Property Investment Questions

[johnny1230]

Hi all, I have done alot of reading on the subject of PI over the last few months and now i want to take action, but have a few questions that i am unsure of. Any help would be much appreciated. Thanks

What method do you use for analyzing property deals?

How do you work out how much mortgage repayments will be each week?

Aprox how much is insurance per year on an avg 3bdrm house?

How much do you aprox allow for maintance each year on a avg 3bdrm house?

What are the main maintance issues you have each year?

What are you best ideas to turn a negative cashflow property into a positive one?

What do mainly invest in? flats,houses,apartments?

What do you on avg get each week from depreciation?

On each property transaction what would the normal cost be at the lawyers?

What structure do you recommend for holding propertys long term?

Is it best to fix interest rates at 5 years at a time?

How do you set up your bank account structure for PI. Do you use a buisness account & do you have a seperate account for maintance & rates?

Sorry for so many questions at once, i thought this would be easier having 1 topic instead of many.

Thanks for your time,

Johnny1230

[Aston]

Hi Johnny 1230,

If you do a search on each of your topics, you'll find the answers on this site.

I'm busy right at the minute but I'll email a spreadsheet later to analyse your deals and work out cost of mortgage etc.

Aston.

[johnny1230]

Thanks for the reply, look forward to your spreadsheet

[drelly]

What method do you use for analyzing property deals?
That depends on what you're trying to achieve with the deal. Everyone has different situations, so it's important to make your own rules that work for you.

How do you work out how much mortgage repayments will be each week?
Try here: http://www.yovich.co.nz/services-mortgagecalc.php

Approx how much is insurance per year on an avg 3bdrm house?
That will vary depending on who you use, what cover you take, excesses and the area you invest. Here it's around $300/yr

How much do you aprox allow for maintance each year on a avg 3bdrm house?
Many assume $500 but I think this is rubbish. At least $1000 is more realistic.

What are the main maintance issues you have each year?
That depends a lot on your tenants. Also, maintenance can be irregular like repainting. The list is long! Cleaning, electrical and plumbing repairs, redecorating... etc etc etc

What are you best ideas to turn a negative cashflow property into a positive one?
Put down a bigger deposit! You could also add value in some way; redecorate, add a garage, add in extras like a dishwasher or other appliances, add another room.

What do mainly invest in? flats,houses,apartments?
So far mainy 3 bed houses.


What do you on avg get each week from depreciation?
Don't even think about it. I don't rely on tax benefits to make it work.

On each property transaction what would the normal cost be at the lawyers?
Um... about $800 last time

What structure do you recommend for holding propertys long term?
Ultimately, a trust.

Is it best to fix interest rates at 5 years at a time?
I'll let you know in 5 years.

How do you set up your bank account structure for PI. Do you use a buisness account & do you have a seperate account for maintance & rates?
A single account for all buy and holds. Some banks will insist on opening another account if you use them as a second bank but I still pay all rent to one account and transfer funds as I need to. I'd obviously open another account if I started doing trades in a different entity.

cheers,
Dave.

[Ivanhoe]

FEW? you must be kidding, m8!
I DO NOT HAVE ANY PROPERTIES SO TAKE MY ANSWERS WITH A GRAIN OF S....!

>What method do you use for analyzing property deals?
the easiest is 11 sec - for every $100 in rent you pay $50k. Will not work in Chch, though. try work on yield - take your targed yield and work from there. (yield is 5-6% avrg in Chch currently, based on asking price)
>How do you work out how much mortgage repayments will be each week?
=price*InterestRate(i.e. 0.083)/52, that's for IO only
>Aprox how much is insurance per year on an avg 3bdrm house?
depends on type of insurance. will you tend to under or over-insure? $300-600, depend on price too!
>How much do you aprox allow for maintance each year on a avg 3bdrm house?
depends on the condition, tenant and your projected cashflow. I hope you realise that Urgent repairs and maintance in not the same thing?
>What are the main maintance issues you have each year?
.....
>What are you best ideas to turn a negative cashflow property into a positive one?
Higher deposit! (100% - perfect cf+ve)

>What do mainly invest in? flats,houses,apartments?
yourself
>What do you on avg get each week from depreciation?
Depends on value of building and chattels. take a look at kieran's site, property finder section.
>On each property transaction what would the normal cost be at the lawyers?
$1000more or less.
>What structure do you recommend for holding propertys long term?
holding trust for properties
>Is it best to fix interest rates at 5 years at a time?
depends on your situation. look at kierans "averaging" solution
>How do you set up your bank account structure for PI.
open it in a bank, all transactions go through it - rates, repairs, rent etc. Your accountant will be very happy.

