Taking the leap into full time property investment

[Raddies]

Question; why would you leave what should be a well paid profession to do minimum wage monkey work?

To have more direct control on the projects I have on-going and researching/sourcing materials etc for projects takes time and then I could spend the rest of time finding properies. Note this idea was only for a year.... In ChCh at present, the fee's for others to do even the basic jobs/perp work are inflated.

[elguapo]

To have more direct control on the projects I have on-going and researching/sourcing materials etc for projects takes time and then I could spend the rest of time finding properies. Note this idea was only for a year.... In ChCh at present, the fee's for others to do even the basic jobs/perp work are inflated.

Does this also mean your fee's are inflated? The old saying, when the sun shines, make hay. If your project management work is also tied to construction, pick a year when it's quiet?

[Bluekiwi]

Very interesting thread.
I would watch Sean Wood's DVD series or read his book to get a feel for what you will be doing.

But before that see a mortgage broker.
And before that see a property accountant to get your structures right, get them correct from the get go.

[ScottSI]

Hi Scott,

Would be keen to hear more about your 3 1/2 years stratagey before you could make the transition to full time, and essentially what allowed you to make this change to full time - capital gains/adding equity or number of cash flow positive properties etc?

You mention the 13.06 % gross average - Is this rental yield? My two flats at present will be reaching 8% rental yeild which is far below this figure... Or is this 13.06% overall capital gain +- rental yeild per annum?

Cheers,
Nick

13.06% is the gross yield off rent earned vs purchase price. Banks don't use book value increases (capital growth is not real money till you sell) for income calculations. Most investors who are buying 1 or 2 don't hit major serviceability issues it starts to kick in later, but if you drop or reduce an income this may happen sooner for you.

8% is low I agree and hard to get much more in CHCH at the moment.

I am a cash-flow buyer so need to earn money from each property to pay me, meet serviceability requirements and cover unforseen costs. My target is 12% + with many renovation projects make 14 to 15% range.

My plan - Buy lots of houses that make money, put every cent into paying down debt, keep costs low as possible. Then after you start to generate enough cash to live off you can leave work (but make sure the bank is happy with your plan).

The key is your plan and actually learning how the bank sees you, the plan is more than just buying a house. I know many investors who are equity rich but cash-flow poor so can't borrow more money (think whole chapter in rich dad poor dad on that?)

If you are serious for some knowledge Graeme is having another free seminar soon (orion on here) and it would be well worth paying for a flight up to Hastings to attend (or you could pay $ 30,000 for a mentor - going rate I hear), so you could contact him.

Happy investing

[charlotte30]

Dear Raddies

I am in Christchurch and can recommend Scott miller as a mortgage broker. He is a property investor as well. I think you should keep your day job so you can maximise your borrowings. Do what you can when you can. It is surprising how quickly you can leapfrog forward using equity and cashflow. Personally I have found it more cost effective to employ tradies rather than do most jobs myself. Quicker turnaround. I just do most of the clean up work. I have just purchased a property within the four avenues that is in 4- one bedroom flats on 1100 sm land. It has not had any maintenance done for 30 years. We have a plan to renovate and re-rent within 3 months. There is no way I achieve this myself in that timeframe.

Cheers

Charlotte30

[Auckland Newby]

HI Raddies,

Do you actually enjoy your day job or are you trying to get out of it?

Cheers

[Raddies]

Dear Raddies

I am in Christchurch and can recommend Scott miller as a mortgage broker. He is a property investor as well. I think you should keep your day job so you can maximise your borrowings. Do what you can when you can. It is surprising how quickly you can leapfrog forward using equity and cashflow. Personally I have found it more cost effective to employ tradies rather than do most jobs myself. Quicker turnaround. I just do most of the clean up work. I have just purchased a property within the four avenues that is in 4- one bedroom flats on 1100 sm land. It has not had any maintenance done for 30 years. We have a plan to renovate and re-rent within 3 months. There is no way I achieve this myself in that timeframe.

Cheers

Charlotte30

Hi Charlotte,
Cheers for the recomendation of Scott Miller, I will definatly touch base with him.

Yes looking like keeping the day job is the most viable option for me at this stage, good to hear from someone else purchasing within the four aves, I believe there are stong capital gains to be made within the 4 aves once the city is re-built (5+ years away) and in the mean time good rental yields due to all the workers required.

Are you a member of the Canterbury PIA? If so, may get to discuss our projects at one of the meetings/seminars.

Cheers,
Nick

[Raddies]

HI Raddies,

Do you actually enjoy your day job or are you trying to get out of it?

Cheers

Hi Auckland Newby,
My job is OK however if I/hopefully when I one day have a passive income that allows it, I would choose to work on my own property projects as this is where my real interest lies.
Cheers,
Nick

[Raddies]

13.06% is the gross yield off rent earned vs purchase price.I am a cash-flow buyer so need to earn money from each property to pay me, meet serviceability requirements and cover unforseen costs. My target is 12% + with many renovation projects make 14 to 15% range.

Cheers Scott, that is an impressive rental yield!

