Do you think this will work?

[NoMoreDreamingBoutIt]

Hello,

Well.. I have a question.. I never planned on asking this straight out, but I might as well get your expert opinions.

The plan I have been considering latley to enter the property investment market is to:

Continue rennovating our home (which we: My husband, myseld and 2 kids) live in and then sell it, buy 2 properties.. one to rent out and one to live in and rennovate possibly for capital gain.

To me, this seems like an "easy" way to be a part of the property investment business. I would hold the rental in my company and the house we rennoavte and live in, in my own name.

Does anyone see any potential problems with this?

Thanks for your advice

[Josko]

Hi NoMoreDreamingBoutIt,

No potential problems with that plan, a common question that has been answer along these lines.

Why would you sell your Primary Property Of Residence (PPOR), your home.

You dont need to sell your PPOR you can revalue once you have finished the renovations and buy an Investment Property (IP) from the new equity in the PPOR.

The end result would be the same, PPOR to live in and an IP.

You would then repeat the process with your IP.

[xris]

Hello,


The plan I have been considering latley to enter the property investment market is to:

Continue rennovating our home (which we: My husband, myseld and 2 kids) live in and then sell it, buy 2 properties.. one to rent out and one to live in and rennovate possibly for capital gain.

To me, this seems like an "easy" way to be a part of the property investment business. I would hold the rental in my company and the house we rennoavte and live in, in my own name.

Does anyone see any potential problems with this?

Thanks for your advice

Hello NoMore,

Yes, possible problems. If you make a habit of, or clearly intent, buying run-down houses, doing them up and then selling for a profit, you will probably be classed as a trader by the IRD. Not only will you need to pay tax on the profits but more significantly you will be regarded as a trader in whatever other property dealings you enter into - you will be 'tainted'. The main concern you will have is that your long term rentals will be tainted by association with you, which has many negative consequences.

The simplest solution is to distance your trading activities from your long term rental activities. This will probably involve trusts, and is not straightforward. You need to see a professional who knows about this sort of thing.

My personal opinion is that although you must get it right from the beginning, you do not necessarily need to see the top specialists so often mentioned here, and that it does not need to be as complicated as some make out. But it must be done right. Read the many posts on this subject on this site, understand the concept, and speak to a couple of professionals. If you get it wrong at the start it may cost you dearly in the future.

xris

[JohnL]

Sounds like a great plan.

As Xris said, doing this time and time again is trading. But a couple of times with your own home over an extended period is highly unlikely to be a concern. By then, you can consider whether you like 'do-ups' and put in the appropriate structures if you intend to continue trading.

Where you put your first rental is more of a challenge. There are some great threads on this but the choices are: in your own name, in a LAQC company or in a Trust. Each has its advantages and disadvantages and it does depend on your circumstances as well as how serious you are in getting into property investing in a big way. Do some searchs to see what has been said recently about this.

If you have been reading this forum over the last few months, you will also see a number of alternative ways that people have started out.

John

[GO DO IT]

Sounds great

Hi,

Sounds, great, getting started is probably the hardest part, and something that many people never do.

I would suggest getting some advice from Garth Melville of Company Solutions. He and his team specialise in ensuring people are set up correctly, on the tax side of things. He saved us a fortune!! It was great advice that a couple of our property mentors gave us.

You are better to get set up before you start trading. Inland Revenue looks at intention at the time of purchase. It is irrelevant how many you do, it comes down to, what was your intention at the time you purchased the property. If your intention was to do it up and make some money, then you are trading.

Anyway, I could talk all day about it, but I won't. I think your idea is excellent, it will get you started. I would highly recommend spending a few hours with Garth Melville, now would be the best time.

Cheers

[SuperDad]

Hi,

I second GO DO ITs suggestion that you get in contact with Garth and his team. They have just helped my wife and I with our structures. We were very pleased with their advice and service.

Paul.

[whitt]

Reno your personal house and moving on is always a good place to start in the investment market.

Infact this strategy is commonly used even by some well known property accountants.

[Monid]

I'd still go with Ivi's point...

Why sell your current house? Why not just use the equity generated by the renovation as the deposit for an investment property?

This saves you two sets of costs... The cost of disposing your current house and the purchasing costs of one of the new houses.

David

[David_W]

Also agee - try to hold onto as much property as you possibly can. There will be another boom in a few years time, so having a strong foundation (ie. a good number of properties) will put you in a prime position to profit from property.

Please do consider adding value to properties. Amongst others, my colleagues Anthea and Simon Shreeve are gurus at adding value. Consider what your market wants and give it to them. Do up your properties for greater cashflow and equity - and also entertain having multi income streams from your property. Ie developing minor dwellings, sleepouts or subdivisions. Think rich and commit to developing a plan to get to it. The rewards will be there. Anthea is speaking at the August Auckland Property Investors' Association (APIA) Meeting, and Simon and Anthea both at the APIA Advanced Property Investment Seminar (along with me)! Looks like another great APIA event.

