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Where is this leading me?

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  • Where is this leading me?

    I have a meeting to look at some 2 bedroom flats in Dannevirke. They are close to town. Rent appraisal is $135-145 per week although one flat is (under?) rented at $100 due to L/T tenant. Personally, I am thinking $135 per week.

    RV is $60k. Rates are $2,144 for both local and regional.

    I have my 20% deposit and things are looking positive on the finance front.

    The big question I am asking myself having never done this before is - where is this heading? I simply have no idea if I am making an investment for my future or making a mistake... lol.

  • #2
    Just my 2 cents of opinion. The ratio between income and holding costs is too low. The rent you collected looks a little light compare to the rates, insurance, and property maintenance. I wouldn't invest in a property that has that low rent, as one maintenance job may eat into several week's rent.


    • #3
      Hi Michael

      In the regions your biggest risks are vacancies and maintenance cost blow outs.

      Vacancies are related to the property, if the pop goes down will people still want to live in your unit?
      Also the mid-to-long term economic future of the region. So look at population and demographic projections.

      Maintenance costs are a risk because a new roof for your unit might cost $10K, the same as in Wellington. However my rent might be $350 pw so I pay for mine with 28 weeks rent. You will take 74 weeks.

      Looking at your cashflow. I'll assume a $60K pp. First, check with your bank because under $100K last I heard was actually 50% deposit, for an investor it is now 40% deposit. So you should confirm that straight away.

      Anyway, going with 20% deposit, $2144 rates, $750 ins, 8.5% PM, 2 weeks vacancy and putting $1,250 towards a long term maintenance fund (money you get in the short term) it is cashflow negative on P&I for a 25 year loan but only by the maintenance amount.

      So not stellar. Your fixed costs (rates, ins, maint) take most of the rent. If buying in that area right now my strategy would be to buy a property I could add significant value to, sell at a profit and repeat enough times to buy something outright or for very low debt. Then if you run into strife with it at least you got the house for free :-)
      Free online Property Investment Course from iFindProperty, a residential investment property agency.


      • #4
        10% population drop between last 2 censuses, you have to be sure you can keep it rented Michael!


        • #5
          Thanks Nick and Bob.

          Your contrary advice is most helpful.


          • #6
            Contrary as in opposite/against? Because they agree with each other, so I think you may have misunderstood. Nick thinks it's acceptable but not great. Bob thinks there's a big vacancy risk.

            Or did you mean contrary as in unhelpful/recalcitrant/difficult? Because it could be argued that when one sees everyone else as contrary, they're the contrary one. Speaking of, it wasn't all that long ago I remember you thinking all landlords were hellspawn, was it?

            I didn't realise banks even offered mortgages under $100k. Not worth their time. I'd be surprised if they waived your application fee, like they will usually do for the bigger players.
            AAT Accounting Services - Property Specialist - [email protected]
            Fixed price fees and quick knowledgeable service for property investors & traders!


            • #7
              Originally posted by Anthonyacat View Post
              Contrary as in opposite/against?
              In this case they are not being agreeable to my post.

              It's useful to hear another point of view.

              Originally posted by Anthonyacat View Post
              Speaking of, it wasn't all that long ago I remember you thinking all landlords were hellspawn, was it?
              That's the spin certain members may have placed on it. It's not my point of view.

              I know a few people who are or have been involved in IP and I think we see alike on many things. Not everyone thinks a heated property market and screwing first home buyers is laudable.

              In the time I have been on this forum (over 3 years - where did that time go?) myself, mother and sister have managed to wrangle our way into home ownership in a tidy and quiet town in the rural Manawatu... and the property values have gone up! There is nothing cheap here anymore! Actually - it's cheaper to buy in town then here.

              What the **** happened?
              Last edited by PTWhatAGreatForum; 24-11-2016, 05:12 PM.


              • #8
                It's often the problem with very low rental value areas that so much yield gets eaten in rates and costs. That's why vacancy is such a big deal.


                • #9
                  I simply have no idea if I am making an investment for my future or making a mistake... lol.
                  You say we are not agreeable to your post, actually we are answering your question.


                  • #10
                    Thanks Bob. Yourself and Nick have given me stuff to think about.

                    I am weighting up between spending the money as a deposit to buy a flat - which I may live in one day but use as a rental until then - or spend it on home improvements here.

                    Originally posted by Bobsyouruncle View Post
                    You say we are not agreeable to your post, actually we are answering your question.
                    Sorry, I believe you missed the point. Put another way - it helps to have received critical analysis of the original post. It's what I am after.
                    Last edited by PTWhatAGreatForum; 24-11-2016, 05:27 PM.


                    • #11
                      The RV is $60k, but what can you actually buy this for?

                      If you are speculating, then you really just need to make sure there is a good enough profit in it for you.

                      If you are investing long term, I would look more at the cashflow, something like below, and taking all your costs into consideration. I worked on 48 weeks as I would guess less long term tenant demand and more downtime between tenants.

                      I work on 100% debt, as there is an opportunity cost of putting money in.

                      My figures below are a loss of $3k, So I would be very hestiant to invest in this, unless you had some smart twist to increase rent.

                      Interest is interest only, so if you wanted to pay down over time you would have to put in more money. If interest rates rise, then more of a loss, but not major as the purchase price is so low.

                      If you did put in 20%, still $2500 negative on my figures using 4.5% interest rate!

                      Rent - Weeks 48 6480
                      Per week 135
                      As a % of total house 10.80%
                      Less Expenses:
                      Accounting 1200
                      Bank fees 50
                      Body Corporate 0 If interest goes up
                      Insurance 800
                      Interest Rate 4.50% 2,700 7.50% $4,500.00
                      Property Management at 8.5% plus GST 633
                      Rates 2144
                      Repairs and Maintenance 1500
                      Seminars 100
                      Subscriptions 300
                      Travel 86
                      Total Expenses 9513.42 $11,313.42
                      NET CASH SURPLUS (DEFICIT) -3033.42 -$4,833.42
                      Book a free chat here
                      Ross Barnett - Property Accountant


                      • #12
                        Interesting how almost 11% gross yield is still negative cashflow!!
                        Book a free chat here
                        Ross Barnett - Property Accountant


                        • #13
                          Thank you very much Rosco.

                          Your spreadsheet is very good and while I will deduct the following, it's not out of any disagreement.

                          Accounting - I do this myself

                          Bank fees -
                          Personal $70 per year
                          Business* $160 per year ($60 account fees and $100 credit card annual fee)
                          Merchant services* - varies and of no relevance to this.

                          *Already being treated as an expense for tax purposes. Also noting the somewhat-irrelevant point that after the 1.3% cash back on the credit card I am in positive territory.

                          Seminars, subscriptions - no plans here.

                          At present I am ($1,600) on your numbers.

                          I'm guessing they probably expect offers around $57 - $60k (they have not advertised a price). At what price point would this be a no-brainer?
                          Last edited by PTWhatAGreatForum; 24-11-2016, 08:37 PM.


                          • #14
                            your a legend Rosco and its why I enjoy reading this forum because of the advice generous people like you are prepared to share. As Michael would be aware to get any advice at all from some property mentor or coach he would have to front with at least 20k first.


                            • #15
                              I Agree with big Fella. Rosco has laid out why this won't work on paper. That's the nuts and bolts of buying for cahsflow. I say Cashflow because I don't believe Danny Vegas is a growth town. As also previously mentioned you may suffer when it comes to cashflow (rent) if there's any sort of economic disaster. Nicks running an online seminar for beginners, check out other threads to find out how to join. My wife's doing it and enjoying the learning.