Is this property worth considering as an Investment

[Buddy]

I would definitely appreciate your opinion of this property as an investment please.
I have a freehold home held in a family trust.Value $425000.I have a $206000 mortgage held over this property on a flat rented to a family member long term.
If I bought this proposed house it would be my first experience in dealing with tenants.
Th house is in a Horowhenua town ,small 3 bedroom house on a large section (few trees mostly lawn -reasonably easy care no gardens to care for.
The house is in good condition ,needs painting inside and probably new carpets.Luckily kitchen and bathroom are excellent.
Outside, needs painting, gutters replaced ,the large deck need tidying and the short gravel driveway requires urgent attention.
It has a decent size shed but no garage.The house is position close to one road side corner of the section so there is plenty of space but means a big lawn to mow.
Rental appraisal as it stands is $240 -260 per week.
My concern is firstly is this worth considering as an investment as there will be almost no capital gain but area has a constant rental demand.
Secondly as I have never done this before just how much to do to make the place rentable.
Some maintenance is a given but should I consider putting on a garage( $15000 or more for a new double one or I have found a very good second hand one in a yard that I can probably get on site for $8500 including council fees.Should I put a few thousand dollars it improving the deck which is a big feature of the house so it just looks a better palce to live.
I await your ideas and suggestions.Thanks

[Damap]

You will get lots of different answers to this one but my advice is don't touch small towns. Buy in Auckland or Hamilton.

[Rosco]

How much are you buying it for?

Without knowing the price, can't really comment on gross yield or overall cashflow.

But, I would be very concerned with the area and your comment "almost no capital gain". Even if cashflow is awesome, with a mortgage you are going to make hardly anything over 10 years, unless you have other cashflow to repay the mortgage.

Instead I would look at Auckland or Hamilton as Damap suggested, where it is possible to get cashflow neutral and hopefully some capital gain. Just talked to a client yesterday who is hopefully buying an Auckland property for $1.2 million approx, that's expected rent will be $20,000 more than expenses including 100% mortgage at 6% interest.

For Horowhenua, I would suggest you look at population numbers, as if the population isn't going up, I would be very careful.

Ross

[Leftette]

Rosco - would you mind telling the panel where in Auckland that might be - approx is fine. Also what type of property is it? Multi-units?

[elguapo]

Instead I would look at Auckland or Hamilton as Damap suggested, where it is possible to get cashflow neutral and hopefully some capital gain. Just talked to a client yesterday who is hopefully buying an Auckland property for $1.2 million approx, that's expected rent will be $20,000 more than expenses including 100% mortgage at 6% interest.

$1.2m places at 8%+ are dime a dozen around Auckland, the OP will walk into one with his eye's closed.

[Meehole]

I'd like to know where it is too as the properties I'm renting out that are valued over 1.5 mil don't get a good yield at all.

[Rosco]

It's a clients deal, so I don't want to put any detail. Does prove that positive cashflow can be done in Auckland with full mortgage.
Ross

[elguapo]

It's a clients deal, so I don't want to put any detail. Does prove that positive cashflow can be done in Auckland with full mortgage.
Ross

Nothing is proven at all, you need some actual proof for that

[PTWhatAGreatForum]

Just talked to a client yesterday who is hopefully buying an Auckland property for $1.2 million approx, that's expected rent will be $20,000 more than expenses including 100% mortgage at 6% interest.

Madness. Sounds like just the sort of property which will be attractive to some nouveau riche or mid level manager in a large company. Your client will be a week away from bankruptcy when the economy turns.

That's assuming that rose tinted vision (about the rental level) or unexpected 'maintenance / repair' issues don't tip their 100% mortgage over the edge sooner.

[Meehole]

I hope its not inner city warehouse apartment that had a tenant paying $1750 week cause he has gone. Building had water issues and it sounded like a major to repair???

[Rosco]

Lots of property investors do manage to make good buys, and come up with a smart strategy to maximise the properties rental return. The Auckland example wasn't room by room, or anything nasty. It was just maximising the return. Nothing rose tinted or dodgy. Just a smart buy and a smart idea. Hence why I don't want to give details.

In Hamilton property investors have purchased large sections in town, built new houses on the back, and received cashflow positive over $10k per year, with full 100% mortgage.

So my overall point I was trying to get across, was that you don't need to go to Horowhenua, Tokoroa, Gisborne or Wanganui to get good cashflow.

Ross

[PTILoveYou]

It's a clients deal, so I don't want to put any detail. Does prove that positive cashflow can be done in Auckland with full mortgage.
Ross

Let me guess, it's a house on a full site, make downstairs legal granny flat, and then put a minor dwelling at the back?

[elguapo]

Just a smart buy and a smart idea.

Is it a repeatable strategy?

[Rosco]

yes, it is repeatable. Might take a while to fine another smart buy.

Ross

[Rosco]

Let me guess, it's a house on a full site, make downstairs legal granny flat, and then put a minor dwelling at the back?

It is different to this. But your concept above would most likely create positive cashflow, even in Auckland. As long as legally done, this could be a good strategy too.

I'm sure others will have other ideas how to buy right, and create positive cashflow. It might be hard, but there are investors doing it.

Ross