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Cheery Hi from Rotorua

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  • Cheery Hi from Rotorua

    1st post so I'm likely to be going over some old ground, sorry.

    In the last few days I have read with much interest the posts that have provided questions from the newbies and advice from the seasoned professionals. What a fantastic place to come to learn, thanks to everyone here.

    Our situation is that we are both working in moderately paid jobs own our own home with small mortgage, in our 50's and 1 teenage child. You'd have to say we're pretty hopeless to have made no progress towards financial security but put it down to a disasterous business failure that cost us our life savings a few years back. We're now back on our feet and I'm hungry to be moving forward (finally).

    I have very much enjoyed a couple of stories of journeys in the property market, especially Monid and NZGem, but both of these (and others) purchased properties when the rent covered the outgoings and even made a small profit in some cases. It doesn't seem to matter how I work the figures - on today's market I just can't seem to get close to making this happen. Is it still possible?

    I've never been happy with the thought of negative gearing and am less so now that there appears to be a recession on the way. I still remember getting a letter in the late '70's to say my mortgage interest had increased to 21.5%. I worked for a building society for years and the interest rate was 12% - that was the norm. So negative gearing on 10% interest (approx) with the way things are going seems risky. I have a feeling that the US is in for a meltdown and I think we will get caught in the fallout but I don't know how it will affect us kiwis. Other opinions are very welcome.

    So what to do? It seems the NZ market is in for a 'crash', do I hold on to my equity and wait like a vulture for other unfortunates who are over committed to crumble, then dash in to the mortgagee sale (following many of you I suspect)? Or shall I buy a cheese or butter mountain or stock pile petrol?

    Some comment or any advice would be lovely.

  • #2
    Hi Glenis
    Welcome to PT
    Personally I wouldn't buy any negatively geared property at the moment, I'm inclined to see more downside than upside in the near future. If however you could get a cashflow neutral property or one that you could pay down rapidly so that it was cashflow neutral/positive then this might be pursuing. Otherwise I would get to know my market well by visiting a lot of open homes and educate myself about the property market.

    New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki


    • #3
      thanks David, I'll take that as expert advice. I sold real estate for a few years a while back and I try to keep in touch with whats going on - but it's been a bit hetic over the last few years - maybe I can catch up now that it's coming to a grinding downturn . I notice that you travelled a fair bit in the earlier days to pick up properties over NZ that fitted your criteria. It's probably the only way to snaffle the odd cashflow neutral property. I did see an interesting concept of buying larger houses and renting to flatmates by the room the return looks about right - but I'm not sure about whether a property manager would take that on.

      I'll continue to keep my eyes on the market and hang on to the day job :-)


      • #4
        Well I try to take pains to emphasise that I'm not an expert so take it as an opinion rather than advice...

        We did travel a fair bit to get our properties and you're right you have to find a fairly far away rock to look under for a cashflow positive property these days. You are right that renting by the room might be a way to make a better return (Superdad might be someone to chat to about this) I'd only be keen on a rent by a room property though if it was genuinely cashflow postive with a healthy margin since I hear that sort of property can be expensive to keep up.

        New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki


        • #5
          Hi Glenis,

          Welcome to PT. As David mentioned, I have a rent-by-the-room property, in Hamilton.

          David is right that the upkeep/outgoings on such a property are high. As the landlord, I pay all outgoings - power, phone, broadband, sky etc.

          This kind of property works for us because (1) it is a large property, so the total rental ammount is quite significant, and (2) it is close to a university. I believe that students are probably more happy than most to live in a large house with several other people.



          • #6
            Hi David, as I live in Rotorua this would probably be the area for me - although I'm not concerned about going further afield. A bit of work with a calculator and spreadsheet tells me that I need to be buying around the $80k mark to get close to neutral with the rents achieved around here on the lower end of the market ($200), and thats not allowing much for maintainence. The win comes about when interest rates drop (who knows when that will be) and rents go up - that is probably due soon as property prices vs rent isn't keeping pace.

            Hi Paul, I suspected that upkeep would be high and that the type of renter was likely to be young and either student, first job or unemployed. In some ways it becomes a private dorm or backpacker type accomodation - with longer stay tenants. I did think that there is probably a market for purpose type buildings of this sort but land and building costs the way they are probably puts it out of the reality realm, nicer than the miniscule apartments in Auckland though. In my figuring out, it wouldn't be worth purchasing property unless there were at least 6 big bedrooms because the costs of the nice extras you mention (sky and broadband) need to be shared among the flatmates. Back to the drawing board .....

            Next question, I have been making the assumpution that most people use mortgages that are interest only - would this be correct?

            thanks Glenis