2 bdrms or more?...

[revdev]

Hi everyone,

May I pick your brains for a minute...

When buying my first IP 2 years ago, a friends advice (who happens to be an investor and an agent) was to stick with 2 bedroom properties...why? Because she said, much less wear and tear/maintenance required with only 1 or 2 people in the IP. She indeed had a portfolio of around six 3 bdrm IP's and chopped them all in for 2 bdrm properties.

Having taken her advice, both my 2 bdrm IP's are rented out to single people...one point of contact, fewer tenants means (hopefully) fewer drama's...and w&t is definately minimal at this stage. The properties are giving me 8.8% and 9.6% ROI and ticking along nicely.

However, in the continual search for IP's that stack up, by shunning the larger houses am I short changing myself of other opportunities?..probably yes you all say, but I am weary of turning my nose up at a friends advice, that has, so far, been good to me.

Thanks folks..
G

[Buzzard]

Why not three?

Hi Revdev

The two bedroom rentals has obviously worked for your Agent, as it has for you. Don't let your relationship with this person stop you from doing what YOU want.

To maintain your relationship, invite your friend to participate in discussing the solutions to what she sees as negatives in three bedroom IPs. That gives her some form of ownership of the idea and she will be more supportive, though sceptical.

When I was a mere employee, I used this method often to get my own way. After all if it becomes there idea or concept it must be OK. I've sometimes use it on my wife, however this I now deny.

Ask her lots of question in the direction you want to go, and make your contributions to the discussion a question. " Do you think" for example as a lead in, "a reward system for low R & M will limit damage".

Good Luck with your Agent.

Steve

[drelly]

Basically, it just comes down to the numbers doesn't it? A nightmare tenant is a nightmare no matter how many bedrooms there are. If the ROI is good enough, who cares how many bedrooms there are?

Personally, I don't have any 2 bed places because the cost to purchase here isn't much less than a 3 bedroom so the return isn't great enough.

[MiniMogul]

Hi there,

I know that in Australia the average rental property is a 2 bedroom, but I don't know about NZ and I think it would depend on the town.

I think best to discuss with your rental manager before you decide.

In one town I invest in, 2 bedrooms are not at all popular, and 3 and 4 bedroom homes is what they can't get enough of. There are a lot of vacant 2 bedroom places. So that's why best to check with your rental manager first and make sure there is demand for what you are looking at buying.

Another thing to think about is that rents are more on 3 bedroom houses than 2 bedroom ones, and you'd have to compare the value, all other things being equal.

Then again duplexes can show higher yields.....
Also you will probably get a higher tenant turnover with one and two bedroom places, and you will be probably more likely to get longer term tenants in a 3 bedroom house if you have a family. it is easier for singles and couples to shift, than it is families with kids!

I have so far all 3 bedroom houses on freehold land, but I am about to build 2 x 2 units, so ask me again in a year!

just some thoughts anyway
cheers-
Mini

[revdev]

Hi guys,

Thanks for your help with this one...not really a major but has been niggling away at me.

Bit like "Don't fix what ain't broken (assumption!) VS Opportunity(s) Lost



G

[AustinWong]

I agree with Drelly.

As long as the figures stack up who cares? I know I won't.

I would prefer 3 bedrooms as I feel it would attrach a wider range of tenants ( for better or worse) hence potentially less downtime.

Also if you just chose one size of IP then you will restrict yourself. i mean how about the 1, 4 an 5 bedroom places with good potential?

At the moment with current market prices I would be glad to find just one IP that stacked up well.


Lawrence

[clips]

i'm a 3 bdrm fan.....these tend to attract familys as tenants who (in my experience) are more stable than singles or couples.

[kieran]

Interesting thoughts re 2brm being better than 3brm?

My focus is on the numbers and I don't manage my own tenants (ie use Property Managers).

I have often bought 2brm properties (at a 2brm purchase price) and converted them to 3brm because the return is so much better & I create equity because now they can then be valued as 3brms and not 2.

Compare a 2brm rent to a 3brm rent and you will see that the difference is significant but the extra cost to build a 3rd bedroom is often insignificant based on the much higher return achieved.

The same reason applies to our Mini Houses (Hybrid Minor Dwellings) being 3brm and not 2brm. We build 3 brms in 65 sqm (yes it's tight but bigger than you can imagine when architectually designed and purpose built to maximise the use of every sqm).

[MiniMogul]

hi Kieran,

couldn't agree with you more, especially after talking to the valuer today (before making the final decision on my first mini-development.)

3 br will value up better than 2 bedroom comparitively to the price of building 2 x 3 rather than 2 x 2. I have a little more space to play with, so I am going to do 2 x 77sm 3 bdrm units with garages.

I know what you mean about how 3 bdrs fits into 65 sm cause I have seen plans for that size. Who is your supplier for these minor dwellings BTW?


cheers-
Mini

[kieran]

Hi MiniMogul,

I use a registered master builder called Cake Group (they specifically build our 'Hybrid Mini Houses' to our own architectural design and specifications). This is the same builder our clients use when they build through us, and this gives our clients the comfort of having a professional builder combined with the trusted Hybrid brand 'behind the product'.

The reason I do it this way is because I have learned from some past mistakes. For example Hybrid used to have it's own 'Project Manager' who would co-ordinate builders and sub-contractors to build but that just resulted in endless delays and sometimes a dubious quality of finish, amongst many other problems...

