Better to Buy, Subdivide and Build or Renovate?

[babelulu]

Hi PT,

been out of NZ for awhile and heading back to Palmy to try and climb this investing ladder.

I have 2 properties looking to do some work while back in NZ, but only a one man band so trying to prioritise... please share your thoughts on what I should do first.

1. one which I bought 2 years ago with mortgage, run down but tenanted, checked with valuer and with some work it may get valued about $100k above the purchased price. I can do the reno myself as I will not be working.
2. This one has been gifted by family recently and therefore has no mortgage. It's on a decent sized section and have been notified that it can be subdivided. will be looking to subdivide and build or relocate a house in the future. I will be living in this one.
3. Just leave the 2 mentioned above and buy a new rental, prices have definitely gone up in Palmy from looking at the listings but how about places like Whanganui?

What number should I start with first if I want my investing career to take off!

thanks, just wanted to hear what others would do.

[Wayne]

Start the planning for the subdivision and new build on the 2nd house.
While you are waiting for the process to grind through (it can take a long time) renovate the 1st house without spending a fortune (get the basics right without making it fancy).

Then build the new house. If you can manage things yourself you can save heaps.

[Rosco]

What are you long term aims and goals. You need to get these clear first.

I think you need a lot more information, before you can make the decision.

1) You need to know the cost of renovation, and the extra rent you will receive. If you are investing for equity gain, then the value gained vs cost will be the most important to you. I would focus more on the cashflow, and look at the extra rent compared to the extra interest cost.

2) What is cost to subdivide?
What is value of land subdivided if just sell as is?
What is cost to build
What is value of land and build once finished.
What is the expected rent on the new property?

If after equity, then need to work through what you have gained vs costs.
If after cashflow, then work out extra rent vs extra costs

In Palmy you might find the build costs don't make it worth while. Ie you might spend more building and subdividing then it is worth at the end!

3) Depends what you are after. I think small hole, and of the top of my head the population was dropping. I would run a mile. I wouldn't gamble on capital gains in Whanganui and I would personally focus on cashflow if I was to buy there. I would want well over 10% gross yield to make sure high vacancy covered and higher costs related to rent.

Ross

[babelulu]

Start the planning for the subdivision and new build on the 2nd house.
While you are waiting for the process to grind through (it can take a long time) renovate the 1st house without spending a fortune (get the basics right without making it fancy).

Then build the new house. If you can manage things yourself you can save heaps.

Thanks, that sounds like a perfect plan.

[babelulu]

What are you long term aims and goals. You need to get these clear first.

I think you need a lot more information, before you can make the decision.

1) You need to know the cost of renovation, and the extra rent you will receive. If you are investing for equity gain, then the value gained vs cost will be the most important to you. I would focus more on the cashflow, and look at the extra rent compared to the extra interest cost.

2) What is cost to subdivide?
What is value of land subdivided if just sell as is?
What is cost to build
What is value of land and build once finished.
What is the expected rent on the new property?

If after equity, then need to work through what you have gained vs costs.
If after cashflow, then work out extra rent vs extra costs

In Palmy you might find the build costs don't make it worth while. Ie you might spend more building and subdividing then it is worth at the end!

3) Depends what you are after. I think small hole, and of the top of my head the population was dropping. I would run a mile. I wouldn't gamble on capital gains in Whanganui and I would personally focus on cashflow if I was to buy there. I would want well over 10% gross yield to make sure high vacancy covered and higher costs related to rent.

Ross

thanks Ross,
looking for cashflow on the rentals but for the new build will be selling so hoping for more equity.

[Rosco]

If you are building and selling, make sure you get some tax advice and understand the implications!

Ross

[mortgage broker]

You might want to change that to build then subdivide instead of subdivide then build - in Auckland anyway as the new Unitary plans is skewed massively in favour of this - you can get much smaller lot size.

Depends on the market as well - in a downward market there is no point in building when you can buy at a cheaper rate - as in building cost doesnt always track down with the market.

Do up and selling quickly can work in most markets - down or up

[Tomo]

Option 3 IMO

it comes down to your ability to borrow. Is sounds like you have already have a heap of equity so if you can get a loan approved go to market and purchase. Once you run out of equity, renovate to add value and refinance.

[Tomo]

I would buy in Fielding before Whanganui too, but thats just me.