Do I have the basics right? - Starting out in Chch

[rooney111]

I'm 26 and live in Christchurch. Currently I'm flatting(7k/year in rent) with very little expenses.

Last few years I've been skipping winter in chch and traveling around 2 months at a time/year. If I hadn't done that I would've had a semi decent deposit. My parents were always against me traveling and pro saving, but I guess you can't really go back in time.

So now I've got the travel bug out of my system, got a nice promotion at work and at a position to afford my first investment. Parents are willing to top up my deposit in case if I don't have the full 20%.

After reading through PT a lot I've been looking for properties with

1. Positive cash flow
2. Good suburb near city and rentable in future
3. Stay away from bad land aka EQ/liquefaction prone TC3 areas.
3. Try to buy below RV or at least add value
4. Invest in your own city where you live, at least for your first IP.

Being in chch I find it hard to meet 1 & 3. I have a great job I enjoy doing and loving family in chch so moving to another city will be challenging and sad.

A few years ago, Property investment looked daunting and mysterious until I stumbled on this forum. Thanks to PT I've gained confidence to start looking and buy my first home/investment.

A lot of people here say that do it right the first time because it will pave way to your next big step.

So to keep it simple, here are my three questions:

Do I have the basics right? But however am I at a disadvantage being in chch trying to find first IP in a volatile unstable housing market?

If you ask why do I want to invest in property? Even though I love my job, I do not want to work for a firm and by the end of it I don't want to come out of it with nothing. I'd like to have more freedom in 20 years time, also I get the feeling that I will enjoy the journey getting there.

Thanks in advance!

[Damap]

Yes you totally have the basics right. You may have to be a little flexible on Number 1 as yields generally in New Zealand are falling, however we do have unbelievably low interest rates to offset this.

Number 3 is a very specific issue although no different to a general, "avoid bad houses in bad locations" rule. Undoubtedly harder to avoid in CHCH post earthquake. I am not a CHCH investor and I am sure some locals will comment.
My thoughts would be, are there towns relatively close to CHCH that would make good places to hold a rental property. The reason it is good to start off in your own back yard s primarily about reducing your anxiety and making things like repairs easier to deal with as you would know how to find the right people in your own town. However providing you have a good property manager there is no reason you couldn't look at areas within a few hours drive.

[Nick G]

You have two #3's, I assume you're asking about getting a property below RV.

It is hard to get the first one right because you won't properly be able to identify the risks and downsides of various properties simply due to your lack of experience. Gross yield is easy, rent x 52 / price. What could go wrong is... well that is why experts suggest going to 100+ open homes before you put in your first offer. You might miss that bargain at #17 but you'll avoid the lemons at #5, #37, #48... as well as the many other mediocre investments you might have bought "just to get started".

A property doesn't need to be at a discount to be a good investment, in fact if you can get a property for cheap when all of the experts out there with access to the same information and better relationships with agents than you (at this stage) aren't buying it you should probably ask yourself why. Instead, look for the true value of a home vs what it is being sold for. Learning how to identify that value is where you need to start and that is also why people suggest to focus down on a few particular areas.

One way to safely speed up the process is to pay somebody for their expertise, so you get the experience of the 100's of homes they have visited, bought, sold, experienced etc for a fee. It sounds like you want to roll up your sleeves however, so visit your local library to rent out all the property books there, join the PIA, get a loan approved and hit the streets :-)

My first purchase was at a discount and set me back a year. The second one was a bit better it only set me back 6 months. I used a good job and favourable currency crash by the NZD to plow through those mistakes but it took a couple of years to get any kind of positive momentum. My most recent property is 3/4 of a retirement portfolio on it's own and I'm getting loan approval now to go do it again. 80% of my results have come in the last 20% of my time investing and if I could go back and change one thing it would be to pay for expert advice and coaching from day 1.

[rooney111]

Thanks for the replies.

Damap - I did look at smaller towns outside Christchurch and decided against it mainly because I'd prefer to have my first property in my city where I live.

