To buy or not to buy? What do you think?

[green as grass]

Greetings to all!
This is my first post on PT although I have been on this forum almost every night for the past 4 months Awsome site & thanks for the inspiration!

I live in Dargaville, have recently bought & sold some costal property in Whangarei now have a little $$ to re invest closer to home. I keep hearing "don't buy" cries comeing from this forum & other places since it's predicted that property values should "correct" themselves over the next year or so & then there should be some good bargians around.

However I am aware of a house on the market just out of town which belongs to a family who have moved to oz. It's been on the market for 12 months or so asking 140k a Typical 3 / 4 bedroom state house with w/b, tile roof & dbl garage. Big section.
I'm thinking of approaching the vendor (not the agent) directly and makeing a low cash offer. I should only need about 10k finance. It would probably rent out for about $140 - $150/week although I'm thinking of living in it myself.... not too sure how well I'd do at rentals

Can I buypass the RE firm legally & ethically?
It's been poorly marketed by thre RE firm, lousy signage & not much exposure in the papers.
What do you guys reckon?

[Dean@Massiveaction]

Hi Green,
"Keep hearing "don't buy" cries comeing from this forum & other places"
I haven't noticed that much here and I personally recommend to any one that now is a good time to buy teh right property. It's true that as we get into the slump proper things will come back, in some places more than others, but pos cash flow pretax is always good buying regardless of the market and flips are good as long as you are sure of enough fat in the deal to exit quickly.
When is NOW the best time NOW to buy you rnext property NOW

[Propoholic]

Hi green as grass

I keep hearing "don't buy" cries comeing from this forum & other places since it's predicted that property values should "correct" themselves over the next year or so & then there should be some good bargians around.

I think the above quote provides a certain amount of truth for a buy and hold strategy (rental). Currently, the residential property market is either at a peak or has passed it depending on the location in NZ.

In any asset market the best leverage for a purchaser (buying opportunities, better yields, less competition from other purchasers) is achieved when there is a lot more sellers than buyers and the asset class is unpopular to the general market. It is probably two or three years away untill we get to that state in the residential market. It will take that time for the current head of steam to simmer down.

My view is that there is not any great urgency for 'buy and hold' investors to get into the current market.
Over the next few years it is likely there will be a level of softening in prices and rentals.
Pooomba wrote:

It's true that as we get into the slump proper things will come back, in some places more than others, but pos cash flow pretax is always good buying regardless of the market

Buyers purchasing 'positive cash flow pretax' properties at the peak of the market may experience that +ve cashflow disappearing with a softening in the rental market. This has happened before, rents tend to increase in a buoyant economy and reduce in a softening economy.
Purchasing positive cash flow pretax is always best in the counter cyclical phase of the market where the asset class reduces in popularity and yields increase. In the counter cyclical phase of the market you will also be able to uncover +ve cashflow properties in inner city locations that present similar yields to what was available in lower socio economic areas at the peak of the boom.

I am not talking about trying to pick markets but positioning yourself in a cautious and calculated fashion to get the most leverage from the changing property cycle. Some recommended reading would be Grow Rich with the Property Cycle by Kieran Trass; this book provides excellent coverage of the above issues.

Kieran (Trass) recently highlighted in an article the two important factors for success in the market:- "Timing the Market" & "Time in the Market".

[fudosan]

Hi green as grass

A warm welcome to PT

As a city folk, I like your nickname.

I keep hearing "don't buy" cries comeing from this forum & other places since it's predicted that property values should "correct" themselves over the next year or so & then there should be some good bargians around.

That's not what I have read on this forum. It's more "don't buy" if the numbers are not good and no safety of margin is built in to accomodate any drop in rent but hike in interest rate, so that you can ride out until the next boom.

[Heg]

Can I buypass the RE firm legally & ethically?
It's been poorly marketed by thre RE firm, lousy signage & not much exposure in the papers.
What do you guys reckon?

If 3 real estate companies are marketing the property, then it will be a general listing. This means that only the company that sells the property gets paid, and in theory means that the vendor can sell privately. However, to quote from a Ray White listing form
"The property shall be deemed to be sold when the vendor/s has been presented with a binding offer from a purchaser at a price and on terms either as set outin the property description sheet or at any other price or terms agreed to by the owner/s and a purchaser shall be deemed to have been "introduced" to the property where the property has been brought to the attention as being for sale whether by advertisement,signage,verbally,directly or indirectly,during the term of the agency appointment"

Like I say, that is the Ray White wording on a general listing, so not sure about other companies. It wouldn't hurt to contact the vendor directly to see if he has retained the right to sell privatley (he should have it in writing ).
Hope that helps
Heg

[Dean@Massiveaction]

Very true Barry, well said!!

