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Property investment in Manawatu region with low capital but relatively high income

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  • Property investment in Manawatu region with low capital but relatively high income

    Hi everyone,

    New to property investment here and want to get started.

    My strategy will be to look at purchasing properties where rent will cover costs of mortgage, insurance, rates and maintenance. To achieve this, I want to purchase 3 or 4 bedroom houses in Palmerston North and Feilding for $250k or less. I intend to not rely on capital gains and will avoid refinancing properties against capital gains (unless I absolutely need to do so to get started).

    I currently own one property, in which I live with my family, and only have about 20% equity and no major cash assets for a second deposit. However, I do have relatively okay income which is likely to increase significantly once my partner returns to the workforce when our youngest is a little older.

    Is it feasible to get onto the property ladder with the strategy outlined above, or must I get a second deposit together?

    I had considered refinancing my existing property down to 10% equity and using the remainder to try to get a 20% deposit on a cheaper, second property, but it is unlikely I can hit the value I need to by using this strategy.

    Look forward to hearing everyone's thoughts and advice!

    Cheers.

  • #2
    Hi I think you'll struggle, existing investment properties are 40% deposit now under last year's RBNZ rules and you need to keep 20% in your own home.

    So you need to increase cash/equity. I'd start looking at what you can do with your own home to increase it's value. If you are in the area where you will buy and are experienced you could JV with investors on renovation projects, however that can be a minefield if you have not done this before.

    You may be able to wrangle something with a non-bank lender but you'll be on very high rates and it will need to be a short term in and out type of deal. Very risky on one income with a young child.

    Probably not what you wanted to hear I'm afraid, but I'd suggest looking at ways to increase your income and savings and the value of your place.
    Free online Property Investment Course from iFindProperty, a residential investment property agency.

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    • #3
      As above.

      Or find a friend or relative who trusts you, with a lot of equity, and look for a loan against their property. But depending how picky the bank is being, they may not accept that as a deposit anyway - one of the banks should, though, if you shop around.
      AAT Accounting Services - Property Specialist - [email protected]
      Fixed price fees and quick knowledgeable service for property investors & traders!

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      • #4
        Hey folks,

        That's more or less what I figured, but it's good to hear from people more experienced than myself!

        I do appreciate hearing that I'd struggle - saves me the heartache of trying to achieve something that will ultimately set me back further in the long run.

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        • #5
          If you go outside of main centres where properties sell quickly you may be able to get seller financing on a property from a cashed up owner. Hunting them down can take some work but they are a good way to buy with little of your own money.

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          • #6
            Originally posted by Bobsyouruncle View Post
            If you go outside of main centres where properties sell quickly you may be able to get seller financing on a property from a cashed up owner. Hunting them down can take some work but they are a good way to buy with little of your own money.
            I'm not hugely familiar with seller financing. What incentive does the seller have to do this? Will I generally pay higher than market value, or have a higher interest rate?

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            • #7
              Good point. I would personally be stocking cash in a revolving credit account against your house (different from paying extra off your loan) and wait for the market to cool and a few vendors to need to sell.

              It will feel boring but there is value in simply not stuffing it up and reducing your net debt 2-3x as fast as the bank "asks" you to.

              Originally posted by Bobsyouruncle View Post
              If you go outside of main centres where properties sell quickly you may be able to get seller financing on a property from a cashed up owner. Hunting them down can take some work but they are a good way to buy with little of your own money.
              Last edited by Nick G; 15-06-2017, 02:35 PM.
              Free online Property Investment Course from iFindProperty, a residential investment property agency.

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