A little help and advise on first IP, please

[roughy]

Help!

I would like to buy my first investment property. We have $55k equity on our family house (the house is valued at $310k). The investment property I am looking at is buyer enquiry over $195k, RV of $215k with a rental income of $330-$340 a week. My partner and I have a combined income of $120k but don’t have much further deposit we could add, is there a way we could get this property and how to the figures stack up for you guys?

[marklowes]

Gross yield of 9% not too shaby, esp when banks are lending at 4.8%. Where abouts is this if you don't mind me asking?


Speak to a mortgage broker to find a bank that's happy to lend under 20%. Buy it fixed for 6month-1 year or even float, then reno on the cheap to revalue to get equity up to 20% then you'll get a better interest rate on longer term fixed, stagger over various terms when deals are good to hedge for future interest rate moves either way.

[Rosco]

Talk to a mortgage broker to see if they can help you.

Have you worked out the cashflow on this, with a 100% debt at say 5.5% interest?

At over a 8% gross yield it should be around break even.

But I would check the rent with an independent property manager and make sure it is realistic and sustainable. Sounds a bit too good and I'd be looking for the catch.

Ross

[roughy]

Thank you both for posting. It is for a house here in the Welly area. I have left a message with The Mortgage Supply Co so will talk with them next week as a broker seems to be the way to go.
I have done some figures Rosco and was pulling just above 8% gross yield. I came out thinking it might be positive however as this is my first it would be good to be on the conservative side. I am a qualified builder also so could maintain it myself if required. The main thing concerning me is the low equity as we are more subject to higher interest rates and low equity fees.

[Rosco]

'thinking'??? You need to work through the numbers to see if the rent is more than the expenses!

Is there body corporate fees, or high vacancy rates?

Ross

[Craig Pope Mortgages]

Hi roughy, with income being good it looks doable as long as the LVR isnt over 90% across two properties
cheers

[shanechoice]

I have a broker who works at mortgage supply co. pm me I will set you up a appointment he managed my previous vendor 100K more than what the bank were giving but its a case by case basis

[shanechoice]

you also have to figure out a few other things such as "roscoe" has mentioned

but you have to include but not limited to rates, insurance, property management fees, vacancy losses, interest, landlord insurance pretty straight forward calculation

purely as a investment figures of numbers

340x52 = $17680 (potential gross income)
less 340x4 = $1360 ( potential vacancy losses)
less = $800 insurance
less $ 750 property management fees
less $ 1300 rates
less $300 landlord insurance (Save on vacancy loss and tenant damage)

NOI - Expenses $17680 - $4510 =$13170/ 250,000 (purchase price) 5.2%
or ($200,000) 6.58% gross return ( after expenses taken into account

pretty much not much ROR (rate of return)
I did not take into body corporate also
other factors to consider such as location area, motorway, re sale potential
potential appreciation?

that being said the units in Auckland I had on the market at 250k 2 years ago are now with 400k so market is quite volatile

[Rosco]

Hi Roughly,

You are borrowing the whole amount, so obviously interest would be a key cost to you. Work through a list of costs like above, but make sure they are realistic for your property and add interest.
- property management is normally 7.5% + GST, so more like $1400
- insurance likely to be in body corporate
- find out the rates
- find out the body corporate costs
- allow for some repairs, depends on property but at least $1,000 per year as over time you will need to do repairs, painting, replace bathroom, kitchen etc. If an older property I would allow for more!
- interest I work out at 5.5% at the moment as you can fix for 5 years at that rate. And also at 7.5% to see the costs if interest rates did go up. If you have an high LVR you might have a higher interest rate too!
- allow for accounting, some education, travel, bank fees and other cost you might incur

Then rent (allowing for vacancy) less all expenses =?

Ideally this should be positive and a profit. If a loss, you need to think hard about what will happen in the Wellington area and is this a good investment? If positive, you still need a plan to protect against interest rate increases

Ross

[Happi]

Hi Roughly,

You are borrowing the whole amount, so obviously interest would be a key cost to you. Work through a list of costs like above, but make sure they are realistic for your property and add interest.
- property management is normally 7.5% + GST, so more like $1400
- insurance likely to be in body corporate
- find out the rates
- find out the body corporate costs
- allow for some repairs, depends on property but at least $1,000 per year as over time you will need to do repairs, painting, replace bathroom, kitchen etc. If an older property I would allow for more!
- interest I work out at 5.5% at the moment as you can fix for 5 years at that rate. And also at 7.5% to see the costs if interest rates did go up. If you have an high LVR you might have a higher interest rate too!
- allow for accounting, some education, travel, bank fees and other cost you might incur

Then rent (allowing for vacancy) less all expenses =?

Ideally this should be positive and a profit. If a loss, you need to think hard about what will happen in the Wellington area and is this a good investment? If positive, you still need a plan to protect against interest rate increases

Ross

Hi Ross
Do you mean more that a 7.5% interest rate increase?
Thanks

[Rosco]

I work out interest at 5.5%, to see the likely cashflow now
also as part of my review of a property I work out the interest at 7.5%, to see how bad the cashflow is with an 7.5% interest rate, and whether I could afford it.

Ross