[drelly]

Hi Green,

Welcome!

From what I've seen over here in Whangarei, properties like that are easy to pick up in Dargaville. Returns are only around 5% gross so what makes this one attractive as an investment?

[Jarrod]

Hi GreenAsGrass
My theory at the moment is if the numbers stack up then take the Nike approach....Just do it....
However as the market has a less than rosey short term future, I am being very conservative with my numbers. If you can still make the property +cf with a 8.5% interest rate, thats cool. If you can drop the rent by 10-15% and have +cf, thats also cool. If both and its still +cf thats really cool and probably worth further investigation. Print out the figures and show them around to a few people,lawyer, accountant, mortgage broker and see what they say.
I dont believeyou should hold off because most people are say the market will go down, however I do believe that if entering for the first time (as I am soon) with this kind of market, you need to be far more aware of any possible downside and plan for it. Even if you don't buy, the practice at evaluating deals will be worth its weight in gold when the market starts going up again.

Jarrod

[Propoholic]

Hi Jarrod

My theory at the moment is if the numbers stack up then take the Nike approach....Just do it....

'Just do it' is a marketing campaign and they're selling shoes.
However, I think the 'Nike approach' points to years of preparation, training, education, goal setting, having the 'right' coach, having the 'right' team. This is all comes under the umbrella of 'Just Do It'. Nike would not want you to peak now when the main event is some time away....be prepared for the main event!

Even if you don't buy, the practice at evaluating deals will be worth its weight in gold when the market starts going up again.

Yep, all part of 'Just Do It'!

[green as grass]

Ok ok I confess that probably the cries that I hear are most likely murmers that I'm over reacting to
I am very conservative when it comes to buisness matters & it has been to my detriment in the past.

Thanks for the warm welcome & replys
It's great to meet you's after months of sifting thru posts & reading about your adventures.
Fudosan, the nick came off the top of my head last night as I registered, It is really a good description of where I am at the present time. Your testimonys of your property pilgrimages has been amazeing reading for me. I had no Idea what was possible when people get passionate with property.

Drelly, good question, my mind went blank for a sec when I read it lol!

There are several things I like about the place.
1 Location. 5k's out of town
2 It only has one other house next to it.
3 I know the vendors
4 Good solid house
5 On town water
6 The thought that I may be able to get it at a good price.
7 It could look a lot nicer with a freash coat of paint (bad colour scheme)
8 Big section!

It's listed at 140k, I was considering trying to get it for 120k cash

Is that a low enough buy price in your opinions?

[essence]

Hi Green As Grass

Welcome to PT!! Beware - there's lots to enjoy.

Don't make your original offer at where you want to finish - make it lower. You never know, after a long time on the market, the owners just might accept it and you've saved yourself more money.

Good luck.

[drelly]

Hey Green,

I think you need to sit down and clarify what you're looking for in an IP. This will be different for every person. If you were looking to start of a property investment portfolio, then don't buy it unless it's CF+ or you can get a big discount on it to resell. However, if you're just wanting to pick up one IP, that's all you'll buy and you're happy to use your own income to prop it up, then ease of renting, maintenance and access will be more important than the numbers.

Some of your reasons for buying seem a little too "personal". Consider the numbers first. If they don't meet your criteria, then the rest don't matter.

So which is it? Budding property mogul or one rental for fun?

By the way, www.realenz.co.nz has 10 properties in Dargaville for $140k or under. I suggest that you go see as many as you can in a similar price range so you get an idea of what is and isn't a good deal. Good luck!

[Julian]

GaG,
The price has to pass your criteria. Asking others on this site for their opinions of price is like asking them whether they like bananas before you head off to buy yourself some fruit. Get as much information as you can, evaluate the buying decision based on your own criteria - then make the decision and act on it.
Best wishes.
Julian

[flame]

Julian is quite correct. You have to set your own criteria.

However if you look at the rules for being cash flow positive I would expect the purchase price would need to be under $100k - possibly quite a lot below.

In the last couple of days have seen home and income properties in Auckland - rent $760 asking price $480k, rent $850 asking $495. Neither of these is cash flow positive but possibly look more attractive than rent $140 asking $120.

[nfung]

agree

Flame your example verified my recent rule of thumb for hunting:

Rental should be at least 2 x buying price / 1000

(i.e. I want at least 10.4% p.a. return. but don't use this % as datum since you need to think about cost etc)

It bases on the current relatively high interest rate situation.

For instance your "rental $760 asking price $480k" does not pass since 480 x 2 = 960. Only if you can rent it for $960, or if the price is down to 760k / 2 = $380k it starts attracting my eyes

Green hope this helps you become less emotional.

:-)

nfung