All this info has been dicussed here b4.
Good luck

[Ivanhoe]

drelly

[DreamsofDeco]

Before my purchase, I set up a spreadsheet with expected costs which I got by ringing around (rates, lease, insurance, legal fees, accountants fees etc). It is easier to be more accurate if you have a particular property in mind. Insurance can vary so much depending on the area the home is located in and whether it has a monitored alarm for example. To work out a rough guide to mortgage repayments you can use the calculators on most real estate agents sites, get a mortgage broker to do it for you or ring the banks. As for whether to fix for five years, if I were clever enough to know the answer to that one, I'd probably have won Lotto before now.

[johnny1230]

Hey, thanks for all your input much appreciated

[lissie]

What method do you use for analyzing property deals?

I use the somersoft software - cheaper than quite a few of them and is nicely configurable and has stuff in that Icouldnt do on a spreadsheet

How do you work out how much mortgage repayments will be each week?

Interest only is easy rate*amount borrowed divided by 12 for monthly - P&I use a bank's site calculated e.g. nbnz.co.nz I dont use P&I I prefer flexi loan (see below) and then I control what principal I pay off and when and am not obligated too which improves our DSR from the bank's point of view

Aprox how much is insurance per year on an avg 3bdrm house?

$300 seems to be about right - call an insurance company and ask them - based on m2 age, construction location - dont forget landlord chattles..Rates hurt more - especially in small towns

How much do you aprox allow for maintance each year on a avg 3bdrm house?

I dont anymore - I have a contigency of about $40k to deal with all the little stuff that comes up e..g $2000 for a new fireplace, similar for a DVS, $8500 for a garage to get a tenant, $600 to partly reroof . Get a building report prepurchase that will give you an idea of what you are up for in the 1st 2 years

What are the main maintance issues you have each year?

AS above - $500 a year or whatever is meaningless - my philosophy is if its broken I want it fixed 1) so the tenant stays happy and 2) because it protects the value of my property in the longrun. The damp problem was obvious the 1st winter we ownedt 1 property - adding the DVS both a) made the tenant happy but b) saved us an interior paint job from the water damage within 2 years and c) made the prperty more appealing to future tenants and purchasers

What are you best ideas to turn a negative cashflow property into a positive one?

AS others have said - add more $$ to your deposit and/or pay off capital as you can

What do mainly invest in? flats,houses,apartments?

1x 2bed regional town, 2 x3 bed house regional town, 1 x 3bed lower socioeconomic suburb, 2 x 2 bed units averge suburb, 1 x 2 bed semi superio suburb - in that order . We built confidence buying the cheaper properties - basically every property has cost more than the last. WE have a diversified set which have cash flows ranging from 11% to 4.5% gross (on purchase price) . One of the odd things is that the higher yields have gone up most in captial gain !
What do you on avg get each week from depreciation?

On each property transaction what would the normal cost be at the lawyers?
Last one was $909 - one mortgage, LAQC paperwork - straight forward - thats a 1st ! Dont forget the accountants fee - ours is $1500 odd but that is with 5 properties and I havent had a year yet where he didnt have to do the initial setup for a depreciation schedule - and he's ex-IRD and quite big practice so hopefully will not get his client's audited !

What structure do you recommend for holding propertys long term?
LAQC - I have a partner and we are both in the 39% bracket so even when it makes money its advantageous to us. Trusts seem pointless unless you have dependents to inherit or are in business and may be sued . Neither apply to us. Oh and a valuer will charge about $250 for a chattels valuation (which is deductable - the lawyer isnt in total) . Also often get a valuation $400 and a building report $350ish

Is it best to fix interest rates at 5 years at a time?
I dont guess interest rate movements - I try to split accross all interest periods - ideally 20% floating , 20% 1yr 20% 2yr etc - that way you have a bet each way - it doesnt cost anything to do.

How do you set up your bank account structure for PI. Do you use a buisness account & do you have a seperate account for maintance & rates?

