCh based also are you??

Did you structure your property dealings as a business so tax deductions etc could be made on the renovation costs?

You mentioned renovating and selling - I think this is the direction I will need to take with a combination of buy and rent properties also. I read alot from people in the game stating never sell, allways hold if possible etc, I agree with this in the view of freehold properties = long term wealth, but I'm thinking a combination of both would give best results for keeping the rental returns up on those that I choose to keep (by putting cash down from sales of others insteed of equity) - Agree?

Thanks for your help!