How bad is too bad an area and where would you buy?

[AustinWong]

I am wondering as I walk my path to buy my first IP, as to how bad is it really to buy in a rough area as it is these areas that are generally showing the returns.

Is it perhaps better, if you can afford it, to put in an extra $20-$50 a week to make it CF+, if you can then secure a nice home in a good area?

Your thoughts.

[tamara]

Hi

I think that will depend on your own SANF (sleep at night factor).

Everybodies tolerence to high mantenance tenants is different. Mine is not very high as we live too far away to deal with any of the on going repair issues that do arise. In saying that my very first purchase was in an area that bordered a very difficult area. Amazing how time changes areas. It is now a dramatically improved area with the difficult elements well gone. Along with this change, I have benefited from constant increases in rent and good stable tenants.


As for your second point I would be still looking for cashflow positive properties. Alternatively maybe a property that you could add value to and squeeze and extra $10-$20 out in rent might be worth looking at.


Tamara

[drelly]

Tamara has a good point. Better properties in better areas do tend to have a few more pluses... they attract more tenants and generally a better quality tenant.

I also think that something that is overlooked is the relative risk for the person in buying in a less well off area. Someone that has another 7 CF+ properties can afford to take a punt in a "bad" area when they have 7 other income streams supporting that choice. They are more diversified and so the risk is reduced.

But if you have one property and it's in a bad area, the risk is greatly increased. Of course the potential for gains is also greatly increased... it's all about balance... and that "sleep at night" factor.

[grotto]

cash flow +?

Just a query (as I see loads of people talking about CF+ IP's)...

If you are putting in an "extra $20 p.w", sureley this is not cashflow positive. If I have to put in any money (as a deposit, maintenance, or rent subsidy), I would not consider the IP CF+.

Maybe I'm misuderstanding all the posts I've read.

In relation to the original post, I'd buy into the best area I could, given that it meets my criteria. $20-$50 p.w. isn't much if you get better tenants who pay their rent on time, look after the place, etc. etc.

I've had the same dilemna recently, have been looking at "worse" areas, but know that the IP's I have in "better" areas, rent faster, get more responses to ad.s, require less of my time, etc. I'm looking at putting in $100 p.w.

godd luck anyway!

[kolzee]

I've got a couple of views on this.

First is that i agree with you grotto - if it's cashflow positive then you don't have to add cash to cover operating expenses.

Regarding a 'good' area, it's like beauty...... A good area to me is still relative to investing - ie usually i would prefer not to live there but it has strong demand from renters, good facilities, etc (eg massey, henderson, mt wellington, otahuhu).

There are also different ways to judge areas though. My strategy is based on buying in areas with a 'sufficient' yield (but not intended to make money from) and a high perceived capital gain potential. In my case then a good area is one which will not cause too much maintenance cost but has good transport access, facilities, etc...the factors which i believe will drive the capital growth.

What you should consider though austin, in buying your first and following properties is how you will overcome the servicability barrier further down the track (see other threads on this).

Due to this, buying 'nice homes in good areas' is not likely to be sustainable long term (gross generalisation i know).....

that's my two cents!!

[grotto]

Hey Kolzee...

I was including Mt Wellington in my "better" areas.

I guess this shows it's all relative......

No offence taken, as I'm sure none was intended

[Rolf]

With only one IP so far, I'm not having much of a statistic to build on here - but my experience is that an IP in a good area shouldn't give you any problems. My IP is in a good area, and it's kept nice and tidy. And I had far more ad responses than I expected, and the tenant is very nice, pays on time and I never had any issues.
Of course I might have been lucky, but all I can say is that I have no worries with this IP Don't know what it would be like in a bad area.

Cheers,
Rolf

[casacamo]

We have on property in a 'bad' area (you can't get badder than Otara)
but it is very good +CF and this helps to offet any additional spending
on maintenance etc.

We made sure it was brick & tile & on a full site to increase possibilities
of good capital gains in the future.

We have other houses in resonable areas but not as good CF
so this one helps to balance the portfolio, I would not like to be
reliant on this one on its own.


Casacamo

[AustinWong]

Re: How bad is too bad an area and where would you buy?

Is it perhaps better, if you can afford it, to put in an extra $20-$50 a week to make it CF+, if you can then secure a nice home in a good area?

Hi all I think there was a misuse of my words to create some confusion. Indeed CF+ properties means you put nothing into it and get a surplus.

I was trying to say..what if I supplemented $20-$50 per week.

I hope this clarifies things

Thanks

[AustinWong]

Kolzee

My concern is that property prices have not stabilised. On top of this I am worried about poor quality tenants. Obvioulsy a great house does not equate to great tenants, but from what I can tell, most have generalised that better quality homes in better areas attract comparable quality tenants. Just what I want.

Only, you have to pay more at the moment for these dwellings.

After getting on the wagon of IP's I will feel more comfortable and then can look at waiting more patiently for CF+ properties, knowing I have I guess in my mind a type of insurance ie my first IP.

Something tells me though I am still perhaps too emotional about this IP thing... hmmm...

You comment in your post:

"a 'sufficient' yield "

What is your criteria if you don't mind if I ask, also do you buy CF+ properties?


Rolf

Is your IP CF+?


Generally Everyone

So with the current markets and forseeable markets, which I think is not going to shift much in the near of far future. Am I just better to jump on board pay a few dollars more a week and be in? Or am I going to be a dork for this? I seem to regurgetate the same questions but also don't seem to get a clear answer (in my head anyway).

By the way.. before anyone says it ...I am not Procrastinating


Your thoughts

Cheery!

[grotto]

Hi Austin

I'm in the same dilemna as you.

Can't find anything local that's cash flow positive.

Had looked at a place which could rent for $360 p.w. after I'd spent about $20K on it (and done a fair bit of work myself). Agent was talking high 200's/low 300's.

Decided return was too low (that was the general PT consensus).

Sneaked down to the auction today thinking I'd buy it. Sold for $397K.

I'll just keep looking, and learning I guess. May have to buy outside the areas I know. Iread in the paper that Otara is going off, but maybe it's too late now?

I have not found a CF+ property with any potential for over a year now, but from what I read in the forums they are there. let me know if you fund a spare one!

[drelly]

I have temporarily given up the search for CF+ and put in an offer on a very CF- property. I figure I will speculate on something and use my other properties to prop it up. My other 4 places are all CF+ so the rent will at least cover the interest. Will let you know more if it goes through...

[Gerrard]

Something tells me though I am still perhaps too emotional about this IP thing

Very easy to do. The first place I bought was sight unseen with very little pre purchase checking (talk about stupid). The number stacked up, the property manager said it was good so I did it.

If I had seen the place first I might not have been so confident in the purchase. Not that it was a dump, more that I just didn't know what made a good rental property.

I still look at places now and come up with the downsides, rather than looking for the upsides as an investor. Lots of people talk about having a good team around you and this is exactly the situation where it would pay off. If I had a valuer, builder, property manager etc to wheel in at the drop of a hat and give me expert advice, it would stop me from making emotional judgements without accurtate information.

The problem is that most of us are dabblers so don't have that team on hand all the time. Ok, time to go befriend those experts.

Gerrard

[revdev]

I think drelly's earlier post was right on the button. This type of IP (bad area/high yeild) may be something to be attempted some way down the PI road of experience.

Or maybe do this when you are looking to really inject some cashflow into your portfolio.

For example, there is a property on the market here at the moment for $75,000 with sitting tenant at $155 p/week. Nice numbers, but I'm not sure even if a PM would take it on!!!

G

[muppet]

Hi Guys

Try Tokoroa for cashflow positive properties.

Regards