House Moving as the creation of a Do Up

[Monid]

Hi All
my wife and I are looking at the idea of buying land and then moving a house on to it. it seems to me that this is one of the few ways to get cashflow positive property in Auckland these days.
We have some experience in doing it ourselves, I worked as a bathroom designer for a couple of years and our first home was a do up, we also bought a do up in Rotorua last year which consumed much of our time but in the end was worth it, a four bedroom brick home which we bought for $40000 at a mortgagee sale and spent $10000 doing it up. It is now happily rented for $170 per week and just got valued at $89000. DOes any one have any advice on house moving, what costs are involved, risked bad/good experiences etc?

Oh and as a btw one warning for those investing in small towns yeilds might look good on paper but be careful you usually pay similar rates to Auckland ie $1000+ per year which can seriously dent you actual cash in hand

David Hunter Philosopher at Large...

[orion]

Hi Monid, here is a short excerpt from my book about thoughts on relocations. I still shudder when I hear the word!

7) House Removal and Relocation
For more about my thoughts on House Removal and Relocation, see ‘which strategies would you no longer use?’

Which strategy or strategies would you no longer use?
I would never do another re-location; this was definitely a learning experience. After talking to a guy that had done 20 or more removals (and reading his book), I thought I had everything covered. I originally planned on making about $25,000 - $30,000 and ended up just breaking even. If you take my time involved in dealing with councils, and all the different tradespeople involved, I would have actually lost. I have no regrets in taking the project on, but I would never attempt another one. Another guy I know has done well out of doing these types of deals, but they are definitely not something I would do again, ever!

Regards
Graeme Fowler

[Marcus]

Hi David,

I am assessing doing one this year. I acquired a property at the end of last year that has “subdivision potential”.

The existing 5brm/2bthrm house is forward on the property with water views. The rear “potential section” is flat and raised from the front. It is possible to place a house on a concrete basement achieving water views from both properties. Depending on the finished product, rents should range between $300 & $380pw.

As I can get quotes for most costs from a contact that has done this many times, it appears the crucial cost is going to be the house to move.

I would like to keep both as rentals as I like the areas potential.

I plan to check and double check the figures. Hopefully it goes well.
(You have made me nervous now Graeme….. thanks!)

Kind Regards,
Marcus.

[orion]

Hi Marcus, please don't let me put you off doing it. It is just something I personally would never do again, even if there was a reasonable profit in it after completion. I actually know 3 people that have done several relocations - the guy that wrote the book, a woman in Wellington and another guy in Lower Hutt. They seemed to like the challenge and seeing the difference they made and enjoyed the whole drawn out process. I hated it from start to finish. There were just so many different people I had to deal with, mistakes they made, not keeping to time agreements, costs, more mistakes etc etc. I suppose the next one would have been easier if I did do another one, but I am sure there won't be another one for me. There was also all the trips back and forth to the councils and dealing with their personalities and mindsets - it was very frustrating at times, but I'm sure some people wouldn't mind it. I would rather buy a property under market value and either rent it out, or sell it on again for a quick profit, than spending hundreds of hours organising other people to relocate a house, in oder to get it ready to either rent or sell. I value my time too much to go through this all again.

Just my thoughts Marcus. You may enjoy it, so don't let me put you off with my experience.

Regards
Graeme Fowler

[Marcus]

I know first hand how difficult most of this can be. I had a house built from scratch about 8 yrs ago. I used a contractor to do all the organising (and absorb all the stress), yet it was still a battle.... with him! Promises not kept sub-standard work performed, deadlines broken, so on, and so on.

I would like to think that I would handle things ALOT differently these days.

Cheers for your input though Graeme. If I get stuck at any stage I'll drop you a line.

Regards,
Marcus.

[orion]

Cheers for your input though Graeme. If I get stuck at any stage I'll drop you a line.

That's fine Marcus, so as long as you don't want me to go to the council, I'll be fine.

Regards
Graeme Fowler

[lissie]

How does a house move compare to a cheap kitset type home (versatile or similar ) ? I too have a large section in CG (coastal) area with batch which will probably be rentable for another 7 - 10 years but after that is not worth a renovation (it is batch not a house ) . The logical thing wold be to put 2 compact 3 bed 2 bath + garage houses on the 807m section. NOt necessarily want to subdivide and sell (dont want to be classed as a trader) - but would want to hold and rent and then eventaully sell (after the boom! ) . I've wondered about the costs of kitset - ? $100k per house v. move a house

[orion]

I too have a large section in CG (coastal) area

How do you know this Lissie (capital growth area)?

but would want to hold and rent and then eventaully sell (after the boom! )

How do you know the boom you mention will not end before you finish your project?

Not sure about Versatile house compared to relocation with prices, I don't imagine they would be much different if you can buya reasonable move on house cheap and can move it without cutting into pieces. The one I did was the maximm size without cutting it up, from memoory I think it was 16m x 9m. It was a tidy 1960's stucco that I paid $14,000 for.

Regards
Graeme Fowler

[lissie]

How do you know the boom you mention will not end before you finish your project?