I guess it's a bit different because technically I'm a first home buyer as well as laying groundwork for investment.
Unfortunately I have a fair chunk of deposit tied up in KiwiSaver, which from my understanding requires me to live in the first home. This was my plan + have flatmates.

Nick - Thanks, i had a read through that article. So to summarise, selling price/RV may not be a true reflection of the "real" value of that property. I'll keep those hidden factors in mind when looking around ☺

I searched for property investment meetups in Christchurch but couldn't find any down here. In the meantime I've just been reading, researching and going to open homes ☺

[Damap]

Well that's quite different then. Definitely get your money out of kiwisaver it is 100% wasted in there. Just buy something that will make a good rental long term.

[rooney111]

I've been reading a lot in the "sticky" section and b especially a lot of Orion/Graeme's posts.

One of his latest posts, he gave the below advise, and it's a bit discouraging to buy in my city and to make a head start.

"a lot of how this comes about is because people like to invest close to home, or at least in the same city where they live. This sounds reasonable and sensible, but it’s only if the properties they buy close to them are suitable as rentals. Also they should fit into the 1st example above of ‘who’s paying for it?’
In at least 80% of cases, the city where they live will not work well for investing. So they must choose a riskier strategy because for them, investing close to where they live is of higher importance than having a good sound strategy that will work! They try to make it work, and it doesn’t. Not immediately but eventually it fails. "

I understand the logic behind investing outside and in an up and coming smaller town than an already big saturated city.

In that same post Graeme said - "You only need one good deal to start. By buying well on your first property, it will set you up well for any future purchases.
If you don’t buy well on your first one, it can cost you a lot of lost time (as well as money) like it did for me, 7 years in fact. "

So, back to basics, is it still okay to get the first home in my city, lay out a strong foundation and then branch out to other closer towns?

Off to an open home now, thanks for all the replies.

[Nick G]

It's fine to buy in your city if it is a good rental property. Start with the numbers so you have some firm criteria in mind, if you're not sure how to work out the numbers then that's your first thing to study up on. There are good books in your library and we have one for sale on our website (sig).

[Damap]

Yes of course it is. It's about deciding what your strategy and rules are.

[OneStepCloser]

Hi rooney111,

I think in your situation, buying in your city and have flatmates does makes sense, especially if you need to look for something as your first home (due to KiwiSaver). A couple more questions to think about:

- how committed do you think you can be for your property investment? What's your personality like? Are you the type of person that once started, will continue to work through problems no matter what? Or do you lose interest very quickly? The reason I ask is, if you want to invest outside your town, the effort (at least initially) is a lot more. The only way to learn about the market is to visit there often. You need to be able to respond quick even at a distance (also see Graeme's how to become LUCKY post). I am just starting out too and have just gone through that.
- Are you clear what you should be looking for in rental properties? Finding a house for yourself to live in is somewhat easier because you know what you want. Looking for rental is more about understanding what renters want, and what is easier to manage. I guess if you have been renting this may come easier.
- whatever you do, I would like to suggest that you avoid over-leveraging, and make sure you keep your mortgage manageable. Any mistake you make would be easier to overcome if you borrowing is reasonable. You are less affected by interest rate fluctuation, price fluctuation etc. Your stress would be less. Of course, your chance of making lots of money quickly will be less. But if you are in for the long run, take it slowly. And of course, be reasonable and don't force yourself to buy something bad location just to reduce borrowing. I think Graeme also mentioned in his book about learning how to make money in small steps first.

Good luck and all the best!

[rooney111]

Thanks everyone.

OSC - My personality is extreme extrovert with a touch of impatience but once I'm passionate about something I see it through. I try to be cautious and do as much home work as possible but also been in situations where I've made some spontaneous decisions.

Currently still trying to find that one tidy new ish property with rental potential and close to the city. So far it's been a mission but not gonna give up searching! ☺

[Razzzor]

What kind of property are you looking for rooney? Unit, apartment, house?

There's been a few smaller places lately that aren't too bad. One on Gloucester JUST inside CBD boundary that's a 3 storey apartment. But could have leaky home issues so you'd need to check. But good opportunity of fairly newish (90s) place. There's also 2 places on Nursery Rd I think it is that are newish and okay deals - one was $310 rv for a 90s 3 bdroom house.