We have a flexiloan (line of credit) for the floating part of the mortgage - with our bank this is cheaper than floating anyway. This is the company's cheque account and all payments are made in/out of it. All the fixed rate interest only loans have their interest paid from it. It separates out business expenses easily. If we have spare money we put it in here too to effectively earn 8.5% interest tax /risk free.

[Monid]

What method do you use for analyzing property deals?

Well it depends on which property... But nowdays we use a spreadsheet that I have written myself which gives us basically the figures we want to know. I'm pretty conservative, I want to get cash back after all expenses and before depreciation before I consider a place a good buy.

How do you work out how much mortgage repayments will be each week?

I use my spread sheet, then cross check that with websites then cross check that with the bank...

I also work out what proportion of the mortgage repayment is interest and what is principle, since it is only interest which is an expense (Principle repayments are in effect enforced savings)


Aprox how much is insurance per year on an avg 3bdrm house?

Around $300 but as others have said it varies

How much do you aprox allow for maintance each year on a avg 3bdrm house?

We aim to leave $20 per dwelling per property and we count that $20 as an expense whether we spend it in a year or not, as others have noted there are sporadic big expenses which require a slush fund.

What are the main maintance issues you have each year?

It varies, seemingly on a property manager by property manager basis, but there is always something

What are you best ideas to turn a negative cashflow property into a positive one?

Redecorate, Relocate and plug in more money...


What do mainly invest in? flats,houses,apartments?

Good question, no idea what the answer is, my instinct is to say 3 bedroom places but then we have:

1 3 bedroom house in Auckland

1 3 bedroom house in Kakaramea (Taranaki)

1 4 bedroom house in Rotorua

1 2x2 Bedroom flats in Rotorua (Bult for it)

1 3x2 Bedroom flats in Eltham (Taranaki) (Converted Villa)

So your guess is as good as mine.

What do you on avg get each week from depreciation?

Nothing, we get it once a year! In any case see Drellys response, depreciation is borrowing!

On each property transaction what would the normal cost be at the lawyers?

Depends on the complexity of the deal but usually about $1000 give or take a few hundred

What structure do you recommend for holding propertys long term?

I'm told LAQC is the way to go, we presently just hold them ourselves, suits our circumstances.

Is it best to fix interest rates at 5 years at a time?

It depends on a whole bunch of factors such as the present rates, whether you want to hold the property for five years etc. We go for the longest rate below %8 ourselves, but as I said we are conservative, I know at this rate we will make a healthy profit (I budget for rates of %9 when doing my initial calculations (Well actually the floating rate +1% if the floating rate is higher than % And I don't care too much if I miss out on some savings from a slightly lower shorter term rate.

I do however try and stagger the timing of loans coming up for renewal.

But as others have said it really is an individual decision.


How do you set up your bank account structure for PI.
As with others we have a revolving credit account which is where our PI activity occurs. The rest are just fixed term loans. Basically the plan is that the revolving credit account will be full when the next property comes up for refixing, at which point we will pay off some of the loan from the RC and then refill the RC and repeat with the next loan.


Do you use a buisness account & do you have a seperate account for maintance & rates?

Well no, but sort of. In that if the bank could and would do us the small favour of providing us a split R/C account (ie two suffixes) then I would operate this way, but they insist on charging their frankly silly account fee for each account. Arrgh.


As others have said watch out for the rates these can be the stinger.

Hope this is helpful

David

[moovet]

Hi,

Noticed most of you were sayng insurance is around the $300 mark? Is that full replacement or indemnity value? Do you get covered for loss of rent etc? I am currently paying $500-$600 for landlord type replacement insuraqnce. SOme policies dont cover malicious damage by fire either.

[moovet]

I know good property managers should be able to pick good tenants but insurance is just that, insurance that they didn't get it right

[DreamsofDeco]

My replacement value insurance covered the flat and about $10,000 of chattels. This cost around $300. Once I added the extra landlords insurance, the total cost was something like $724.00. Hope that helps.

[RentMaster]

My insurance is averaging around $320, and this includes the landlords fixtures and fittings. Basically that covers things like the stove or curtains or floor coverings which are normally considered chattels, but are included for landlords.

[Scarface]

Hi Andrew,
who do you insure with.
Avinesh