Long time reader first time poster

[Dugster]

Hi all,

Thought I'd put my situation out there and pray on your good nature for any advice/thoughts! I'm looking to get into my first IP in Chch as soon as poss, and would be interested on your thoughts on the best starting plan.

Situation: I'm 29, single no dependants, full time employed with a good income. I have no equity (spent the last 10 years leading the good life ), but have salary of around $165K. I have been "gifted" 80k by my parents for deposit. This gives me borrowing upto about $400K. (I do have some savings/shares etc, but they're overseas and I'd prefer to leave them there).

I consider I have a few options:

1) Buy in a good area (eg Merivale/Fendalton/St Albans), to the value of about $400 and accept that yield/cashflow may be compromised but CG (in time) and tax write offs will offset this.

2) Buy somewhere for about $300K in an ok area, eg Papanui, Burnside etc, and obtain a better yield/cash return.

3) buy 2, whether they be units, or 2 houses in a less desirable area for $200k each.

I feel that the first priority has to be to build equity to allow me to expand. I like the idea of getting something which is undervalued and can be tidied up to add instant value/equity. I do live in Oz but can spend about 10-15days/month in Chch if required to achieve this.

I'd like to buy at least one to 2 properties per year ideally.

This is a great site/tool, and I appreciate anyone and everyones input. Don't be offended if I don't reply immediately; I'm overseas with work.

All the best, and thanks,

Dugster

[Keys]

1-2 properties per year.

Personally owning them may not be the best.

Power of attorney for signing things?

Management?

Tax issues?

Prenuptial advice as you're single?

[Dugster]

Thanks Keys,

I have looked into Tax issues, and write off my losses against my Oz income. This in turn will open me up to CGT potentially of course, however will be in Oz for 3 more years max I think. I would have a property manager looking after the rental of any properties etc. Pre Nup! Sound advice!! Albeit not a pressing issue as things stand at the moment! I have also looked at structure, and it appears that owning them is the best bet, as if I were to have them in an LAQC etc, then it would open me up to auditing, because of the foreign ownership of an NZ company etc etc. I'm not an NZ tax resident at the moment.

Got to run to work, Have a good weekend.

Thanks,

D

[Keys]

Search this forum for my posts.

I'd be interested in managing them for you.

Whatever you decide to purchase, allow for some optomistic advice on rental returns by the REA's

[Steve Netwriter]

Dugster,
My advice is short.
Don't invest at the top of a bubble, especially with borrowed money.

Instead spend a few hundred Dollars buying some good macro-economics books
Start with Irrational Exuberance by Robert Shiller.

http://www.irrationalexuberance.com/

Steve

[Orkibi]

Hi Dugster,

consider I have a few options:

1) Buy in a good area (eg Merivale/Fendalton/St Albans), to the value of about $400 and accept that yield/cashflow may be compromised but CG (in time) and tax write offs will offset this.

2) Buy somewhere for about $300K in an ok area, eg Papanui, Burnside etc, and obtain a better yield/cash return.

3) buy 2, whether they be units, or 2 houses in a less desirable area for $200k each.

I would like to comment re your points in order.

1. buying any a property in todays market dosent guaranty massive CG like we had in the last 7 years any time soon. the areas you mention would potentially preform better then other areas in Chch, BUT bottom line is: YOU MAKE YOUR MONEY WHEN YOU BUY OR ADD VALUE.

2. those areas areas not as posh as the ones motioned in point 1 but not much change in the yield.

if you are not planing to manage the properties yourself you can buy properties anywhere in NZ why only Chch ?

If you are after cash flow you need to buy properties with yield of 8%+
equity could be add if you buy the right IP.

with the income you have and some deposit you have a good starting point and if you buy the right property you could achieve better equity and cash flow FASTER.

[Dugster]

Thanks guys, always great to get varied opinions and advice.

Orkibi, I guess the Chch thing stems from it being the area which I know best, having spent more time there than anywhere else. I grew up there, and am regularly back there, whereas I don''t spend a lot of time in other areas. Perhaps Hawkes Bay would be somewhere else I feel comfortable with.

I take your point though; there is nothing to limit me really location wise! Just research!!

Cheers, hope it's sunny back there.

[Dugster]

And another thing;

What are peoples experiences with by the room rentals? They appear to give a better yield, although I imagine the costs associated are higher too.

Cheers

[Orkibi]

What are peoples experiences with by the room rentals? They appear to give a better yield, although I imagine the costs associated are higher too.

I don't like them, there are a few of them in Chch.

You can achieve higher yields but it is all about good management which if you are not there its a problem.

there is one company which I know specialize in managing them, the vendor pay for alot of cost as well.

thy are often for sale at an over inflated price based on the return or cap rate, if you want to get in to it you better of fined a property that you buy at reasonable price and convert it yourself.

any Way why do it?? if you can buy a block of flats for 8% 9% or 10%+ with good cash flow and also have the option to add value of say 100k by spending 30k for creating separate tittles for the flats.

[EagleEyes]

Equity a better focus for you

any Way why do it?? if you can buy a block of flats for 8% 9% or 10%+ with good cash flow and also have the option to add value of say 100k by spending 30k for creating separate tittles for the flats.

Agree. There are 2 things anyone needs in order to keep buying properties - cashflow and equity. Equity is what will hold you back - you only have one deposit amount. So I would focus on projects with big value add potential, so you create equity, even if the cashflow is not quite as good. I don't mean ignore cashflow, but how much equity you make in the deal will be more important in your circumstances.

[drelly]

Cashflow is important but I wouldn't fall into the trap of quantity over quality. The cashflow can soon start to look pretty bad when a poor quality investment starts to demand maintenance.

[Dugster]

Cheers guys,

I'm looking into things now. How many of you guys have properties in rural towns? Again, they seem to yield better however I assume they come at greater risk.

[drelly]

Hi Dugster,

Consider what is propping the town up. Are there multiple industries supporting the area? Is it close to a larger centre? What's the demographics like?

A few people I know made great capital gains in place like Moerewa and Kaikohe in Northland but now the recession has hit, problems are surfacing. Moerewa's main employer has closed down and Kaikohe is suffering from increased crime due to the influx of relatives of the criminals in the new prison complex at nearby Ngawha. Ironically, the prison was a driver of increased property prices when it was being developed!

[Dugster]

Drelly,

Ironic that they'll end up burglarising each other. I guess an alarm is a must have for rentals there!

I guess it's similar to people who bought in the mining towns in Oz, with craaaaazy yields, and some of them have now got a house which is all but worthless once the mining industry in the town disappears. Nice while the going is good...