Starting off - Two cheapies, or one mid-range?

[mattcamp]

After some advice from some of you seasoned professionals....

As someone attempting to buy their first IP, am I better of purchasing two at $200k(or less), or one at $400k?

I am looking in the areas of Manurewa, Mangere, etc for the $200k stuff.

Most of the $200k type level properties are really struggling to be rented for more than about $270-280/week, which makes the cashflow neutral point extremely low....

My goal is to buy pre-tax cashflow neutral (or preferably positive!), but the offers I'd have to put in on a house which rents for $280 is so far below what most people are asking, I'm beginning to wonder if there is even any point making the offer?

RevIQ is telling me that on a place with an asking price of $210k, with rental of $280/week, even if I managed to buy it at $160k (with 20% cash deposit), it would still be $118/pa cashflow negative.

$50k is one massive discount on a property with an asking price of $210k... not impossible, but highly unlikely for a first-timer.

Going IO rather than P&I means I could possibly pay $170k, but that's still pretty hard going.

So... a bit confused. Have spent the last 6 months reading everything on PI I can get my hands on... now have the LAQC, lawyer, and accountant stuff all ready and am trying to jump in there and actually buy something, but I haven't yet been able to find anything even "in the ballpark" of where I would need the price/rent combo to be to make it work.

My goal is to own lots of properties for long term buy-and-hold, so I can't afford to negatively gear these initial ones.

[cube]

Hi mattcamp,

Times are tough if you are looking for something that is cashflow +ve at 100% finance from day 1, so you have to carefully consider how you want to proceed.

You could start putting in low offers - I'm sure you'll soon get a nose to be able to sniff out a motivated vendor.

Or you can look maybe not at day 1 cash +ve, but give a prospective property 3-6 months to become cash +ve - can you sub-divide, add a minor dwelling, add a bedroom etc. (even renovations can raise the rent a little).

You have to really know what your customers, the tenants, are after, and be able to offer it to them - maybe its a broadband connection, or Sky or petrol vouchers or ...... your imagination is the limit.

I'd also suggest reading Steve McKnight's books - they definately give a different perspective on what you are trying to acheive - especially when it comes to the holy grail of 100% finance and cash positive.

Good luck

cube

[Dean@Massiveaction]

Hi matt. Myself and others have talked about this in many threads here. Suggest a forum search would help. But my 2 cents worth is it doesn't matter what the purchase price is in some ways, your rule of cashflow is what counts. When I started I bought mostly home and incomes in the mid 300's to mid 400's because they could provide pos cashflow. If you search on home and incomes in Realenz you will find truckloads of them at the moment, many of them you could buy at close to asking and be pos cash flow, especially n Mangere. With interest rates down to 7.3 you don't need an amazing yield to be cash pos pretax.
In terms of your head space as long as expressions like

I'm beginning to wonder if there is even any point making the offer?

and

not impossible, but highly unlikely for a first-timer.

you will struggle.
You will achieve what you believe you are capable of. You will find pos cashflow pretax all over the place once you believe they are there. And if that involves 50 low offers a week then do it. How important is your goal. If you're passionate about it you keep pursuing results until you achieve them. I did and I'm old fat and ugly! :-)

[FreezingandHot]

Dean, you can add to that a great motivator.

Often I have also felt like you Matt, "What is the point of even trying." I am in a similar situation to yourself
but am looking high and low for my 2nd IP, I have learnt along the way that sometimes you have to be creative to make the deal worthwhile, and don't think for a minute that you cannot take 50-60k off the top of
the listed price. You do not really know the motivation behind the vendors decision to sell until you uncover it,
and that is when you will find if you can get the price down to where you need it to be.

I want my next deal to be cashflow +ve and I won't stop until I FIND it.

I find my attitude towards what is possible is very important to my future success.

So will yours!!

FH.

PS. Matt, where can I purchase the software for Rev IQ?

[mattcamp]

Thanks for the feedback guys,

Dean - Yet again, your words are gold. Gotta say that of everyone on this site, your posts are the ones which probably inspire me the most.

PI is something i've been looking at doing now for about a year - Far too long with no action!

