A little help please re first IP

[pipple21]

We have been reading these posts for a while now, reading as much as I can and bouncing ideas off people. I have been interested in property investing for quite a while but have yet to purchase our first IP. Hence this post.
We have set up our rules, accountant, lawyer, company structure, the main rule is: must be cash flow positive before tax as we cannot currently support a money hungry property.

I am finding approx 5-10 properties a week that are cash flow positive before tax IF we could put down a large enough deposit to reduce the amount we are borrowing (this is before any improvements to increase value and increase rents)
The problem is, we are using 100% finance, the deposit secured against family property and the remainder to be secured aginst the new property.

We are having trouble finding properties that return positive cashflow before tax on a 100% loan. Is there something we are missing?

Would vendor finance be a way to go to reduce the amount borrowed and defer settlement of the remainder?

We are finding it all a little depressing and would appreciate any hints or advice.

[Monkeyboy]

Offer low enough to make it cf+ before tax.
Use IR24BS to get your tax back weekly to put into the property so you don't have to.
Use LOC to cover shortfall and the capital gains should (hopefully) offset this every year.
Just some quick thoughts

[SuperDad]

Hi pipple21.

Welcome to PT, and what a great 1st post. You'll get lots of help here with your question.

You write:

We are having trouble finding properties that return positive cashflow before tax on a 100% loan. Is there something we are missing?

In my experience you're not missing anything. Properties that are CF+ pre-tax on 100% borrowings are hard to find, especially in the major centers.

No doubt others will have lots to say about this, so I'll just add one thought. If you can find a property that is CF+ after tax, you can access the tax refund weekly, rather than at the end of the year (through the use of an IR23BS form). This will help to smooth out the cashflow over the year.

Here's a link to as thread on this:

http://www.propertytalk.com/forum/showthread.php?t=5993&highlight=tax+refund+weekly

There is another, more recent thread on this topic, which I can't find at the moment. Maybe others can help here?

Good luck,

Paul.

[SuperDad]

I see Michael beat me to the punch. You gotta be quick around here.

[pipple21]

We have a made a few offers below market value to make them viable, one in particular, we withdrew our offer as the vendors property manager gave us a little too much information regarding the lack income for the property! Good to get before money changed hands.

Thanks for your advice, We were aware of the IR23BS and were planning on implenting this as well.

Incidentaly, is there a forum to pass on property information that I cannot make work? but others may be able to? I seem to be finding a lot of viable properties, someone reccomended negotiating a good deal and locking it up in a contract and passing it on to another.

[Josko]

Incidentaly, is there a forum to pass on property information that I cannot make work? but others may be able to? I seem to be finding a lot of viable properties, someone reccomended negotiating a good deal and locking it up in a contract and passing it on to another.

These sort of deals will belong to the Caveat Emptor NZ (Buyer Beware) section of this forum.

Do some research in PropertyTalk by using the search function and look for:

“contemporaneous settlement”
“property assignment”

There is enough there to keep you occupied for a while.

Otherwise if you think of a question that hasn’t been covered just ask.

Good Luck

[GJB68]

My understanding of the IR23BS form is that it is only useful after the first year of losses are calculated.

Then your tax refund from your previous losses are spread over the next financial year.

[Rolf]

The IR23BS form allows you to subtract your expected loss for the year from your regular salary for that same year - and thus you pay less PAYE overall.

In the first field of section 8 you specify all salary/wages earned, and in the first field on page 2 you put your expected loss.
At the end of the tax year you will have to fill out an IR3 tax return form (they will automatically send you one) and you will be required to pay any outstanding balance in case your estimated loss was too high, so make sure it's realistic... If you keep good records there should not be much of a difference, especially from year 2 when you know how your rental business is running.

[Stevegoodey]

Hi Pipple21

Maybe instead of looking for properties that cover 100% of outgoings, why not find properties were the rent is too low and do an increase.

Then make the deal rather than find it.

I find most people can spot a deal with good value but few can spot a deal with too low rent return for the area.

Cheers

And happy hunting.

Steve

[JohnL]

In the main centers you probably need to look at home and income properties to even have half a chance of positive cash flow.

The idea of assigning properties to others is a great strategy (for a fee of course). This can help in two ways. You are always active in the market which means that you can keep the best that you find and you will get cash in which can help fund your deposits.

The real bargains often come from agents that give you first chance at the property. Often they don't even get advertised as the vendor needs a cash offer as quickly as possible. You only become the agent's first point of contact if you are always in the market.

The other strategy to get good deals is to go down the track of buying privately.

John