Just Bought First House/Rental- Advice Needed

[House Hunter]

Hi,

My partner and I have just bought our first property in Birkenhead, Auckland. It is a 2 bedroom brick and tile unit. I have a few questions to get things sorted out.

- We intend to use a property manager, how do you tell if they are any good or not from face value? This is in terms of the company (e.g. Harcourts) and the agent (e.g. John Doe).

- We intend to get the lawns mown by a contractor. How do you approach and tell if the price and service is any good compared to others?

- We need landlord and house insurance, how do you determine which is the best deal for these? Do I go to a broker or the insurance companies directly? We have both our car and contents insurance with one provider already so package discounts could apply.

- We have approached a bank directly, how do I know if we have structured the loan correctly? We intend to use a mix of revolving credit and fixed mortgages.

Any help or advice would be great. Particularly if you also own a rental in Birkenhead or surrounding areas.

Thanks.

[Rosco]

Hi House Hunter,

I'll answer the last part on loans.

I generally recommend a spread approach. Something like

1) Floating - maybe $20k , basically the amount you can pay down over the next 12 months
2) Fixed short term - 1 year fixed, $240k at close to 5%
3) Fixed long term - 3 or 5 year (prefer 5), $240k at close to 6.5%

This would be for a $500k loan example.

Another options is to spread the fixed loans over 3, so 1 year 1/3rd, 3 year 1/3rd and 5 year 1/3rd.

I find that using a mortgage broker helps to get better rates and deal overall.

Ross

[Gladdynook]

Lawns, just get a couple of quotes
Insurance, again call around and get a few quotes.
Property manager, you need to get references from existing clients, and call them and have a chat. They all should provide references without any trouble. But of course nothing is ever guaranteed.

[Shane D]

For a Northshore based property manager I would highly recommend you checking out Pedersens. A small boutique operation run by mother and daughter team Tennille and Anne.

http://www.pedersens.net.nz

Give Anne a call on 0210766656

Shane D

[House Hunter]

1) Floating - maybe $20k , basically the amount you can pay down over the next 12 months
2) Fixed short term - 1 year fixed, $240k at close to 5%
3) Fixed long term - 3 or 5 year (prefer 5), $240k at close to 6.5%

Our loan will be around $420k.

We were going to do:

100k revolving credit
100k best 1-3 year rate
220k best 4-5 year rate

So what you have suggested works well. We will between the two of us be able to pay back an extra 20-25k of principal after all expenses each year.

[House Hunter]

Lawns, just get a couple of quotes
Insurance, again call around and get a few quotes.
Property manager, you need to get references from existing clients, and call them and have a chat. They all should provide references without any trouble. But of course nothing is ever guaranteed.

Ok thanks for the advice.

What insurance does a landlord need? Just house insurance and a general landlord type insurance for lost rent/damages, etc?

Something like Towers Provider Rental House Protection?

[House Hunter]

Also, in terms of an accountant, should we approach someone as soon as we settle on the house to get everything in order or just approach them at the end of the financial year in March next year (12-13 months in the future)?

[Rosco]

Our loan will be around $420k.

We were going to do:

100k revolving credit
100k best 1-3 year rate
220k best 4-5 year rate

So what you have suggested works well. We will between the two of us be able to pay back an extra 20-25k of principal after all expenses each year.

Why so much in revolving credit? If you can only pay off $25k, why do you have $100k?

Generally revolving credit interest rate is higher than say 1 year fixed, so why not fix for one year, and reduce revolving credit to say $25k?

Ross

[Rosco]

Also, in terms of an accountant, should we approach someone as soon as we settle on the house to get everything in order or just approach them at the end of the financial year in March next year (12-13 months in the future)?

Normally you would talk to a property accountant, before buying. That way they can advise on your profitability, your tax situation and what structure you should use.

If you are already close to settlement, then you are probably just looking at the next years annual financial statements and tax returns. If you settle after 31/3/14, then the first year would be 31/3/15, so a long time away. An accountant can help with what records you need to keep, but often for one rental you just need to keep this very simple and writing on bank statements is fine, especially as most transactions are obvious.

Check out www.valuit.co.nz, as with a higher value property a chattels valuation will make good sense and is easier to get done at the start.

Ross

[House Hunter]

Why so much in revolving credit? If you can only pay off $25k, why do you have $100k?

Generally revolving credit interest rate is higher than say 1 year fixed, so why not fix for one year, and reduce revolving credit to say $25k?

Ross

Our thinking was if we fix for 4-5 years and we are saving 20-25k then we would use the 100k revolving credit to pay back then transfer across when it comes off the fixed amount.

[speights boy]

Some fixed loans still allow lump sum repayment each year without penalty.
EG: 10k pa.

[House Hunter]

Normally you would talk to a property accountant, before buying. That way they can advise on your profitability, your tax situation and what structure you should use.

If you are already close to settlement, then you are probably just looking at the next years annual financial statements and tax returns. If you settle after 31/3/14, then the first year would be 31/3/15, so a long time away. An accountant can help with what records you need to keep, but often for one rental you just need to keep this very simple and writing on bank statements is fine, especially as most transactions are obvious.

Check out valuit as with a higher value property a chattels valuation will make good sense and is easier to get done at the start.

Ross

Ok thanks,

I think we will approach an accountant over the next few weeks to see what records we should be keeping over the year.

[House Hunter]

Some fixed loans still allow lump sum repayment each year without penalty.
EG: 10k pa.

Fantastic that is good to know.

Perhaps our revolving credit could be reduced to around 50k or so? We want a bit of a buffer there just in case we have anything go horribly wrong with the house which would require a costly repair, e.g. a 10k repair bill.

[donthatetheplayer]

Are you talking about revolving credit for existing debt of $100k or for a line of credit you can draw down in the future? I think the suggestion is you fix it if it's existing debt. If it's the latter I recommend getting the maximum facility you can when things are good (but don't use it unless it's a genuine emergency!) If things go bad you won't have much luck getting it then.

[House Hunter]

Are you talking about revolving credit for existing debt of $100k or for a line of credit you can draw down in the future? I think the suggestion is you fix it if it's existing debt. If it's the latter I recommend getting the maximum facility you can when things are good (but don't use it unless it's a genuine emergency!) If things go bad you won't have much luck getting it then.

We have no existing debt at all. No credit card, hire purchase, etc.

So it will be one we start paying back and can draw down on in the future.