I'm interested to know if you were looking at a property that would achieve a weekly rental of $300, how much other investors would pay for it. I know how to do the calculations but just interested in where other investors pitch themselves.
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Hi Swamp family, that really depends on where the house is and what your intenetion for buying it is, I have a property on Lake Te Anau which I paid $675 for 2 years ago and it rents for $300 I think most would not consider that a good investment especially seeing the vacancy is 2-3 months a year I insisted on that rent you see they told me it was only worth $250 but for a house of that value you are better with it empty I feel than risking putting in cheap tenants.
But for a rental investmet I still like close to what they call 10% return (dont know how they figure that one) so means I would like to buy it for $150k or less, I usually go for less. Or seeing those deals are harder to find now I like to try and create it by doing something to it to add value. Often just tidying it up is enough.
I am sure you will get some other interesting points of view here.
and for the $300 return remember we all have different rules, if I was going to get that and wanted the house to cashflow I would put a deposit into it, normally my criteria is i borrow 100% for every deal I do, lately though because I have sold a few I pay 100% of the price in cash,that is fun you guys should make a goal to be doing that some day a good feeling I can tell you.
Of course you have probably read alot of posts before posting here, so you will know I do trading and use me surplus cash from the trades to pay down the buy and hold.
DO you plan to get into investing soon? IF so you need to set yourself some goals around it and dont make the too large to start with you can always review them down the track and add to them.
good luck -
Hello Swampfamily,Originally posted by SwampFamily View Post
This is an impossible question to answer - there are far too many unknowns.
Is the property a one bedroom dump in Gore or a three million dollar mansion in Remuera, to mention but one.
xrisComment
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Thanks for the info NZGEMS. We already have one property in Hamilton and have just purchased a home and income in Papakura and are looking for more deals. The Hamilton property we've had for 3 or so years and used to be our home so was by default really. So if you were looking at a property that was listed at $240K and could achieve a $300/week rental would you expect to pay around $150K? Also do you have problems with real estate agents not wanting to present low offers and how can you get around it?Comment
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Hi SF,
A difficult question, to be sure. For example, I would pay $1M for a house that would fetch $300pw, if the property was worth significantly more and I could somehow service the loan (and the cost of servicing the loan didn't erode the equity made on purchase). You wrote:
Why don't you tell us what you would pay based on your calculations, and perhaps give a few words by way of explanation. (What is the property like, can it be improved to add value or increase cashflow, is the purchase price good value...?) This might allow others to provide more assistance in response to your question.Originally posted by SwampFamily
Paul.Comment
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O.K., I see you have posted again, answering the questions I had. Thanks - its good to have a concrete example to work with.
How will your new purchase fit with your portfolio? You say you are looking for more deals (plural). So say you picked up the property for $200K, and it returns $300. By my quick calculations, that property will be CF-ive pre-tax by around $50. How will this affect your ability to go out and purchase another property? Will you have to wait a couple of years for an increase in income (from your job or portfolio) before buying again? And if so, are you happy to do this?
Paul.
P.S. You will notice that I have not stated how much I would pay for a deal like this. The amount I would pay depends on how the property fits in my portfolio (which FYI currently stands at 1). It would either have to increase my available equity significantly, or else have stellar cashflow.Comment
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Here's an example. Property on the market at $259K, hardiplank box on full section, single garage, fully fenced. Needs a quick pull through - paint and carpet. By my calculations to make it +ve cf after tax couldn't pay any more than $185K. I'm currently using 50% of purchase value for building value and 9% of building value to get a chattel value estimate, then 12% average allowance for chattel depreciation and 3% for building depreciation. Is this correct?Comment
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Hi SF,
9% apportionment of purchase price (PP) for chattels value seems a little low. I work on 25%, depreciating at 8%. But I don't worry about after tax figures, given that one can't access the losses held by properties in trust. (They just sit there.) There is a method chattels valuers use for apportioning the PP into a land component and a building component. For a rough and ready guide, take the latest CV and use the ratio (of land to building) contained there. (This works even if the CV is 3 years old.) If there is a more recent RV, then use that ratio.
Given the figures (asking $259k, returning $300pw), you are looking at a CF- property. What effect will that have on your desire to grow your portfolio? (It might not have much of an effect, if you are on a high income.)
SD.Comment
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Yes we are on a high tax rate and the properties will be in our LAQC so that we can claim the losses so we're prepared to -ve cashflow before tax provided it's +ve after. We haven't had any experience with chattel valuations as yet as our Hamilton property was purchased before we knew about them and haven't taken possession of the new property yet.Comment
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To get an idea of what I would pay for a property by just looking at the rental return I simply do the following calculation:
(Rent p/w x Weeks x 100) / Yield
In your example I this works out to be 195k, so if you can get the house as close as possible to that it would in my opinion constitute a good deal.
($300.00 x 52 x 100) / 8 = $195,000.00
Eight being the yield you would be prepared to accept in this market.
Beyond that you would then account for the other variables.
Good luck...
I'm off to see some open homes...Comment
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