My next property - so much choice! So little wisdom...

[Janicz]

Hi All,

Hope I can tap into some of your infinite wisdom and ask for some guidance on my next property purchase.

The facts:
Our first house is a "Home and Income" - divided into a 2 bed and 3 bed. We're currently living in the 2 bed and renting out the 3 bed.

We want to live in the 2 bed for another 4 years. Then move to the 3 bed for 5 years. Then move/buy into a nice home in a nice suburb. Say Mission bay or Takapuna in a house that would today cost 1.2 million. Nothing too flash. Want to retire in 20 years, hopefully living frugally but comfortably from renting out our entire portfolio.

The scenario's:

• Keep aggressively paying down our current mortgage.
• $300-400.000k Quality Apartment in the CBD. Rent out.
• $550-600.000k New build/Land and home package in some new development such as Millwater, Silverdale, Gulf Harbour, Pukekohe or similar. Rent out.
• $500-600.000k Avg condition house & section in average suburb such as Glen Eden, Swanson, Henderson, Glenfield, Avondale or similar. Rent out.
• $800.000 The biggest/nicest property in the best neighborhood possible. Maybe lucky and get something small/pretty run down in in Milford/Takapuna. Rent out.
• $400-800.000 Lifestyle house/land somewhere we may want to retire in 20 years. Rent out.

Obviously, the less we borrow, the less we pay the bank.

What would you guys go for? From a property investors point of view. I know it's a tough one, but anything you say may help make up my mind.

Highly appreciate it!

J

[Orkibi]

hello J,


i would concentrate on building more equity and have reasonable yields at the same time. this could be achieved after adding value or developing the property investment. you are saying :

Want to retire in 20 years, hopefully living frugally but comfortably from renting out our entire portfolio.

Did you think or set up a plan how to achieve that??

Unless you pay down debt on investment properties they most likely will not give you sufficient cash flow to retiree on in 20 years.
unless you buy high yielding properties or properties with rent increase upside.

In regard to the options:

Keep aggressively paying down our current mortgage.

yes, keep doing that anyway, as this mortgage is not tax deductible.

$300-400.000k Quality Apartment in the CBD. Rent out.

At that price range you will see 4% Gross yield at most and no cash flow, also not much added value options.

$550-600.000k New build/Land and home package in some new development such as Millwater, Silverdale, Gulf Harbour, Pukekohe or similar. Rent out.

New build/Land and home package VERY bad idea as it is not a type of property that will move you forward (at that price range is retail). "Pukekohe" 550k is over paying BIG time.

$500-600.000k Avg condition house & section in average suburb such as Glen Eden, Swanson, Henderson, Glenfield, Avondale or similar. Rent out.

YES - good areas with good capital growth prospect in the short term, large sections you can subdivide or build minor dwelling on. target at list 7.5% gross yield opportunities.

$800.000 The biggest/nicest property in the best neighborhood possible. Maybe lucky and get something small/pretty run down in in Milford/Takapuna. Rent out.

Currently hot market - very hard to find good deal if you are not looking full time.

400-800.000 Lifestyle house/land somewhere we may want to retire in 20 years. Rent out.

HOW exactly do you see yourself making money or using this i option as investment property or generating the cash flow you aspire to archive on retirement?

Understandingly you are confused, i think you need some guyed as sounds like you have reasonable base to grow from... but you need more focus and someone to show you the way making the right sessions. set up goals and set up plans for achieving them.

Can i ask how old are you and if you are member of APIA?

[Janicz]

THANKS Orkibi - You are clearly very knowledgeable and your answer is exactly what I was looking for.

