IP and positively/negatively geared

[Dean@Massiveaction]

Hi Erma

How do you convince banks you have the cashflow to be able to buy again (I used my salary last time to convince the bank)?

You need a good coach or a good broker to look at your current loan to value ratio (lvr) and debt servicing ability and then advise you what your next property deal needs to be to fit the banks criteria.

There is some good software out there too to help with this. REVIQ is by far the best.

But yes you can keep on borrowing if you do it right

[Erma]

Can coaches and brokers advise beyond the next purchase or two? Does one need to be in NZ for this sort of assessment - I'm back in 7 weeks but curious now. I expect based on my financials that I could get one additional mortgage fairly easily based on salary, savings and I guess equity. Last time I got no real conditions set by the bank. I will have a good salary by my standards (an easy $20K left over after tax and all living related expenses including some travel entertainment), a deposit saved and I guess by now at least 50% equity in a property in TGA (may be more but hasn't been valued), so I think banks will, at least initially for one and maybe two properties, consider me a pretty good bet. But, now I'm thinking bigger - well beyond one; I might want 5, 10 or 20 properties since a lot of people on here seem to have developed the skills and knowledge to do it and I should be able to too. Hmmmmmm....

[Dean@Massiveaction]

Sounds like there is no reason why you couldn't start building a decent portfolio. Yes a good coach or broker will advise you what rules to set for yourself so you can keep buying.

[AlexT]

Hi Pooomba,

Interested in your comments on Wellsford & Papakura as these are two areas I've been thinking of buying in. I have two IP's in Mangawahi but these are capital growth properties and I need to look for some cashflow positive ones.

Do you think Wellsford properties can be cashflow positive or are you looking at it just from a growth point of view? Do you ever buy houses with large sections, say 4000 sqm and above with the hope of subdividing sometime in the future. A large section may not have good cashflow now but could be a huge goldmine at a later date.

I'm enjoying reading your comments in this forum.

Alex.

[Dean@Massiveaction]

Hi Alex

Do you think Wellsford properties can be cashflow positive or are you looking at it just from a growth point of view?

I ONLY ever look at cashflow. Growth for me is a pleasant bonus

Do you ever buy houses with large sections, say 4000 sqm and above with the hope of subdividing sometime in the future.

Only if they are positive cashflow pretax on the day I buy them.
I sincerely believe that to really succeed in this game you must STICK TO YOUR RULES. My rules are $50 a week pos cashflow pretax. I never ever ever go outside that. As a result I never get into trouble and I achieve my goals quickly.

[moose]

We're currently looking to buy another IP in Hamilton but finding anything that would be positively geared seems needle in a haystack stuff. We've looked into buying properties below $200,000 -- which we're somewhat against because we'd prefer a higher quality of renter -- but even then we couldn't find an appropriate buy. Are there other ways around this, such as extending the mortgage at purchase time to cover rent and ensure we're not putting anything extra in from our own modest incomes, then using capital gains and revaluations to provide equity for further rent account (mortgage payment) top-ups? We've currently got a negatively-geared IP which we're comfortable topping up (came in handy at tax return time) but don't want to delve into our own resources for a new IP. Can anyone offer any advice? Should we instead focus on the sharemarket or wait a couple of years in hope property prices take a dive and make positive cashflow IPs a reality here? Maybe we're looking in the wrong places, and should look to places like Morrinsville etc? Or going for one of those guarantee positive cashflow Auckland apartment type schemes? Help.

[Dean@Massiveaction]

Hi Moose,
Finding positive cashflow is all about putting in enough offers. I've looked at several pos cashflow properties in your area recently. There's plenty of them, you just have to uncover them. If you religiously put in 5 to 10 offers a day at a price that would make them pos cashflow you would probably get one in a hundred that would sell. The asking price is only the asking price. There's no substitute for hrad work and education. Free tip Cambridge has truckloads of high yield property at the moment. Put silly offers in on everything for sale and buy the best one. I had a property under contract there the other week. Price $305,000 Rent $650 a week. Didn't get RV but would have been around $350K

[walrus]

Depreciation and +ive cashflow do they mix

Hi Guys

Im new to this as well does +ive cashflow only mean that rent is more than all expenses e.g interest rates etc

what about claiming depreciation I am looking at a property now

purchase price $360k
rent $400 per week

with depreciation this property will just about brake even and i think it will be a high growth area. the property is brand new

Is there something I am missing because I think it would hard to find a IP where just the rent covers everything

any tips would be greatly appreciated

thanks

[hort1]

Hi Walrus

On those figures I would say you would be negative geared and have to pay out of your pocket (pre tax) around $170 - $180 per week and around $30-$40 after tax per week.
Don,t look good does it, not if you won't to purchase more IP's in the near future.
Cash flow is number one.

Warwick

[moose]

Back again, I'm just wanting someone to tell me the disadvantages of this scenario. We buy a rental property requiring us to put in a weekly or fortnight top up to meet the mortgage. What's wrong with at the time of purchase taking out extra money from the bank to cover say the first three years top-up figures. We would be borrowing maybe 105 per cent from the bank, so the top-up would be similar to a deposit calculated to ensure positive cashflow. After three years, we could use the equity gained from the expected capital gain valuation to pay future years top-ups. Does this work or I am missing something?

[fudosan]

Hi moose,

After three years, we could use the equity gained from the expected capital gain valuation to pay future years top-ups.

Why do you think the value will only go up? If it does not and you have to sell during the market slump, what's the point of losing money all the way?

[moose]

I said "expected". I don't expect the place to lose money. Anyhow, what's your take on the scenario using an "expected" gain? I don't intend selling during a slump and I'm in a position where I can cover any unexpected occurrences.

[RentMaster]

If you take 105% of the property value to cover your future interest payments, then it would be very tempting to just spend it. A lot of people with spare cash in the account will find some way of justifying a spend-up. You will need to be diciplined to make it work.

Taking out 105% of the property value also sounds a bit dangerous at this stage of the property cycle. People are predicting the property prices will be stagnant or even go backwards over the next 3 years. You are buying at the peak of the property cycle.

[moose]

Thanks, appreciate your comments.

[moose]

Also...

Just while we are on this, if the property market is about to slump and house prices do become stagnant or even go backwards, will rents do the same thing or will in two years time will we see a much better opportunity of buying a house at a low cost which offers a high rental return and give us more options on buying a cashflow positive property?