I'm probably guilty of over-analysing everything and trying to come up with the perfect strategy, rather than just getting in there and doing it...

A few months ago I was all fired up (after reading some of Deans posts actually), but then had to get things like lawyers, accountants, and companies sorted... then with a full-time jobs and two on-the-side businesses, time got short, christmas came and went, summer came and went, and I probably started to believe all the doomsayers in the media... a quick look at the realenz/trademe sites seemed to show I'd missed the boat, but I've now realised again that I just wasn't looking hard enough.

As Dean said, the deals are there... I just gotta look for them... and I will!

(He says, having just sent off enquiries to just about every House&Income listing on realenz )

So thanks again... was just having a moment of despair yesterday... moment passed!

[Dean@Massiveaction]

The other thing to remember is that an ordinary, or dare I say it a bad property investment, will still outperform our "investments" in dinners out, latte's and fast cars!!

[FreezingandHot]

No more latte's & Audi Quattro's for me then!!

[mattcamp]

With petrol prices the way they are, any sort of car seems like a terrible investment.

I just moved into a tiny tiny little unit (and a couple of cheap garden sheds from bunnings) that's walking distance from work, so the car sits unused now except for the occasional supermarket trip!

[FreezingandHot]

Yes with prices @ $1.67 per litre cars do seem very undesirable @ present!! Has'nt stopped people from buying and the big fords & holdens.

I still dream to own a nice one some day

FH.

[cube]

Yes with prices @ $1.67 per litre cars do seem very undesirable @ present!! Has'nt stopped people from buying and the big fords & holdens.

I still dream to own a nice one some day

FH.

Don't bet on it! Anecdotal evidence from the car yards is that people are trading in their V6s and V8s for small cars at a huge rate.

If you are in to counter-cyclic investing, stock up on big Holdens and Fords now!

cube

[FreezingandHot]

Could these people be over capitalised and selling cheap IP's also??

I'm into buying there old stock.

FH

[spurner]

Definately...

Buy one $400k property, because:

• It should be in a better location if you're paying more money

• Better location means less risk, more capital gain, and more potential tenants
• You will get a better deal competing against less buyers, as less people can afford a $400k property than can afford a $200k property
• Generally, the higher the price, the fewer the buyers, and the greater the % return too
• Rates and insurance on 2 x $200k properties are more than on 1 x $400k property, reducing your fixed outgoings
• When doing work, for example exterior painting, you only have to paint one house instead of 2
• You will have 1 mortgage instead of 2, saving bank fees, lawyers fees, additional conveyancing, and you'll have a bigger single loan to negtiate with the bank
• You only have to pay the accountant to prepare one set of financial accounts instead of 2
• One property is easier and cheaper to manage than 2

About the only reason I can think of in buying 2 properties is to spread your risk, but I think that's a false statement, because owning 2 cheaper properties is higher risk than owning 1 dearer and better quality property.

Cheers,

[AustinWong]

When you buy a $400k property, surely will also create the situation where you put yourself at greater risk. For serviceability when you have a vacancy and also for finding tenants at the upper end of the market.

To be Cash flow +ve on a $400k mortgage you will need to draw about $850 a week rent. Someone tell me if this is possible and I will seriously consider moving my investment range.

Correct me if I am missing something here.

Lawrence

[Dean@Massiveaction]

No Lawrence you are on to it. Home and income might get you that kind of yield. Although with current interest rates high 700's would be an acceptable return.

[spurner]

You have to remember it's all relative, if you need $850pw for a $400k property you'd need $425pw on a $200k property(probably more than $425pw actually as expenses will be more than half of the dearer property). I'd suggest you're more likely to find true positive cashflow on more expensive properties. Presumably on a $400k property you'd have more than 1 income stream too, to minimise any vacancy. I agree a quality single house rented for $600pw or more could bring grief to a new investor.

When you buy a $400k property, surely will also create the situation where you put yourself at greater risk. For serviceability when you have a vacancy and also for finding tenants at the upper end of the market.

To be Cash flow +ve on a $400k mortgage you will need to draw about $850 a week rent. Someone tell me if this is possible and I will seriously consider moving my investment range.

Correct me if I am missing something here.

Lawrence