Newbie(ish) after knowledge

[RussellW]

Hi guys
I'm new on here, and have been reading some brilliant information provided throughout this forum and decided to join. I'm not overly educated on property/investment and have basically been doing research and working it out on my way. In a nut shell, I'd saved some money and decided to put it into property (instead of cars) at 22. Managed to stumble on a new 4 bedroom property in a modern waikato sub-division through a mortgagee sale. Never realized how hard it was to get a mortgage on your own at that age without 20%. After 2 years I moved to Auckland for work, and have it rented out and managing it myself, while personally have been renting a property in Waitakere. I know this sounds ridiculous, but with the current Auckland market, our first born and as we are renting with another family member, it has been financially wise to stay renting. We have $180K equity sitting in the property we own, and I would really like to put it to use.
Am I correct in saying that we could release/ re-mortgage up to 80% of the equity in the property to put toward a deposit on another purchase? I would rather not have to sell the waikato property in order to make another purchase, and keep it as a rental property, as the area is starting to boom with more development.
First idea was to continue renting as we are, whilst purchasing another investment property (doer upper) outside of Auckland, in the hope of building up more equity before taking the dive into the Auckland market for our own house.
But, I think the best idea for us, would be to purchase another property, "average with potential", in Waitakere with the possibility of occupying for 5 years whilst renovations and market etc can potentially build equity which can be used to purchase a third property after that period, then use the second as a rental also. Basically the plan is, to build some wealth over the next 15-20 years to build a comfortable life for the family.
Sorry for the large nutshell. Basically asking some direction/knowledge from someone with more experience to advise whether these are viable, or even completely stupid ideas, in order for us to find which direction we should be taking.
Thanks for reading
Russ

[OneStepCloser]

Hi Russ,

Welcome to the forum! Can you provide more info on your income level, how much are you able to save each month, are you expecting to stay in auckland long term?

I know many people say it is financially better off renting and then invest your money, but for me owning my own house is a no brainer first step, especially after we have kids. To me, buying you own home when you are young, and whenever you can is a great move, even if it is not the best move possible (we bought our first one at 24 and I am late 30s and hope to get mortgage free on my own home this year).

[snobilo]

Have you considered the opportunity cost of buying in Auckland? how many properties could that get you elsewhere and look at Aucklands rental yield, it has fantastic capitol gain at the moment but is that enough for you? it is for most, just another train of thought.

[RussellW]

Yeah I can understand that, I would like nothing more than to have our own family home, its just a shame that the one we own isn't where we want it. Very good investment wise though. Im 26 now so definitely want to get things moving.
Income wise, generally put away at least 800+ into actual saving per month depending on how much over time etc This is after expenses eg rent, water, insurance, internet, phones, car expenses, baby expenses, other usable savings account and paying miles above minimum on the small bad debts I've inccured (mainly car repairs etc) which will be coming to an end next month. I really make use of BNZ total money accounts to manage income.
Definetly will be looking at Auckland long term, although I'm a country boy myself, it will suit our family lifestyle better, and most of our family live within an hours drive. I work a lot over the shore, city, and remuera etc and really couldn't see myself living in those areas, but am quite partial to Titirangi and Greenbay.

[RussellW]

Have you considered the opportunity cost of buying in Auckland? how many properties could that get you elsewhere and look at Aucklands rental yield, it has fantastic capitol gain at the moment but is that enough for you? it is for most, just another train of thought.

Yes, if I were to buy another immediate investment, I would not be purchasing in Auckland. I would only purchase in Auckland if we are to buy a place for ourselves to live in for a few years until we can move up. At the moment, my property is returning 8%, but the main bonus for me was, purchasing a near new 168m house with a 700m section, at the time where there was a slump in the area, and a mortgagee auction to purchase far below valuation. Since then, there has been a large boom further increasing property prices. I haven't found too many around here to return 8%, and am in the mind set for rentals that I have to look at areas I wouldn't personally live, or houses that I may not like.

