What Makes a Good Investment?

[StephenAi]

Hi,

I've just returned from the UK for a holiday and am looking to pick up a investment property while I am here. This will be my first ever property.

At first I looked for 3 bedroom, 2 bathroom properties in Auckland neighbourhoods such as Mt Wellington, Mt Albert, Mt Roskill and Blockhouse bay for around $350000. But was shown some pretty shoddy properties (under Main Trunk powerlines, down graffiti ridden streets etc).

I'm now tending towards 2 bed units in areas such as Royal Oak, Onehunga North etc. These are typically brick and tile (or Iron), but unlike the 3 bedroom places have no section.

A typical unit stacks up like this:
Asking price $280000
Current Renting $275 pw but I think I could increase it to $290 or more
Yield 5.1% (based on 275 pw)
I have a deposit of $125,000

The cashflows are not positive at ($275) and I will need to top it up by about %3500 per year (assuming I have a use a repayment mortgage). This will not be a problem when earning good money in the UK.

I have been reading stuff about interest going up next time round, and capital gains slowing down and am wondering whether property investment is a good thing.

My questions are these:

Does this sound like a good sort of nvestment?
What do other people use as criteria for property investment?
what minimum yields represent good value?
I can afford more, so should I go for larger properties in suburbs further out from Auckland central (this will mean topping up more from my salary)?
This in my only property in NZ do I need to set up a trust/company/etc.
Are there things I should know about being tax resident in the Uk and buying in NZ (GST etc) ? I will be speaking more to my accountant about this.
Is it best to get a repayment or interest only mortgage on an investment property?

Any help would be much apreciated.

Thanks,
Steve

[srv]

hmm

doesn't sound too flash to me... seeing you will be living in the UK anyway why don't you look in other cities for a better deal?

[StephenAi]

I'm looking in Auckland coz I have a sister who has inidcated she would property manage it for me. Also I'm only here for 4 weeks and living in Auckland so it is easy fro me to view the properties.

I am also looking in London, but that's to live in.

[rueben]

If I were you I'd look at dual income properties - not necessarily in Auckland - maybe Hamilton...

Has your sister had property management experience?

[Keys]

I'm looking in Auckland coz I have a sister who has inidcated she would property manage it for me.

What qualifications does your sister have to manage your IP?

This can be a minefield if not handeled correctly.

Keys

[ActionMan]

What Makes a Good Investment?

A good investment meets your goals and criteria for investing.
It also fits in well with your strategy.
What are your goals and what strategy are you going to use?
You have a $125000 deposit which if you used as 10% deposit could purchase you $1,000,000 dollars of property.
But again the basic question as above?

See an accountant who specialises in property to assist in the best structure. Try Garth with Company Solutions in Tekapuna

http://www.company-solutions.co.nz/about.html

Try a one off consultation with Dean Leftus.

[Dean@Massiveaction]

Hi Steve. REally sounds like you don't reaqlly know what you want in terms of goals and buying rules. A lot of it will depend on how long you think your NZ stay will be and your tax exposure etc. If you are going to be heavily negatively geared then you MUST ensure whatever you buy is top shelf capital growth territory, otherwise look for a multiple income property that is at worst neutral after tax. Seeing Garth or emailing him would be a great start to sort out the tax implications

[BusyLizzy]

Hi StephenAi,

Welcome to the forum!

Try a one off consultation with Dean Leftus.

Just in case you didn't realise, the last poster, Pooomba, is Dean Letfus.

[Glenn]

What qualifications does your sister have to manage your IP?

This can be a minefield if not handeled correctly.

Keys

Just a little comment on getting one beloved sister, mother or friend to look after a property.

If / when problems come ones way (If not your rent may be too low) then you risk both loosing some money and risk loosing the love or friendship that is worth heaps more than the money.

[StephenAi]

My sister has a number of properties that she manages herself successfully.

The reason I am putting in such a large deposit is to get the property to be as close to positive cash flows as possible.

I am looking for a property that ticks over while I am away so that when I get back I can extract the equity to get something that I'd like to live in. Ideally I am looking for a captial gain over the next 5 years. I need the property to be low maintanence and rentable straight away.

Since writing the original post I have re thought my plan and it now looks as though I will look for 3 bedroom places out near mt wellington with 600-700sqm sections. I think that this will be more likely to achieve the capital gains that I'd like than a 2 bed unit.

Does anyone know if I offset a losses I make on a property in NZ against income earnt in the UK ? I will be speaking to my accountant about this later this week.

[Glenn]

I am looking for a property that ticks over while I am away so that when I get back I can extract the equity to get something that I'd like to live in. Ideally I am looking for a captial gain over the next 5 years. I need the property to be low maintanence and rentable straight away.


Does anyone know if I offset a losses I make on a property in NZ against income earnt in the UK ? I will be speaking to my accountant about this later this week.

sounds like a good idea to me.
the issue of depreciation / losses in NZ is a tricky thing.
As I understand it (well actually I know almost nothing about it) you can not export the losses.
The issue is about being a resident tax payer.
Tricky thing. By owning a property here and having family like a sister here you can be swept up into the NZ tax system and made to pay tax on your overseas earnings. Nasty stuff.
I guess your account might recommend you own the property in the name of a trust.
Now I know what happens then, The losses get trapped in the trust and can not be off set against your other earnings.
Now a good foreign friend of mine went off to a local accountant to ask similar questions. Well questions about tax on property and all that.
Her English on technical subjects is not that fantastic. So she asked me to sort of translate. Not that my Japanese is any good for that sort of thing.
After that very old, respected and experienced accountant had spent some time on the matter looking at what she was asking and writing a whole page on the matter they declined the job and told her to find someone else. They declined to charge for the effort they had spent on the subject.
So you see even the experts know the grey waters and paddle well clear.
I might add the next accountant that I sent her to managed to sort it all out and I guess she is happy. Well she still greats me kindly and waves furiously at me when we pass in the street. I never did learn Japanese sign language.
Just kidding folks.

[wattsup]

Hi there stephenai,

We are in the uk too and in the process of buying a property in rotorua,it has been a long road because we are out of the country there is so many things that our financial advisor,lawyer and bank want from us eg paperwork,faxing,emails etc,which is expected !!at least you are there! however it has been a experience but next time we will take a trip home to do business if we invest again,time differance and misread emails not good rather do it face to face.

Good Luck

[ActionMan]

I really think you have look at your goals again.

How much capital gains do you want when you return. Do you want to buy a $1,million dollar property debt free -which will probably be the entry level in Auckland when you return.

Will this one property get you a million dollar in equity? What about 4 propertiers with capital gains? Your goals need to be specific etc....And then a strategy to get there.....