I agree also with previous posters - see a specialist to get your structures right from day one.

Cheers David

[SuperDad]

Hi again,

I've just seen that you are based in Hamilton. Have you been along to any of the local property investors association (PIA) meetings? I have recently joined, and have learnt a lot from talking to members there. Send me a personal message if you want more details.

Another question: Have you been to see a mortgage broker about your prospects for finance. This was one of the very first steps I took. Like you, my wife and I are currently renovating our house. Our plan was to complete the renovations, get the house valued, and borrow against the equity. However, a trip to the mortgage broker soon revealed that we didn't need to finish our renovations, as we already had enough equity for a deposit. Now my wife is regretting the day she let me go and see the mortgage broker - renovation plans are on hold

The other thing to be aware of, finance wise, is serviceability. Having enough equity in your own home to raise a deposit for an investment property is one thing. But you will need to be sure that your income, together with the income from the rental, is enough to service the two loans. Again, a mortgage broker's help will be very valuable there. With a few keystrokes their computer will tell them whether you can service the loans, and which banks will lend you what. The best thing about finding out this information from a mortgage broker is that it will cost you nothing.

I am happy to recommend Ben Kessell of Mike Pero mortgages in Hamilton. He has provided me with excellent service for the last few weeks since I first approached him. If you search this forum (type "mortgage broker Hamilton" into the search box), you will undoubtedly find other recommendations.

There is so much to learn when you're starting out. This is a great place to start, as is the local PIA. Like you, I am new to the property investment world, and am coming to grips with the plethora of information required to make good investment decisions.

Now, a question. Would you mind sharing a few more details about the value of your current home, what you expect that value to be once renovated, and your current borrowings on the property? Also, if you were to sell your house post-renovation, what price range and area of Hamilton would you be looking at buying in, both for your new home and your rental? I've got a bit of a feel for the Hamilton property market, and I might be able to comment on whether your plans are realistic. I'm no expert by a long shot, but I've been interested in Hamilton property since my wife and I bought our first place 7 years ago. Also, others on the forum will have knowledge on the Hamilton market (and more knowledge than me - NZGEMS is an obvious example), and they might help you also.

If you don't feel comfortable sharing that info, nevermind.

Keep on posting, keep on asking questions, and keep on learning. That's what I've done, and it is paying dividends.

Warm regards,

Paul.

[mals69]

You go for it!

The only potential problem i have experienced is tenants can be on your doorstep a lot for such trivial things when you live close.
A solution is to have it managed by a property manager and you are simply the neighbour which has a host of advantages.

[GO DO IT]

Property Investors Meetings

Great suggestion Super Dad, we are also Waikato Property Investor members, we don't attend all the meetings but find networking there great.

We did discover at the meetings, however, that some people were kean to give advice on subjects they actually had all the theory but hadn't done. We usually ask people the question, "how many properties do you own?" or "how many properties have you traded?" before we decide whether or not to take their advice.

Would be great to meet you if you want to attend the next WPIA meeting.

Cheers

[SuperDad]

We did discover at the meetings, however, that some people were kean to give advice on subjects they actually had all the theory but hadn't done. We usually ask people the question, "how many properties do you own?" or "how many properties have you traded?" before we decide whether or not to take their advice.

Top advice. I normally try to qualify my opinion by saying that I'm a newbie, or that I havn't actually bought a property yet. Nevertheless, I have learnt a lot starting out, and so I restrict my comments/opinions to what I know. (I know, for example, that at trip to the mortgage broker is a good idea. I don't know, for example, much about the RTA, as I haven't had to work with it yet.)

Also, even if a person does own a property or two, it does not follow that they have the best structures set up for their situation, or that they are doing well in PI.

I see PT, and the PIA, as being very good ways of learning what I need to know, so that I can make an informed decision about the advice I am receiving, be it from professionals or other investors.

Best,

Paul.

[NoMoreDreamingBoutIt]

Thank you so much guys for your advice.
I really appreciate it.

Its given me a bit to consider. In regards to sellng our family home or living in it and using the equity in it to buy our first rental, I still need to do some more research, and talk to some experts as you've suggested i.e, mortage broker. One of the reasons I have considered selling, is becasue we have borrowed to rennovate, I feel we would be able to service new loans on 2 cheaper houses easier than servicing this loan, and it would feel safer for me to have the profit realised then sitting in the house. But yes, I will speak to the experts and get more advice.

Whilst I might not ask many questions, I have been hovering around this site for months and months and feel I have gained alot of pre- investment knowledge, thanks to all of your expertise. Thank you all for being so open and sharing with us newbies

[SuperDad]

One of the reasons I have considered selling, is becasue we have borrowed to rennovate, I feel we would be able to service new loans on 2 cheaper houses easier than servicing this loan, and it would feel safer for me to have the profit realised then sitting in the house.

This is an excellent point you make!

Paul.