Welll I polished my crystal ball very very carefully .... Prices had already moved significantly before we bought, its a coastal town, within 20 minutes of a regional centre which also has a strong education industry. In fact the area is no great secret - its Foxton Beach. Mainly however we are perpared to hold for at least 10 years and the important bit - rent covers all outgoings (IO loan) after tax - so there is no great risk . Given the prices currently being paid in Taupo and the BAy of Plenty - eventually someone will fiture <$100k is cheap for a beach house ! I'm not planning on doing this project in the near future - its just always seen like an option sometime in the future ..

[orion]

Mainly however we are perpared to hold for at least 10 years and the important bit - rent covers all outgoings (IO loan) after tax - so there is no great risk.

The risk is - if you are wrong, that is the risk. It's all very well saying that prices will be more expensive in 10 years time, but how do you know that for sure??? By having an I/O loan, you are taking the gamble that prices will keep going up. If they don't, you are no better off. By doing everything P&I (or LOC if you have good money habits), at least the tenants are paying it off for you over time. Then it doesn't matter what prices do, even if they drop it's okay.
Many investors will find that after a few years of owning properties, the price is still virtually the same as when they bought, or they have gone down in value because they have been rented and not looked after as well as an owner occupier would, and so they sell. This is more prevalent in I/O loans because it seems (and rightly so) you are getting no-where or even going backwards. The only market you then enjoy is a rising one.

Regards
Graeme Fowler

[lissie]

Mainly however we are perpared to hold for at least 10 years and the important bit - rent covers all outgoings (IO loan) after tax - so there is no great risk.

The risk is - if you are wrong, that is the risk. It's all very well saying that prices will be more expensive in 10 years time, but how do you know that for sure??? By having an I/O loan, you are taking the gamble that prices will keep going up.

We have financed with a combination of IO and LOC - we use the IO to fix interest rates and LOC to make principal payments. If we put all our payments against this property it would be freehold in less than 3 years. In 10 years time we need the property to have gone up by at least the inflation rate to be ahead. Of course I dont know that that will occur for sure - I do know for sure that I will be earning a rent of the then equivalent of $145pw inflation adjusted . If the prices are exactly the same in 10 years I would say that NZ will have changed a lot from what it is today - the population will have needed to drop quite significantly to start off with Ishould think. Anyway I'll only be 52 - so I guess I will have to hold it for another 10 years - then I'll be really old ! I don't think that you can guarantee any growth from etiher property or shares - the only certainity appears to be income. At least with property I can be sure the property will still existt (the proeprty is insured and the coastline is not erroding so I am sure on that one! ) - I can think of one or 2 shares that have disapeared from the stockexhange over the last feiw years. I dont do P&I because I dont want to be told at what rate I should pay off my debt ! Also I would not go over a LVR of 60% (including our home) because then its too risky that the bank will have the say when to sell the property - when values drop or go flat.

BTW the proeprty was owner occupred before we bought it - it now has heaps more street appeal beacause of the garden teh tenant has established , we also budget to maintain the property. Don't assume all tenants dont look after houses and all owner occupiers do !

Have I covered all the risks ? (Yes my personal income and my partner's is insured ).

[orion]

We have financed with a combination of IO and LOC - we use the IO to fix interest rates and LOC to make principal payments.

Do you mean over each property - ie there is interest only and LOC loans against each property?

If we put all our payments against this property it would be freehold in less than 3 years.

Not actually a silly idea. This would be the safest way to build wealth through real estate I believe. Once you are freehold with one property, you can use the equity to buy another under the same LOC and now you have 2 rents plus any extra savings you can put in yourself. Now the loan will be paid off even faster because of the extra rental income. As you add more properties and freehold each one, you still have all the income, but will simply pay off each new loan at a faster rate than before. Whether the market stays the same, goes up or down will not affect what you are doing, so it's a very safe strategy.

I do know for sure that I will be earning a rent of the then equivalent of $145pw inflation adjusted . If the prices are exactly the same in 10 years I would say that NZ will have changed a lot from what it is today - the population will have needed to drop quite significantly to start off with I should think

You may have a house worth more in 10 years time, but if it keeps pace with inflation which is likely, then it's all relative. Eg a $100,000 house today may be worth $130,000 in 10 years time, but that $130,000 may only buy what $100,000 can buy today because of inflation. What is on your side even knowing this is that the deposit you initially used has gained in value faster than inflation because of leverage. Eg, you may have initially used a $20,000 deposit, and now with inflation after 10 years, the deposit is $50,000 or say the equivalent buying power of $40,000 today.
This is all assuming that the price does keep pace with inflation and that we do have inflation - which is another reason for going P & I.

I dont do P&I because I dont want to be told at what rate I should pay off my debt!

Nobody's telling you what rate to pay if off, you can choose the length of time, whether it is 12yrs, 15yrs, 20 or 25yrs.

Also I would not go over a LVR of 60% (including our home) because then its too risky that the bank will have the say when to sell the property - when values drop or go flat.

Totally agree with you.

