Minor Dwelling or Home + Income

[FreezingandHot]

Hi

I have been thinking of the best strategy to use for IP.
I am using 2 in the form of building minor dwellings or home and income. Can anyone give advice on benefits or pitfalls of either strategy. I know a few already but would like to know of any that have used either strategy and for what reason.

There seems to be a lot more work in research for building minor dwellings as opposed to existing home + income, which I am not affraid of. But with adding a minor dwelling you seem to be able to create more equity and better cashflow if original purchase price is low enough.

As this seems the only way to create cashflow +ve returns, I am keen to pursue either strategy.

FH.

[Propoholic]

Hi Patrick

There seems to be a lot more work in research for building minor dwellings as opposed to existing home + income, which I am not affraid of. But with adding a minor dwelling you seem to be able to create more equity and better cashflow if original purchase price is low enough.

I'm not sure if there is a case for minor dwellings creating more equity and better cashflow than existing home + incomes. Of course with ex home + incomes you have the same opportunity to buy at a discount as with any other dwelling type. One advantage with existing home and incomes is that they are not limited to specific council areas of Auckland (eg West Auckland), as with minor dwellings. Home and incomes can be found in any socio economic area, from Porirua to Ponsonby. A lot of home and incomes were developed forty years ago and now can be found in a poor state of repair with below market rents and poor tenants.This provides opportunity for the investor.

[drelly]

I've found that almost without exception, the H&I sales I've looked at here were unpermitted, did not have separate water or power and were poorly planned. Most of the good ones never see the property pages!

[FreezingandHot]

So how do you find the good ones?

FH

[drelly]

Good agent relations... I've phoned about really good multi-dwelling sales that are in the paper and often find there is already a contract on them.

[FreezingandHot]

I have found the same. A good relationship is vital then!!

FH.

[ivanw]

If you are getting a home and income property valued by a registered valuer, and they do not have permits for the incomes or leases for the properties. Can the valuer take the incomes into account when determining the value?

[BusyLizzy]

One consideration about a property with a minor dwelling that I have been mulling over for a little while now is from an 'exit strategy' perspective.

Obviously PI is a long-term thing.... but if you are in a position where you need to sell quickly, how easy is it to sell Properties with MDU's? For the most part, I would see this as a limited market... ie other property investors (who are all out for the best deal!).


So while everyone is talking about MDU properties as being the better yield, I would be concerned about ONLY having those type of properties. I have been thinking about this as I decide what my next IP move is....

What do the more seasoned investors have to say? Am I worrying about nothing?

[ivanw]

Personal experience is home and incomes are quite easy to move on. But like everything you need to price them at a point that makes sense to a buyer! Also think about privacy because if its not an investor buying they will not want renters peering into their house etc!

I wonder what a fair valuation calculation is for a home and income is? has anyone got any formulas?

[FreezingandHot]

May take on Minor dwellings is this, the only reason I would invest is to gain positive cashflow, so there is no real reason why I would sell as my assest is producing income, If i needing to sell in the future I would adjust my price to meet the market, if I only make 10k on the deal I still have not lost out and have made a little cash along the way.


So for me it would come down to the numbers and cashflow I don'[t even think about what + when I could sell for as I dont have a crystal ball

FH.

[spurner]

re unpermitted

Re the H & I not being permitted, don't forget that if the work was done before the Building Act was introduced then there was no requirement for it to have ever been permitted.
Alot of the sleepouts, bedsits etc I see (in Wgtn-v.old houses)are very dodgy and way below the current standard but because they were built before the bill was passed they are still legal.
Obviously it's still better to get one that is newer and permitted if possible though. And if you have an unpermitted one and want to carry out any work requiring a building consent the council may want you to bring it up to scratch.
If you just want to fix it up and decorate then there's no problems however.

[Aston]

Re the H & I not being permitted, don't forget that if the work was done before the Building Act was introduced then there was no requirement for it to have ever been permitted.
Alot of the sleepouts, bedsits etc I see (in Wgtn-v.old houses)are very dodgy and way below the current standard but because they were built before the bill was passed they are still legal.

The above statement is not totally correct. Each situation is different and must be assessed separately. It would be very dangerous to assume that "dodgy" sleepouts and bedsits are legal simply because they were built before the bill was passed.

[Propoholic]

BusyLizzy wrote:

Obviously PI is a long-term thing.... but if you are in a position where you need to sell quickly, how easy is it to sell Properties with MDU's? For the most part, I would see this as a limited market... ie other property investors (who are all out for the best deal!).


So while everyone is talking about MDU properties as being the better yield, I would be concerned about ONLY having those type of properties. I have been thinking about this as I decide what my next IP move is....

Those are good points, once you get beyond an individual house or brick and tile unit (ie large market: owner occupiers, investors, retired people etc) the available selling market does get smaller. Going to the other end of the spectrum a block of ten flats could take up to six months to sell, depending on market and location. In softer markets the larger multi dwelling investments may require a bit of lubrication to move ie vendor leaving in finance for a few years. All comes down to weighting of risk, you need some liquid dwellings (lower yielding) to balance those higher cashflow (higher yielding) dwellings.

[Dean@Massiveaction]

Obviously PI is a long-term thing.... but if you are in a position where you need to sell quickly, how easy is it to sell Properties with MDU's? For the most part, I would see this as a limited market... ie other property investors (who are all out for the best deal!).

Good point. And it's very easy to end up with a portfolio of difficult to sell property with multiple incomes. That's why once you get some momentum going it's always good to have at least one free standing box, preferably with a low mortgage, so you can exit easily from it if you get in a bind somewhere else.

[David_W]

Minor Dwelling Saleability

I have successfully sold a number of minor dwelling properties myself and for my clients. Provided the minor dwelling is not merely a box or upspec'd garage, architecturally designed with quality fittings, and in an urban area, they should sell very well. Several of Fuzo's clients have made many tens of thousands from the sale of their minor dwelling properties.

There are often great reasons for selling a property, including trading properties to create cashflow from the profits (after paying the necessary taxes). The saleability will depend on market conditions and area, however in Auckland we have had little difficulties in selling a both well presented home and minor dwellings, and home and incomes at market value within 4-6 weeks of listing date.

Regards
FUZO


David Whitburn
Director