Standalone 2.5 bdroom on Cashel that was nice, but had a lot of open home interest so would probably go for too much.

All depends what your looking for.

[James.wu]

My first purchase was at a discount and set me back a year. The second one was a bit better it only set me back 6 months. I

Hi Rooney sorry to jump in here.

Hi Nick, do you mind sharing how did your first deal set you back a year, and your second deal set you back 6 months?

Thanks.

[rooney111]

What kind of property are you looking for rooney? Unit, apartment, house?

There's been a few smaller places lately that aren't too bad. One on Gloucester JUST inside CBD boundary that's a 3 storey apartment. But could have leaky home issues so you'd need to check. But good opportunity of fairly newish (90s) place. There's also 2 places on Nursery Rd I think it is that are newish and okay deals - one was $310 rv for a 90s 3 bdroom house.

Standalone 2.5 bdroom on Cashel that was nice, but had a lot of open home interest so would probably go for too much.

All depends what your looking for.

Hi!
Not a big fan of three storey apartments where ground floor is garage, first floor is lounge and second floor for bedrooms. And yes I'm wary if of the building age of those properties as well. The 2.5 bedroom Cashel with RV of 230k, had a bit of interest and it's asking price is 320k.

However, Both Nursery road properties are attractive and very appealing to me. The property with $319k asking price is already sold but for some reason they are not taking it off the website, I called the guy twice!

Where as the new house on nursery with $310k rv is asking mid 300s which I think is not bad but again seems to have had bit of interest.

Ideally something along those lines(Nursery road ones) would be great.

Since I have some deposit tied up in KiwiSaver, someone advised that I should buy the first home where I see myself living in happily for at least two years. Ideally this first home should be up to 350k (otherwise might be too expensive) so i I can start saving up again to get the second property soon after which will be a pure rental. This is what I'm hoping for, please feel free to criticize or better ideas.

[rooney111]

Hi Rooney sorry to jump in here.

Hi Nick, do you mind sharing how did your first deal set you back a year, and your second deal set you back 6 months?

Thanks.

Hi James, no worries at all. I wanted to ask the same as well. Cheers

[Razzzor]

Hi!
Not a big fan of three storey apartments where ground floor is garage, first floor is lounge and second floor for bedrooms. And yes I'm wary if of the building age of those properties as well. The 2.5 bedroom Cashel with RV of 230k, had a bit of interest and it's asking price is 320k.

However, Both Nursery road properties are attractive and very appealing to me. The property with $319k asking price is already sold but for some reason they are not taking it off the website, I called the guy twice!

Where as the new house on nursery with $310k rv is asking mid 300s which I think is not bad but again seems to have had bit of interest.

Ideally something along those lines(Nursery road ones) would be great.

Oh yes, I forgot the asking price on Cashel St was a ridiculous $90k above RV. I mean, it's got nice decor but the 0.5 bedroom is the size of a closet and a bit of a modern decor doesn't put the price up nearly 50%. No garage or parking either. Open home was packed though!

Yeah the $319k on nursery road I saw in the open home, it wasn't bad, just the location isn't flash, nursery road is cramped as hell. The other ones on that street I haven't seen the though, the second one I was referring to was an apartment, I think less than 10 years old (not the brand new one across the road that was available as well) and they were only asking GV. Someone must have grabbed it already since it's no longer listed.

The others I had my eye on, if they're in your scope, is the one at the start of King Street. Might have sold by now, I know it had at least 2 people interested. Yield isn't good enough for an investment, but it was a tidy 4 bedrooms in Sydenham so wouldn't be too bad if you were going to live in it for a couple years first.

And there was another one I quite liked: http://www.realestate.co.nz/2771597
3 bedroom within CBD (I always try to buy close to town as I'm banking on a return to CBD growth in the next 10-20yrs) and only $230k GV. Unfortunately the asking price is way above that, but I would have probably put in a low offer if not for just getting another place. I was the only one at the open home. Probably not what you're looking for though, unit with no outdoors. But decent yield 7.5-8%.