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What is a good buy today? What would you buy today?

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  • #16
    Originally posted by Rosco View Post
    Great discussion for a Sunday night, what is a good deal today?


    If you were going to buy a rental in the next month, what would you consider?

    I just replied on a different thread (buy or bye) about this sort of thing, and then I saw this thread. For me, I'd be focusing on point 1 (buying below market value). Primarily this would offer some form of future proofing that price and rent corrections wouldn't drastically hinder my equity/ability to pay the mortgage, and would also add a buffer to absorb possible interest rate hikes.

    In your example for #2 (i.e. $5k positive cashflow after costs and interest payments being possible with 6.07% yield, if I work backwards are you saying all expenses = 35% of rents?). For the last tax year I've averaged about 42% on expenses and I'd need 9.88% gross yield to be $5k positive on an interest only loan (@3.3% interest rate). Although my houses are mostly on the lower value side and I had 13.2% of income go towards R+M. I'd be interested to hear how low this component is for those who buy newer builds.

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    • #17
      Originally posted by chook View Post
      Sections are going to de-value and sit around for several years don't go near them
      Why are they going to de-value and sit around for several years?

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      • #18
        Originally posted by deechnz View Post
        I just replied on a different thread (buy or bye) about this sort of thing, and then I saw this thread. For me, I'd be focusing on point 1 (buying below market value). Primarily this would offer some form of future proofing that price and rent corrections wouldn't drastically hinder my equity/ability to pay the mortgage, and would also add a buffer to absorb possible interest rate hikes.

        In your example for #2 (i.e. $5k positive cashflow after costs and interest payments being possible with 6.07% yield, if I work backwards are you saying all expenses = 35% of rents?). For the last tax year I've averaged about 42% on expenses and I'd need 9.88% gross yield to be $5k positive on an interest only loan (@3.3% interest rate). Although my houses are mostly on the lower value side and I had 13.2% of income go towards R+M. I'd be interested to hear how low this component is for those who buy newer builds.

        13.2% of income on R&M - is this just the last year?

        What is the average of the last 2 or 3 years?

        R&M % of income will likely be higher in lower rent properties as the cost of the repair is relatively consistent across property levels while amount of rent varies but at 13%+ it seems very high.

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        • #19
          Originally posted by Don't believe the Hype View Post
          13.2% of income on R&M - is this just the last year?

          What is the average of the last 2 or 3 years?

          R&M % of income will likely be higher in lower rent properties as the cost of the repair is relatively consistent across property levels while amount of rent varies but at 13%+ it seems very high.
          Yes 13.2% is just for last year. The year before was an anomaly as I had some big cost issues. But the 2years prior to that I was at 15% each year. So I'd thought that I did well with 13.2% this year.

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          • #20
            Originally posted by deechnz View Post
            I just replied on a different thread (buy or bye) about this sort of thing, and then I saw this thread. For me, I'd be focusing on point 1 (buying below market value). Primarily this would offer some form of future proofing that price and rent corrections wouldn't drastically hinder my equity/ability to pay the mortgage, and would also add a buffer to absorb possible interest rate hikes.

            .
            How do you know it is below market value? If it is advertised at $600k and you buy at $400k, isn't the market value the $400k you purchased for, therefore you purchased at market value?

            The above comment might be a little harsh, but in reality it can be quite hard to actually determine what is market value, to then buy under.

            Your properties are lower value, so your repairs will be a higher portion of rent.

            Ross
            Book a free chat here
            Ross Barnett - Property Accountant

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            • #21
              1) % discounts off MV are not a primary driver for me, it always comes secondary to cashflow. The 'what is market value' argument has been done to death. I've bought property one day for X, and had a registered valuer value it within the same week 30% higher. Whether someone believes the valuers figure is market value or not is irrelevant to me. The bank uses the figure on paper and that's what matters to me.

              2) I'd consider anything 1% +. It's all going to depend on the specifics of the deal. Which leads into...

              3) As has already been pointed out, bare land prices tend to go down in the sort of market we're approaching. This also leads to a softening in prices of properties with development potential. I have a couple of these I bought in the early 2010's that I'm in the process of subdividing now, in anticipation of a market where one can be a bit more selective as to what builder they choose.... Not only that, but the land component of the original purchase price now seems insignificant. With rent rises over that period cashflow once developed further strengthens my position. These are the sort of properties I'd seriously consider accepting a cash neutral or better scenario.

              So in a long winded way, as long as the fundamentals are there I'm looking for 2's, and if my serviceability can handle it I'll have a preference for 3's.

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              • #22
                Originally posted by Rosco View Post
                How do you know it is below market value? If it is advertised at $600k and you buy at $400k, isn't the market value the $400k you purchased for, therefore you purchased at market value?

                The above comment might be a little harsh, but in reality it can be quite hard to actually determine what is market value, to then buy under.

                Your properties are lower value, so your repairs will be a higher portion of rent.

                Ross
                Yes last GFC we had sections that had market values of $400k in Qtn that within several months went to 175-200k forced sale prices

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                • #23
                  Rosco, land prices decreased in GFC because there were no cheap credit and some banks came calling.

                  This time there IS cheap credit and banks are too happy to oblige
                  Plus you have the govt subsidy, interest free loans, mortage holidays you name it.

                  Auckland is red hot with properties with sub dividable potential.
                  You are paying $1200-$1400 per m2 with a derelict house that need bowling over anyway.
                  I know someone who is looking at buying a $1.4M to just land bank, his mortgage is 600k.


                  He might build to rent or sell if that makes sense.
                  this could be a quicker way to get a decent yield or reach the end goal , those that do not want tenant hassles etc...

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                  • #24
                    Interesting what has happened from April to now!
                    Book a free chat here
                    Ross Barnett - Property Accountant

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                    • #25
                      Dead cat bounce, watch the space after April 2021

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                      • #26
                        Originally posted by BlueSky View Post
                        Dead cat bounce, watch the space after April 2021
                        Will be very interesting new year or two. I have given up trying to predict.

                        It is so hard to pick

                        Fomo (fear of missing out) and low interest rates

                        vs high unemployment, low immigration
                        Book a free chat here
                        Ross Barnett - Property Accountant

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                        • #27
                          ^^ Yeah and then there's what's happening globally. So much at play there's no easy fix.

                          Good to have you back Ross - I have increased the size of your signature and feel free to share your informational blog videos etc - we allow this activity as it's a win-win for you and PropertyTalk.

                          cheers,

                          Donna
                          SEARCH PropertyTalk, About PropertyTalk

                          BusinessBlogs - the best business articles are found here

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                          • #28
                            I see nothing no but continual growth, the banks just cannot raise interest rates, unless they want a major crash on their hands. Imaginge the upside/down mortgages out there if this was to happen.
                            "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".

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                            • #29
                              The banks don't control interest rates - if their cost of borrowing goes up they have no choice but to raise rates. Central banks know that and do control interest rates to a greater extent so are printing money to ensure there is lots of cash around to keep low cost funding available.

                              The real challenge will be when (if) inflation kicks in and the RB's around the world decide they need to reduce money in the market and or raise rates to manage the rising inflation.

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                              • #30
                                but to answer the OP question... anywhere in Eastern Porirua with the new notified district plan allowing far greater site coverate and increased height restriction

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