[Frezzinghot]

Why not buy in Auckland now and build some equity that way, Aucklands growth will probably grow faster than the rest of the country and you get to live in it while paying it off. Rent is dead money in my eyes! Yes I did just say that!

FH

[snobilo]

What if the rent you pay is less than the money you get renting your place out. if we are talking solely return on money here, my house would rent out for $500 a week but I can rent a room elsewhere for $250 a week. That is $250 a week im sacrificing(I do not have children so this is from a couples perspective). Again this is just about returns not taking into account the quality of life concerns etc.

[RussellW]

Yes, thats why I am in 2 minds. Quality of life is also important, of course small term pain is fine, but bringing up a family I have to be realistic. It does kill me to pay rent, but as I say financially it has been far better in terms of paying off existing debt, being able to build a good lifestyle without all the hassle. Now that we have settled, and I've been up here for 2 years, we are pretty comfortable in looking to purchase. Just need to structure it so we can keep the rental, using it to purchase second property.

[Frezzinghot]

With the equity you have in Waikato the bank would lend you 144k which you could use as deposit to buy a property to the value of 720k but issue is that it is 100% lending and has to be paid back based on this. A better way would be to borrow as much as you could afford, buy under market, do up over time and re finance a few years down the track. Remember its not a race, you will get there in the end and all the while living independently from your landlord and paying down interest.

MHO.

FH

[RussellW]

Thanks for that information, appreciate it. I thought as much, I wouldn't really want to go 100% on a place for us, was more inclined to buy the do up type house, which of course even those are very scarce around here as everyone is cashing in on the capitol gains buzz. Definetly in no rush, but didn't want to really take a step backward by getting rid of the waikato property if I didn't have to, to fund a far inferior house in Auckland, so if possible keep the investment that is still appreciating.

[Kbkiwi]

I definitely wouldn't put any money into Auckland market at present. Much cheaper to rent than own in Auckland, and no guarantees that values will not flatline, or even fall.

[RussellW]

I definitely wouldn't put any money into Auckland market at present. Much cheaper to rent than own in Auckland, and no guarantees that values will not flatline, or even fall.

Thats the risk isn't it, the waiting game. I've been watching it over the past year, and have noticed toward the end of year that a lot of auctions are getting passed in, or the turn outs aren't very good, with a lot more owners putting prices to properties now. Its been convenient for us to rent, although I know its not making us wealthy, it has given us the opportunity to settle into our new jobs, living area etc and save, without the pressure of the hot Auckland market. After doing the math, I think it would be better in our case to sell the property we own, and do a new build up here. As a tradey myself with a lot of mates in the other trades we should be able to save a few bob. Plan on living in the property for 5 years, then start the rental idea again, as ideally we would still have equity sitting in the new property, as long as prices don't plummet. This again being a risk of waiting to see if prices will at least take a small dip within the next year or so, or sky rocket even further.

[Nick G]

If you can get the right land at the right price then a new build in Auckland is a good bet, particularly if you can keep construction costs down. Do you numbers now though because it's expensive to build these days. However you can lock in 5 years of low interest rates, which a lot of folks don't consider when they say such-and-such is expensive.

$700K at 7% and $980K at 5% run you the same in holding costs year on year.

[RussellW]

It is very expensive to build these days. With the budget, after all costs I'd allow at least a 50-80k cushion for allowances. Its just a matter of having the right knowledge, doing the proper research and don't rush in our case. As the plan would be to have it as an investment later down the track, it'd only be your standard 4 bedroom 2 bath house, modern but not over the top. As we can do the plumbing, electrical, internal gibbing, carpets, fixtures etc it should save a bucket load on labour construction costs and make a pretty economical investment (says the rookie). Also have to rely on selling our existing property at the right time, with the massive new sub divisions going in I'm hoping it is not going to over inflate the area with surplus houses causing it to drop again.

[Nick G]

There's nothing that says you can't sell now and then look around to buy your next one. Speak with your bank about what you plan to do.