Hi Guys
More from Mary Holm in today's NZ Herald.
Mary Holm: High risks for house hunter
28.01.06
Regards
More from Mary Holm in today's NZ Herald.
Mary Holm: High risks for house hunter
28.01.06
Q. I am 27 and have been on the big OE for the last 3 1/2 years working first in England and now in the UAE.
During this time, I have saved and sent money back from time to time and have managed to buy four houses (total value $530,000) and a small section of land (value $22,000).
The houses are being rented out and seem to be going well. They have mortgages on them and are on 56 per cent loan to value, based on the purchase prices, with 15 years left till they are paid off.
I have also saved about $25,000, a portion of which I want to keep in case of unforeseen costs that may come up - no tenants or repairs.
I am coming back home in the middle of this year. On my return, I would like to make the most of the luck I seem to have had so far.
My question is: Do you think I should buy more houses before I return and take my loan-to-value ratio up to about 70-80 per cent and switch to interest-only mortgages, or should I just chill out for a while and wait for a few years till I have paid a bit more off the mortgages before I buy again?
I am not afraid of risks as long as there is a good return and they are not just gambles, if that makes sense.
As I am not in the country, it is sometimes hard to decide which way to go, so your advice would be much appreciated.
A. You've done really well in many ways. I particularly like the fact that you have four rental houses rather than just one. That gives you much more diversification than most landlords.
It does, though, mean that each house is cheap. And that suggests that there might be big maintenance expenses not too far away.
There's also a bit of a glut of rental properties in some areas, which is keeping rents down and boosting the chance that you could be tenantless for a while.
I think, therefore, that $25,000 is the minimum you should keep aside for unforeseen expenses - especially given that you are overseas. It's harder to solve problems from afar, so sometimes you just have to throw money at them.
In any case, this doesn't feel like a great time to buy property, with prices possibly falling soon.
You acknowledge that you've been lucky, but I wonder if you realise just how lucky. You've been buying into New Zealand's biggest housing boom since the early 1980s.
It's common for newcomers who happen to start investing as house or share prices are soaring to become over-confident about their abilities.
They borrow more and more to invest, and when the market slumps they sometimes lose all they have gained.
Obviously, you earn good money and you're disciplined enough to invest much of it.
If you don't buy another property now, you have plenty of time to do so later and I can't imagine your ending up anything but wealthy.
If, on the other hand, you do buy now, you might end up even wealthier but you might ruin it all, if house prices slump and you are over-extended.
Risk can be great, especially when you're young. But why overdo it? You need only so much wealth. Chill out, at least until you get back here.
During this time, I have saved and sent money back from time to time and have managed to buy four houses (total value $530,000) and a small section of land (value $22,000).
The houses are being rented out and seem to be going well. They have mortgages on them and are on 56 per cent loan to value, based on the purchase prices, with 15 years left till they are paid off.
I have also saved about $25,000, a portion of which I want to keep in case of unforeseen costs that may come up - no tenants or repairs.
I am coming back home in the middle of this year. On my return, I would like to make the most of the luck I seem to have had so far.
My question is: Do you think I should buy more houses before I return and take my loan-to-value ratio up to about 70-80 per cent and switch to interest-only mortgages, or should I just chill out for a while and wait for a few years till I have paid a bit more off the mortgages before I buy again?
I am not afraid of risks as long as there is a good return and they are not just gambles, if that makes sense.
As I am not in the country, it is sometimes hard to decide which way to go, so your advice would be much appreciated.
A. You've done really well in many ways. I particularly like the fact that you have four rental houses rather than just one. That gives you much more diversification than most landlords.
It does, though, mean that each house is cheap. And that suggests that there might be big maintenance expenses not too far away.
There's also a bit of a glut of rental properties in some areas, which is keeping rents down and boosting the chance that you could be tenantless for a while.
I think, therefore, that $25,000 is the minimum you should keep aside for unforeseen expenses - especially given that you are overseas. It's harder to solve problems from afar, so sometimes you just have to throw money at them.
In any case, this doesn't feel like a great time to buy property, with prices possibly falling soon.
You acknowledge that you've been lucky, but I wonder if you realise just how lucky. You've been buying into New Zealand's biggest housing boom since the early 1980s.
It's common for newcomers who happen to start investing as house or share prices are soaring to become over-confident about their abilities.
They borrow more and more to invest, and when the market slumps they sometimes lose all they have gained.
Obviously, you earn good money and you're disciplined enough to invest much of it.
If you don't buy another property now, you have plenty of time to do so later and I can't imagine your ending up anything but wealthy.
If, on the other hand, you do buy now, you might end up even wealthier but you might ruin it all, if house prices slump and you are over-extended.
Risk can be great, especially when you're young. But why overdo it? You need only so much wealth. Chill out, at least until you get back here.
Regards
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