In just one case a clients brand new driveway was mostly ruined because it was not laid by professionals (ie crooked cuts, rough finish, breaking on corners etc).

Our client complained to my 'Project Manager' who refused to do anything about it (instead insisting the client had to take it up with the builder and advised the client (unbeknown to me) that it was not our problem even though we had 'project managed' the entire job!)

However, once the client approached me direct to highlight their concerns, I met with our 'Project Manager' and the other company director (who also shared the misguided belief that it was 'not our problem but the clients problem') - there were 3 of us involved in the company. After much debate with the project manager and the other company director I asserted my authority and insisted that we refund $5,000 to our client to make up for the poor quality driveway. They were very unhappy with my decision to say the least but I ensured our client got their $5,000.

My attitude in business has proven to be not very palatable for some former shareholders in my companies because I never waiver from putting my clients best interests first... yes, even before shareholders best interests...
My attitude is that if we are not putting our clients interests 1st then we don't deserve to be in business! Of course we still need to make a profit (and we do) but never by sacrificing our integrity! Money I can lose but my integrity is not for sale! It's certainly not a 'get rich quick' strategy but the rewards are much more satisfying than money alone.

Needless to say it was not long after this event that I parted company with the then 'Project Manager' and the other Director whose actions indicated they were more interested in their own short term profit than long term client relationships and goodwill.

So now Hybrid ONLY use Cake Group who have proven to be hassle free, on-time and on-quality. Hybrid still stand 'behind the product' that Cake build for our clients and will intervene in need to ensure our clients get what they expected and no less...

Tips for when you build:

Only build with someone you TRUST and make sure that you get these in your contract...
1) A guaranteed 'start date'
2) A completion clause ( ie within 14 weeks)
3) A rent clause that means if they fail to meet 2 above that you will start getting paid rent by the builder until it's completed.

These issues are critical because otherwise the job can drag on for months longer than it should whilst the builder uses the subbies to work on 'higher proirity' jobs (ie building their own speculative properties to sell at a profit!!!)

[Marcus]

Well said Kieran.
I think one of the "true measures" of a man/woman is not necessarily how many houses/ cars etc that they have sold, buildings they have developed, or driveways they have poured etc. Knowing how they have dealt with "ball$ up$" that they have been responsible (directly or indirectly) for, counts more.

1) A guaranteed 'start date'
2) A completion clause ( ie within 14 weeks)
3) A rent clause that means if they fail to meet 2 above that you will start getting paid rent by the builder until it's completed.

Sound advice I wish I had 9 or 10 yrs ago (gawwwd that went fast! ) when I had a property built. I fell for the old "I'm a man of my word" and "I'm a religious person and would do wrong by no man". Pffffft! What ever!
More than anything I was guilty of inexperience and/or lack of relevant education.

Lesson learned.

Regards.

[Josko]

I use a registered master builder called Cake Group.

Obvious, but I just can not help my self...

so you can have your cake and.......

[AustinWong]

Marcus

Sound advice I wish I had 9 or 10 yrs ago (gawwwd that went fast! ) when I had a property built. I fell for the old "I'm a man of my word" and "I'm a religious person and would do wrong by no man". Pffffft! What ever!

A friend of mine (an investor himself) recently said to me that his grandmother always told him :

"Never trust a person that has to give their word"

I am a firm believer that a person with integrity should never need to use words like "I promise" or "trust me" or take my word" etc... because if tehy do then they must be feeling uncomfortable about something in their nature that they would need to say these words to give unsolicited reassurance.

I know looking back on personal experience that I only ever used those words where I had already let someone down...as i am sure most of us have.

L

[MiniMogul]

"ie building their own speculative properties to sell at a profit!!!)"

YEAH! too right, they should be concentrating on building MY speculative properties for ME to sell at a profit!! haha!

Thanks for that, Kieran, I'll extend my reply later on tonight.

[kieran]

ie building their own speculative properties to sell at a profit!!!

Mini, just to put this comment into perspective...

I mentioned this because that is exactly what I have seen contributing to building delays, often for many months. Some of the building company directors were busy getting their own properties built (at cost) to on-sell at a profit... (i.e. to the detriment of people who had paid a deposit to have their properties built!)

The excuses fed to those people (waiting for their buildings to be started) always blamed someone else i.e. subbies are busy on other jobs etc (guess who's jobs the subbies were on!)

Austin, Yes, trust seems to be such a misused word these days, and I agree that if someone is insisting you should just trust them just because they are trustworthy then be wary...

Whilst working in the finance industry I learned to recognise a con man (person) relatively easily (although I still get caught out occassionally!)

In the last few years I believe I have met several cons. Unfortunately a few of them got through my net (for a whilst!).

The answer to recognising them is to LISTEN... Always ask lots of (probing) questions and get them talking, let them go into freeflow conversation and listen for any inconsistencies in their statements. The more relaxed they feel (i.e. they think they are winning your trust) the more likely they will contradict themselves without sound reasoning...

They always say exactly what you want to hear (i.e. you will get rich in a year, it will be done tomorrow, I promise, I will do whatever it takes, we can accomodate anything etc,etc).

They will also take on any task for money (even if it's outside their scope of knowledge or expertise) and they won't point out the potential downsides (often because they dont even know what they may be).

In hindsight I have found that every time I have failed to recognise the con that it was because I did too much of the talking! and not enough listening.

Ivi, Yes, you can eat it too...