So to clarify on a few of your points:

1. Achieve target? Spend the next 20 years accumulating assets whilst reducing my expenses as much as possible. Would plan on liquidating some assets over the term of my retirement as well. This is obviously just a goal and I may reach it sooner or later or not at all. I can only try my best to make the right decisions and do the right things to try to get there on time!
2. Working on getting plans sorted. Want to increase my knowledge first so my plan is more realistic.
3. Lifestyle scenario is there because I had a thought that it will be a lot more expensive/impossible to buy say an orchard or a batch by the beach in 20 years due to population growth, than to buy it now and hold it for when I want to retire. This is probably the least feasible one and wanted to through it out there as a joker.
4. Yes, confused and keen on learning more. Never heard of APIA before. Looks good. Will look into it more.
5. Am currently 28.

Thanks again for your answers.

Anyone else with maybe different perspective who can add more?

J

[Orkibi]

OK so you live in Auckland and you want to start investing in property. you are still under 30 with reasonable income, so you have time on your side.

Join Auckland Property Investment Association for starters, start networking, asking questions and learn more from other active investors.
APIA have great resources on the websites which are available only to members: http://www.apia.org.nz/index

Stay in the 2bed flat as long as you can while use the rent from the 3 bed house together with some of your disposable income to reduce your mortgage on this property.

1. Lifestyle scenario is there because I had a thought that it will be a lot more expensive/impossible to buy say an orchard or a batch by the beach in 20 years due to population growth, than to buy it now and hold it for when I want to retire. This is probably the least feasible one and wanted to through it out there as a joker.

considering your situation (starting up) buying this property now will pretty much prevent you from growing your INCOME producing portfolio. unless you buy something with massive upside so you can generate income and new equity straight away - i wouldn't keep your hopes on that. don't forget that in 20 years time your lifestyle block my cost more but you will be selling and buying at the same market. meaning that by then what you would own will go up in value too.

All the best and remember Rome wasn't built in a day, and property investing is at list 20 years game before you see great results. (in most cases )

[Janicz]

Thanks for the tips Orkibi, good point about selling and buying in 20 years when all prices have gone up. Would certainly be better to invest in something which won't lock up all my capital.

So it seems that the scenario:

• $500-600.000k Avg condition house & section in average suburb such as Glen Eden, Swanson, Henderson, Glenfield, Avondale or similar. Rent out.

is the best one.

So what's your view on sub dividable sections when the Unitary plan kicks in? Won't that potentially reduce land value if they suddenly release large amounts of land for development? I know location is key, but lack of supply has also increased the prices.

Also, Of those areas, which one would you put your bets on? What other areas similar to those am I missing out on?

J

[Orkibi]

So what's your view on sub dividable sections when the Unitary plan kicks in? Won't that potentially reduce land value if they suddenly release large amounts of land for development? I know location is key, but lack of supply has also increased the prices.

No, I don't think it would happen over night, not everyone who own a subdividable property is an investor or developer, AND there is no sufficient resources TO PROCESS SO MANY.

500k-600k is to much for some of the areas you mentioned, you need to learn the values in each suburb..
best to target 2-4 suburbs at most, and suburbs which are not overheated like Avondale.

Glen Eden, Swanson, Henderson are good suburb, but a good deal on full site over say 750M2 upwards should be at 380k-420k, (today)
and buy something where you can add value to, Avondale is a waist of time now... its overheated.

Glenfield, mid to high 400k would be good deal NOW, if location is good. maybe low 500k in 6-7 month time as the ripple affect moves on...

[SlyAnimal]

Personally I'd go for a variation of:

• $300-400.000k Quality Apartment in the CBD. Rent out.

Except instead of 1x quality apartment, I'd go for 2x 180-200k apartments. As the rental returns are usually low on quality apartments.

The rental returns should be pretty solid (around 7-8% net return), so the property you're holding is paying all of it's expenses + interest + some principal. Also it's then giving you 3x rental properties, rather than 2, which spreads the risk across your properties, so that 1x vacant property won't hurt you as much. Also even though the 2x apartments are lower in value, their yields will likely be similar to that of the 3 bedroom house.

If you then moved into one of the apartments instead of your house, I think your mortgage interest (on your house) would then be tax deductable. As your house would have a lot more owing on it than the apartment, this might save you a lot in tax. But I'm not too clued up on tax matters, however it'd be something to consider.