Ananth’s First Investment Property Experience & How He Ended Up With a 7% Multi-Unit!

Leverage Addicts Case Study

Entrance Cost: $867,000
Completion Value: $951,000
Gross Yield: 7.05%
Cash on Cash Return: 6.17%
Borrowing Capcity: Low Equity, Low Income

Ananth bought his first property about a year ago and since then, equity has been building to a point where he was able to move into the property investment game. He is nearly a qualified architect and so is his partner. 

They have always had the intention to invest in property and weren’t shy about investing in other regions across NZ. When they found a very undervalued property in Rotorua, they made an offer immediately. It was at least $100k below its true value, even if it is a bit of a ‘do-up’

Purchase and Plan

1 Steeles Lane in Mangakakahi is a 100sqm corner site off Clayton Road, making it conveniently close to town. The photos that were put up of the property weren’t the greatest, which is great for buyers who look at the numbers and don’t allow emotion to tie into the deal. 

There are 3 units on the 1 title, all with 2 bedrooms, however the middle property also has a sunroom which can be taken to be a 3rd bedroom if desired. 

2 of these units are brick, the other weatherboard and not as neat. None of the units are in great condition; they have not been looked after but since renovations are on the cards, this was acceptable. 

The builder’s report noted moisture damage from top to bottom in one unit’s kitchen. Meth testing came back positive for 2 units, however indications were that the presence wasn’t strong, more likely guests were smoking in the house rather than it being cooked there.

Rental appraisals from agents came back between $390-$420 for the two bedroom units and $470-$490 for the 3 bedroom one. A different rental appraisal suggested between $420 and $440.

Financing

Although the vendors were asking for $1 million, Ananth got it under contract for $882k. But with the builder’s report and meth results, he went back and got the final price down to $867k.

Considering $20k for legal and due diligence fees, $60k put aside for renovations, 2 months to settle, a standard property management fee of 7.5% and a conservative 2% vacancy rate, the total cost was about $951k or thereabouts. 

With a 40% deposit, his total cash outlay was just over $380k

Ananth has not had a registered valuation done on the property, so he assumes no gains in value for his calculations. 

He expects between $1250 to $1330pw in rent.

Results

At the current interest rate, Ananth calculated his net income to be $15,720pa. His cash on cash return is 6.17% and his gross yield is just over 7%.

The 40% deposit invested in this property came from the equity from his first home, therefore the property was 100% financed. Because his gross yield was at the 7% mark, Ananth can see that even at 100% finance, he will still be cash flow positive.

This great investment opportunity still offers a positive position with the new 33% tax rule. He is sitting on a great piece of land in Rotorua and has found himself a multi-unit opportunity for his first property investment experience landing great figures as a result. 

Links and Resources

  • Anath goes through his process in clear detail, which you can see for yourself,  here.
  • If your questions haven’t been answered, make sure you get in touch with us at mhq.co.nz

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