Hey guys,
I’d like to hear anyone’s take on the following: An IP in NZ. Purchase price about $135k. I can secure a deposit of up to $40k (if necessary) and would be looking at financing the rest. GROI is average $17,400pa. It’s a body corp unit title and there is a management contract in place as it’s a serviced complex. (I understand these properties are somewhat restricted when it comes to re-selling the property due to the fact owner occupiers do not form part of the market. As such major banks are only prepared to lend around 60% LVR.)
Net returns (after management fees, body corp etc) are $9,825 pa on average. My simple analysis says that loan will be serviced by the net return. Does anyone have any advice to offer? Should I pursue finance (despite a couple of hurdles from major lenders)? Is loaning a lesser amount preferable in that repayments are more likely to be covered by net returns?
I would very much appreciate any advice or past experiences anyone has to offer.Thanks.
B.
Nup – South Island!
Smokin’!!
bps,
I have seen a few of these sorts of apartments in the major papers in Wellington and Christchurch and never made any real enquiries, that’s why I asked.
My gut feeling says to stay clear of this type of investment but I am a bit biased. I like to find opportunities where I can add value or properties with a larger land content that might increase in value of have an alternative use.
If you are looking for a property that services your debt only then you should not have any trouble finding a property in NZ to fit the bill.
Hi,
One thing that is important to consider the total return – which is independent of how you finance the property. In this case you are talking about 7.2% net rent yield. Sure, if you have a small enough loan the rent will cover the loan payments – but that ignores the return you should be making on “your” money (the deposit). You need to consider what capital growth you will expect in order to work out if it is a good deal or not.
Net cash flow (after you pay the mortgage) + capital growth = profit
Andrew
just on the info given it doesnt meet the 11 second rule, and it is only returning 7.3%. I would be moving on to the next property.
Andrew.Dane
I agree with all comments. To me it’s not a ‘proper’ investment as you don’t have any control over it. The person who made the money here is: in order: the person who renovated/built the block…the person who organised the furnishing of the units and the management of them as serviced apartments…
not the ‘investor’ being lured to buy them on a 7 percent yield. All the people have taken the profits and left none for you.
If you like I will add you to our mailing list, the last few deals we have put out in Chch were either 10 percent cashflow positive, freehold, and only six months old, and walk to town…
or, under $150k, freehold, on a 9 percent or better return, with the ability to improve the rent, yield, and value by doing a small reno (5-6K average) to modernise – all of which we provided a project manager if the client wanted (but they didn’t have to.)Those are the sort of deals that are fantastic buying in Christchurch at the moment in my humble opinion. Something you can DO something to.
cheers-
MiniWe also operate a buying service in New Zealand. We mainly purchase established properties. Our stategy is to purchase a mixture of high cashflow properties together with growth. Serviced apartments will generally give you the worst of both worlds. Stick to established property in sound locations and you will not go wrong
Nigel Kibel
http://www.propertyknowhow.com.au
Australian and New Zealand Buyers advocate
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