BTW the proeprty was owner occupred before we bought it - it now has heaps more street appeal beacause of the garden teh tenant has established , we also budget to maintain the property. Don't assume all tenants dont look after houses and all owner occupiers do !

Agreed, it was more of a general comment, there are always exceptions.

Regards
Graeme Fowler


[/quote]

[lissie]

We have financed with a combination of IO and LOC - we use the IO to fix interest rates and LOC to make principal payments.

Do you mean over each property - ie there is interest only and LOC loans against each property?

Not quite the timeline was this.
Before IP one home no mortgage
Formed LAQC (all loans in the LAQC name)
Bought IP #1 (the one we were discussed above) 2/3 fixed IO loan 5year term fixed rate 1 year Also a LOC secured against own home & IP#1
Bought IP #2 IO loan 5year term fixed 2 years for purchase price
Bought IP#3 IO loan 5 year term fixed 5 years (6.5% YES ! ) for purchase price
Bought IP#4 from LOC - no mortgage on the property.

The logic was to fix ther terms above in the 1st half of last year when the rates were quite atttractive. Saw no reason to fix #4 as the medium/long term rates were quite a bit higher than the floating rate and I know historically the floating rate will beat out the fixed rate. The bank I'm with has a cheaper rate for the LOC then the floating rate (plus we have a honeymoon discount for another year). Therefore when IP#1's fixed rate IO loan came up this month - I added it to the LOC. We will basically have the LOC paid off in 5 years (if I dont buy anymore houses :-) ) At which point we decide whether to pay off the remaining 2 at the same rate of our input plus rents this would be about 3 years - or downsize our home and pay of the debt or sell shares (which may be worth something by thne) and pay of the debt .... to be honest anything more than about 5 years out is bit too far for me to visualise

If we put all our payments against this property it would be freehold in less than 3 years.

Not actually a silly idea. This would be the safest way to build wealth through real estate I believe. Once you are freehold with one property, you can use the equity to buy another under the same LOC and now you have 2 rents plus any extra savings you can put in yourself. Now the loan will be paid off even faster because of the extra rental income. As you add more properties and freehold each one, you still have all the income, but will simply pay off each new loan at a faster rate than before. Whether the market stays the same, goes up or down will not affect what you are doing, so it's a very safe strategy.

You're right - I guess I've been a little more aggressive - but having IP#4 freehold also gives an option to go to another lender if we do purchase more - we could use that property as the deposit (probably another LOC) and avoid having too many properties tied up with the same mortgage.

Nobody's telling you what rate to pay if off, you can choose the length of time, whether it is 12yrs, 15yrs, 20 or 25yrs.

we would have refinance if you wanted to change the term though - which costs solicitor fees I think ?

I'm assuming from this discsussion that your emphasis is on cash flow properties ? I would certaiinly like to buy some more CF+ properties - but even in small towns around Wellington stuff is selling for 8% gross - which doesnt work - ! I got quite excited about Dannevirke but found that the max rent was $120 pw , the PM was 10% , the rates were $1,000 and the insurance was $300. So even before maintenance and vacancies the top price I could pay for 3 bed house was $43,000 to get a 10% return. Maybe not impossible - but not that easy either !

[orion]

We will basically have the LOC paid off in 5 years (if I dont buy anymore houses ) At which point we decide whether to pay off the remaining 2 at the same rate of our input plus rents this would be about 3 years - or downsize our home and pay of the debt or sell shares (which may be worth something by thne) and pay of the debt ....

That is definitely making more sense now Lissie. I would still have done the I/O loans as P & I loans, but if you can pay down the LOC to zero over that time with the amount of debt on there now, you would have done very well.

we would have refinance if you wanted to change the term though - which costs solicitor fees I think ?

Only if you're changing banks, otherwise the solicitor shouldn't need to be involved.

I'm assuming from this discsussion that your emphasis is on cash flow properties ?

Not in the way you are thinking. I prefer to put in sufficient deposit so as to make it neutral or positive. If you worked out the yield that people often base their buying decisions on, it would have to be at least 7-8%.

in small towns around Wellington stuff is selling for 8% gross - which doesnt work - !

That's where you need to put in a larger deposit so that it does make sense.

I got quite excited about Dannevirke but found that the max rent was $120 pw

The rents have actually risen in Dannevirke in the last few years as have the prices. You can get up to $160 for a 3 or 4 brm property there now. My partner has just bought another one there privately for $47,000 - needed a few thousand spent on it and now rents for $160p.w. She has another one that she paid $30,000 for and has a 2brm house, and also a 1brm flat on the same property - total rent is $180p.w. It is probably worth $60,000 now, but she has only owned it for a couple of years - was a great buy at the time.
I have another one there that is at $150p.w. that I paid $49,000 for a couple of years ago, but now could probably get $160 quite easily. As you say, if you have to get them managed as well, it takes about 10% off the rental.

Regards
Graeme Fowler

[wada]

Orion,

I had a chat with Lissie about the figures she got about Dannevirke. Also advised her $160 rent is the norm there. I said I'll inform the rest of PT about DV after I've bought a few

The cats out of the bag now... I believe DV is a little overpriced at the mo.

Wada