Papatoetoe Self contained 9 bedrooms

[propergame]

Hi all What do experienced investors think of this one ? trademe listing 1089263277 ( I can't post links apparently)

Lease is renewed every 3 years according to valuation. opinions welcome. thanks

[Momo]

There are quite a few around like that in Mangere Bridge as well, Not my cup of tea, it is more like commercial investment than residential rental investment, I assume the rate and insurance will be higher. My concern will be what happen if the lease expired and you need to manage it yourself, it will be like running a boarding house which will need a lot of time and energy.

[Shane D]

As Mono mentioned, this developer has done a few like this. The one they just completed in Mangere Bridge, near the airport is a better example.

This one is basically a glorified boardiing house with shared common facilities so the management costs would be high and very involved.

I think this developer is blazing a trail in medium density but is still TOO early as medium density is still constrained by council regulations so has had to work around the system by making it a glorifed boarding house.

My advice would be not buy it but study what he has done. A time will come within the next few years where developers will be able to develop a real 8 - 10 tenancy boutique apartment all self contained with own kitchens and facilities.

It is inevitable. The council will be forced to change to allow boutique apartments on 800 - 1000sqm sections as it is the only way we will solve the long term Auckland housing shortage. We will never solve the shortage by building single family houses like we are trying to do now.

Shane

[Lovethiscountry]

Like you thinking Shane, on one of the ways forward to make Auckland affordable.

[Shane D]

Thanks lovethiscountry. Although, I can't claim any original thinking on the subject. I am just a avid history student on how cities develop and make the transition from low density.

I have based my whole investing strategy on this thinking. Buy 800 - 1000sqm properties within 1km of a train station, producing sufficient cashflow now (home & Incomes) that enables you hold for a few years until regulations change. Then when the time comes develop medium density (8-10 tenancies) boutique apartments.

Shane

[Lovethiscountry]

Shane. That's great Not only good for you but also good for getting roofs over people's heads. "Shane for council"
Talk to Len and it might happen sooner.

[propergame]

As Mono mentioned, this developer has done a few like this. The one they just completed in Mangere Bridge, near the airport is a better example.

This one is basically a glorified boardiing house with shared common facilities so the management costs would be high and very involved.

I think this developer is blazing a trail in medium density but is still TOO early as medium density is still constrained by council regulations so has had to work around the system by making it a glorifed boarding house.

My advice would be not buy it but study what he has done. A time will come within the next few years where developers will be able to develop a real 8 - 10 tenancy boutique apartment all self contained with own kitchens and facilities.

It is inevitable. The council will be forced to change to allow boutique apartments on 800 - 1000sqm sections as it is the only way we will solve the long term Auckland housing shortage. We will never solve the shortage by building single family houses like we are trying to do now.

Shane

Thanks for your answer Momo and Shane, I appreciate the time in doing this. I also thought about the time consuming if I ever need to manage it myself. At the moment they are fully occupied with 6 to 1 year leases in place, so potentially I could do the same if I need to manage it .

Isn't it good in terms of cashflow with a relative low risk investment ? the lease is 9 years with 2 further rights of renewal 6 years each. The main risk I see is if there is a downturn in prices, when the lease needs to be renewed (every 3 years ) we might face a reduction in rent ,and if there is an increase in interest rates we could be in trouble until rents catch up. Even if management fees and insurance are high , they charge $330 per week per unit , so if fully occupied they get $154K per year, they pay the owner $90K so they are left with $64K (have to pay insurance, rates, maintenance, internet, etc) before getting their profit.
Again, opinions welcome, Thanks !

[Shane D]

Thanks for your answer Momo and Shane, I appreciate the time in doing this. I also thought about the time consuming if I ever need to manage it myself. At the moment they are fully occupied with 6 to 1 year leases in place, so potentially I could do the same if I need to manage it .

Isn't it good in terms of cashflow with a relative low risk investment ? the lease is 9 years with 2 further rights of renewal 6 years each. The main risk I see is if there is a downturn in prices, when the lease needs to be renewed (every 3 years ) we might face a reduction in rent ,and if there is an increase in interest rates we could be in trouble until rents catch up. Even if management fees and insurance are high , they charge $330 per week per unit , so if fully occupied they get $154K per year, they pay the owner $90K so they are left with $64K (have to pay insurance, rates, maintenance, internet, etc) before getting their profit.
Again, opinions welcome, Thanks !

It seems like you like the investment. You have done the homework so not trying to talk you out of it. But I would be asking a few questions though

- Is there GST to pay...since it's a basically a boarding house? I guess it is classified as a business....(probably totally wrong on this point but I would be asking)

- Who takes care of the common areas (kitchen, laundry) and what are the costs to clean/maintain them? Are these costs included in the figures given? What happens when something breaks in the common areas shared by the 6 x apartment blocks?

- What are the details on the title? Again there are 6 of these apartment blocks on the section so the title could be very complicated and limiting.

- What are the details of the lease? At the end of the day it's a boarding house....and we all know how easy it is for tenants to get out of fixed-term tenancies.

I probably have a few more questions I'd ask....but that is probably enough to start with .

Shane

[Shane D]

just as an added note....

$330 is a fair rent in Papatoetoe for those units. I wouldn't worry about the rent going down.

A normal 1 bedroom unit in Papatoetoe is averaging around $350 a week.

Shane

[propergame]

Hi Shane

thanks a lot for your time and answers. When referring my concerns about the rent I was actually thinking that if the rent is tied to the building valuation and prices go down (potential downturn) then the rent might go down. Lease is reviewed every 3 years. I spoke to some of the tenants and they like it there, they feel its good value for money, even internet is included. Thanks again, Paula.

just as an added note....

$330 is a fair rent in Papatoetoe for those units. I wouldn't worry about the rent going down.

A normal 1 bedroom unit in Papatoetoe is averaging around $350 a week.

Shane