Question - As for adding equity value through renovations, do you have a rule of thumb or rough figure you expect to gain in value for your renovation investment? I know all properties are different and different houses require different types of renovations to add value (an to not do the incorrect improvements for a certain property), but do you expect to say double your renovation investment on properties should you do this correctly? (i.e. Spend 25k on new kitchen/bathroom/carpet/paint etc = 50k increase in property value).

Cheers,
Nick

[kiwibean]

Great to hear about what people mare looking at doing. I also wantr to live the dream hahaha. I have been doing IP for 2 years and about to buy my 5th place. I do not think I could sustain not working until I have at least 10 properties.

I have just joined the Wellington PIA so looking forward to heading along to my first meeting later this month.

[ScottSI]

Cheers Scott, that is an impressive rental yield!

Question - As for adding equity value through renovations, do you have a rule of thumb or rough figure you expect to gain in value for your renovation investment? I know all properties are different and different houses require different types of renovations to add value (an to not do the incorrect improvements for a certain property), but do you expect to say double your renovation investment on properties should you do this correctly? (i.e. Spend 25k on new kitchen/bathroom/carpet/paint etc = 50k increase in property value).

Cheers,
Nick

Book value increases after renovation - So much more to it sorry but here are a few tips.

I work on a 1 to 10 ratio (I don't pay myself as no point in taking funds out if I don't have too) if I do the work so 4K spent = 40k increase

If I use some contractors for general labour it drops to about 1 in 8 ratio.

These ratios aren't just from renovation they are supported by my buying patterns which is a novel in it's self.

Book value increases:

1 - You must know what houses sell for in your area - get info off valuers, property guru, etc. If you do not know what a valuer will value the house at you don't know what you are doing. I am conservative so often are under by 5 to 15 K so always a nice surprise.

2 - You must get below market price to increase equity gains - Buying techniques

3 - Your improvements must be effective - I could drop 100K (piles, wiring, plumbing, roof) on a house and get 20K increase so total waste of time and I have seen this all to often by new investors & traders.1 huge structural reno took me 3 months, made 117K in equity and earn $ 83.20pw when rented. Compare to one that 1 that took 2 days, made 60K in equity and earns $ 82 pw. If I did one a week for 3 months (12) that's 720K in equity and $ 984 income a week after all costs - Pretty simple maths really.

4 - Different areas / tenants want different things - Dog properties need good fencing, bogans like garages, students like parties, internet & heating, Dunedin like parking, Hastings like garages for turning into bars, and everyone loves a deck even though most never use it.

5 - Don't expect the house to value above the area - If you have an average street and spend a million dollars doing up the house (kitchens, vanities, pools etc) it is still an average street - Called over capitalisation

Renovation Tips

Time is money - every day a house is out of rental stock it is costing you money. You need fast turn around. I would go to the house on settlement day and sleep there. I would start at 7 am and usually go through to about 12 - 2 am which is hard on the body (like a mountaineering expeditions which I loved) but the house would be advertised within 3 - 5 days and back in stock. This is what I did you need to get your own plan.

Costs Down: Trademe, Trademe, Trademe, I have sheds in Dunedin, Christchurch, Nelson and Hasting full of stoves, hot-water cylinders, showers, vanities, doors, paint, handles, timber, MDF etc ready for the next reno. Also CURTAINS & TRACKS - these are expensive!!!!!

Get a network of good tradies and labourers.

Method: You need a set plan and I have refined mine to get the property ready for showing after 2 - 3 days. Finishing work takes up the last few days but often the property manager has an application on day 2 or 3.

If you are bored go to our facebook page as I have posted a few renovation videos on there which include the numbers etc.

Happy renovations.

Regards

Scott

[Raddies]

Thanks heaps Scott, I I'll check out your videos tonight

[charlotte30]

Dear Raddies

Have sent you a private message. I also recommend attending seminars that Scott runs in conjunction with ANZ in Christchurch. Once a week over 7 weeks if I remember. Great value and free. You also get to interact with other Christchurch investors. I am not a member of CPIA but go to meetings when the speakers interest me.

Charlotte30

[Damap]

@RaddiesI started in a slump so had some benefit in there was little competition for homes in Auckland then. I ran into all the usual problems one does when one has no regular income but as the market picked up AKA same as right now, I did well. I was making more in a trade than I used to in a year and was soon up to 20 rentals.

My biggest mistake was not selling down before the GFC. I actually had started and sold 3 homes at huge profits but then the world ended. Thankfully in spite of some difficult years Auckland continues to be good to me. My homes in the rest of NZ have been stagnant but their day will come which I am sure my kids will enjoy :-)

Can't think of much I could say to help you I am a simple soul. I just bought houses at 20 to 40% below market and rented them. I had such good equity on paper the banks continued to like me and I kept buying.

My only piece of advice is ignore the spruikers and mentors they will push you outside of what you are mentally capable of. I have watched countless friends pay a fortune to learn how to get rich and they almost without exception are now poorer and wiser and hate property investment.

Learn enough to come up with some simple rules and go and have a go.

My 100% rule not to be broken that I did break and nearly killed me was/is:
"Buy 20% below market or more and NEVER REFINANCE"

Good luck!

[Rosco]

The "never refinance' is a great rule. So many investors have a good property with good equity, but come across hard times so borrow more on the rental, or money to buy a new car, all of which put pressure on the first rental.

Ross