Is there an advantage to buying all cross-leased properties on one land?

[Acandria]

Sorry if this is a bit daft.

Looking at a piece of land in South Auckland which has 2 units (attached), they’re cross leased units. I’m thinking of purchasing both, which would be all my budget.
The land is around 600sqm – almost no potential future development with the unitary plan – could be double story I guess.

Assuming I can only buy 2 properties in the next few years, is this sort of putting all my eggs in to one basket? Is there any benefits (other than being able to do alterations etc) in owning both of these properties assuming I can’t subdivide or add minor dwelling in the future? Can I change them into fee-simple properties to add value?

If one unit cost 400k for example, then I assume I’ll be paying 800k for both as they’re being sold by two different vendors.

Is this making sense as an investment?

Cheers all

[donthatetheplayer]

The main benefit I would see is being able to do significant alterations to the exterior without having to worry about consent from others. You'd still need to formally request and grant consent to yourself and get the flats plan updated. You've suggested you don't want to do significant alterations so there's no benefit.

It would be easier to change to fee simple if you are just dealing with yourself but given the cost to do this it's probably pointless. The council need to make it cheaper and easier to change cross-lease properties to fee simple!! The main issue is with the services as I understand it.

[Acandria]

The main benefit I would see is being able to do significant alterations to the exterior without having to worry about consent from others. You'd still need to formally request and grant consent to yourself and get the flats plan updated. You've suggested you don't want to do significant alterations so there's no benefit.

It would be easier to change to fee simple if you are just dealing with yourself but given the cost to do this it's probably pointless. The council need to make it cheaper and easier to change cross-lease properties to fee simple!! The main issue is with the services as I understand it.

Thanks a lot for your reply!!

1) if there's no significant benefits assuming I don't do alterations, then the negative side of this is that I'd have all my eggs in one basket then right? If i can only buy two properties, then perhaps I should buy two in two different areas?

2) Would changing it to fee simple add much value anyway? In a boom market, would it matter much?

Lastly, am i right to assume that we can't add minor dwellings after the unitary plan comes in?

[PTILoveYou]

If each unit is worth $400k, then there is no downside buying both for $800k (if cheaper even better!)

This gives you total control over the block, and less neighbour issues.

I dont see this as being putting all your eggs in the same basket really.

[donthatetheplayer]

Thanks a lot for your reply!!

1) if there's no significant benefits assuming I don't do alterations, then the negative side of this is that I'd have all my eggs in one basket then right? If i can only buy two properties, then perhaps I should buy two in two different areas?

2) Would changing it to fee simple add much value anyway? In a boom market, would it matter much?

Lastly, am i right to assume that we can't add minor dwellings after the unitary plan comes in?

Why buy two properties and not one at $800k?

I used to avoid cross lease but now I don't really care if there are no issues and no shared driveways. Not sure changing to fee simple would add much value. I doubt you would get back what it costs you.

Not sure about minor dwellings after unitary plan is enacted.

[Acandria]

Why buy two properties and not one at $800k?

I used to avoid cross lease but now I don't really care if there are no issues and no shared driveways. Not sure changing to fee simple would add much value. I doubt you would get back what it costs you.

Not sure about minor dwellings after unitary plan is enacted.

For some reason i decided it would be better to buy 2 smaller properties than 1 big one, now that you're asking me why I'm not buying a 800k property, I don't know how to answer it and would really like input! If we assume yield is the same, then what difference does it make? Buying two before the 30% LVR takes affect might be too difficult for me though, so buying a block of 2 units or buying 1 800k property might be better.

An agent just told me about an home and income in Manurewa, will be around 850k (5 bedroom & rumpus + 2 bedroom) - now I'm wondering if it'll be better to do this than two smaller properties in the 400s.

[Acandria]

If each unit is worth $400k, then there is no downside buying both for $800k (if cheaper even better!)

This gives you total control over the block, and less neighbour issues.

I dont see this as being putting all your eggs in the same basket really.

That's great, thanks Gary.

I actually have to make an offer for this property today If i want in.
The CV is only 275k each, and located in Mangere East; by middlemore.

[donthatetheplayer]

I'd rather one higher valued property if I was in your situation. For $800k you should be able to get a good full site and/or home and income. As infill housing occurs I think the smaller units will go up in value less whereas landed properties will go up more, and more and more.

Also, two properties = more tenants!

If your cashflow is the same either way and capital gain the same either way there is certainly less headaches with one property. And as I say I reckon you will see better capital gain with the one larger property. Lots of variables of course.

[Wayne]

Also, two properties = more tenants!

less chance of losing your total income with 2 tenants if one leaves.

[donthatetheplayer]

less chance of losing your total income with 2 tenants if one leaves.

Yes but double the chance of losing 50% of your income so it's a zero sum game really.

[Damap]

Definitely a good idea to have 2 incomes and owning both halves of the cross lease you can maximise both properties over time. You may be able to add bedrooms etc and give yourself permission. Best part is you can always sell one and still own one, unlike a home and income.

[rocket]

Hard reality is that its not the buyers market & hasn't been in the last few years. ..only getting worse. Most important is to put your step in early if you are getting a good deal. By the time you decide it will be gone...
I don't think cross leases are a big problem. The advantage is that you pay less for the same purpose....renting.
cross lease is generally 30-40k cheaper for a half section plus you share costs if things go wrong in services.
I do agree that free hold is highest level of ownership but hey who really cares in auckland.!! Every property has a buyer at the right price...except lease hold.

[Acandria]

Definitely a good idea to have 2 incomes and owning both halves of the cross lease you can maximise both properties over time. You may be able to add bedrooms etc and give yourself permission. Best part is you can always sell one and still own one, unlike a home and income.

That's what I'm thinking too... if I need to sell for some reason, i'll still have one left. I think my offer is over-board for this but I think If i don't buy the two properties right now, I won't get a chance to soon as the banks will likely to start implementing the new LVR restrictions in August.

The units are only 60sqm each and pretty run down, but their building footprint is only up to about 24% of the land coverage so there's potential to add more rooms.

[klauster]

Two on cross-lease will outperform one free-hold for various reasons like

- higher yield (two tenancies)
- rates for cross-lease are lower
- potential to divide for capital gain
- better adaptation when the market or your situation are changing (sell one, keep the other)

[donthatetheplayer]

Two on cross-lease will outperform one free-hold for various reasons like

- higher yield (two tenancies)
- rates for cross-lease are lower
- potential to divide for capital gain
- better adaptation when the market or your situation are changing (sell one, keep the other)

klauster, Surely rates on two $400k properties will be higher overall than rates on a single $800k property. Likewise, so will insurance and water.

I would say it is quite possible the overall yield would be lower on the two tenancies due to the above factors. We would really need to see the specific properties to compare but a blanket statement that the yield will be higher on two tenancies is plain wrong in my view.

Potential to divide for capital gain - yes. But there is potential to sub-divide for a large single property also.

Your assertions are interesting for a legal man.