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  1. #1
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,234

    Default Are You Looking To Buy A Rental?

    Are You Looking To Buy A Rental?

    What do you want from rental properties? My idea of the perfect scenario is a debt free personal house and passive income coming in from rental properties.

    It appears we are around the peak of the market and for most investors, it is important to focus on cash flow or long term opportunity.

    If you buy a standard house, at standard values through a real estate agent, it is likely to cost $5,000 or more each year, after receiving tax refunds. If Labour get in and take away the tax benefits, this cost would increase to $9,000 or $170 per week. Is it worth gambling on a capital gain of more than $9,000 a year over the next 1-5 years?

    The only times I would buy a rental that is giving a large cash loss is:


    • If there was a 'twist' available that would change the cash flow substantially. The best example of this is a subdividable property. To start with, the cash flow might be negative $5,000 per year or more. But if you subdivide and sell a section (ensure you get tax advice!), this could substantially reduce the mortgage, even after paying tax. Or, subdivide and add another rental on the back to give more rental income.
    • If you are expecting a large inheritance or cash windfall which means you can pay off any personal house debt, and also reduce the rental debt so that it is then break even or better.
    • If you have large income and can quickly pay off any personal house debt and then quickly reduce the rental debt.
    • If it is a trading property and you are buying at a signifcant discount. NOTE: trading is risky and you would want to ensure there is still a good profit even if things go wrong.


    Otherwise, my approach is slow and steady.

    • Can you improve rent on existing rentals? A simple renovation can often improve the rent by $40 or more per week and give a large return on investment.
    • Can you subdivide or add minor dwellings to existing rentals?
    • Only buy rentals if either:
      • The rent covers all expenses and can pay down principal over 25 years, or
      • It is subdividable and ideally with the option of building a Duplex. You still need to buy well and do your numbers carefully!

    • Watch and wait, and hope the market crashes a little and that there is great buying in two to three years.


    So overall, when buying a rental, I'm looking at how does this rental help me achieve my personal aims and goals. If I buy, I want a strategy of how this rental will give me passive income. That generally means buying extremely well, subdividing or reducing a large amount of debt. Otherwise you are left hoping or gambling on capital gain!
    Ross
    "Property Accounting Mistakes - are you making any?"
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  2. #2

    Default

    Good post. I'll add that adding bedrooms to an existing property is a good way to increase cashflow. It fits somewhere between an renovation and adding a dwelling on the order of difficulty.
    Free online Property Investment Course from iFindProperty, a residential investment property agency.

  3. #3
    Join Date
    Aug 2003
    Posts
    7,173

    Default

    Thanks Ross - great post! Yes and to add further to Nick's post if you can't add a bedroom - try and add an extra bathroom or at least a toilet particularly for rentals of 3 or more bedrooms. An ensuite for example does add $$ to the rent grab and add value to the property.

    cheers,

    Donna
    PropertyTalkBlogs - property articles hub

    BusinessBlogs- business articles hub



  4. #4

    Default

    For me, anything that pays for itself, look to increase current rents, look for discount on asking, should be plenty out there now. Big issue is lending limits. Timing, best time to buy would be now before election.

    FH
    "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".

  5. #5

    Default

    Right now I don't believe there's any reason to buy in Auckland. CG's are flat and predicted to be so for years. Rents are flat and predicted to be so for years. Capital is tight, harder to access, high leveraging isn't possible.

    I asked the same question in another post, nobody gave a solid answer which quoted hard facts as to why it's a good time to buy. Frankly you'd be better putting it in term deposit where you'd not only get a better return, but without the concerns of tenants trashing your stuff. I'm happy to stand corrected on this if someone can provide information to the contrary.

    I don't believe the situation will always be like this, but for now, the numbers don't work. Good opportunity to squirrel your money away for when things change again, which they inevitably will.

  6. #6

    Default

    CG's are flat and predicted to be so for years. Rents are flat and predicted to be so for years.
    Don't know who you listen to but that's complete rubbish.

  7. #7

    Default

    Do you have access to data which shows otherwise?

  8. #8
    Join Date
    Oct 2013
    Posts
    1,385

    Default

    Are you asking for future data? Anyone with that, will be keeping it as close to their chest as possible.

    I can see capital gains in Auckland staying flat for a while; or alternatively I can see them taking off again - especially if LVR restrictions are reduced.

    Who has told you rents are predicted to be flat for years? At the very least they'll keep rising along with wage growth; I'd imagine faster. We have a significant undersupply of housing in this city!

  9. #9
    Join Date
    May 2008
    Posts
    2,911

    Default

    Quote Originally Posted by mrsym0r View Post
    Do you have access to data which shows otherwise?
    Yes.
    Huge demand for housing and a huge shortage of houses.
    Haven't you noticed?
    The actual figures have been published in the media for many years now.

  10. #10

    Default

    Quote Originally Posted by mrsym0r View Post
    Right now I don't believe there's any reason to buy in Auckland. CG's are flat and predicted to be so for years. Rents are flat and predicted to be so for years. Capital is tight, harder to access, high leveraging isn't possible.
    It all swings in roundabouts, now is the time to ask for discounts, money can be made when you buy if you buy right to start with. Why would you buy in a time when every tom, dick and harry is out there, yes CG may be flat or declining but who cares if you are buying at a 10% discount. also my intention is to hold long term so I don't care what the market is doing in the next few.

    FH
    "Remember, people will judge you by your actions,not your intentions.You may have a heart of gold -but so does a hard-boiled egg".


 

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