Brendon, an IT consultant, is someone who has been moving really fast with his mhq investment journey. A week after joining the masterclasses, he had committed a ton of time and is using the system to achieve success.
This isn’t to say he is new to the game. Brendon has been investing in property for decades, managing both success and a few lemons. Both him and his business partner Leone are now grateful for the resources available at mortgagehq that simplify the number crunching process.
Let’s take a look at a deal for 25 Tui Road in Rotorua.
A private sale, this subdivided 1128sqm land at 25 Tui Road currently has 2 dwellings, with plans for a third. There is currently a 2 bedroom with carport, a 3 bedroom with shed and intention to build another 3 bedroom between them both.
Not all sales are straightforward and this purchase was a very stressful journey. Brendon didn’t really like the way the vendor approached the situation, but he respected the seller’s wishes and despite the serious competition, he got through it.
As it is cash flow positive, it isn’t a concern how long it will take for him to build the third property, giving him the flexibility to adjust, depending on what is happening in the market.
The valuation came in at $692k, and this was even with both a lower rental appraisal than Brendon believes is possible as well as a higher vacancy rate. Both of these factors do not reflect Brendon’s findings of the reality in Rotorua, which could possibly push the real value of the property higher still.
After the construction of the third dwelling, Brendon expects $1460 all up in rent. Conservatively, he expects the new build to bring in between $520-$550 per week, the larger 3 bed home to be rented out at $500+ and the smaller dwelling at about $440.
Using the lower figures, he calculates a gross yield of 7.52% which after all expenses, provides him with a cash flow intake of $215 per week.
As it stands, improvement calculations are based on the minor dwelling, however these figures might change as all options are still on the table. This includes relocating the dwellings, downsizing etc. $25k for renovations will be spent on getting everything up to the healthy homes standard, however, the homes are relatively neat and tidy as it is.
Brendon has spent a lot of time tinkering with his calculations to create the most accurate guesstimate possible for the location and possible costs. His figures are conservative and he has allowed room in his budget for expenses such as resealing the driveway, which might not need to be done and resource consent complications.
Recycling equity is the major focus here for Brendon. His deals usually have major development or renovation plans involved so that he can recycle his equity quicker. By gaining resource consent as soon as possible for this third build on 25 Tui Road, Brendon is doing exactly that.
If he was to put in 600k in cash, he will be getting back 400k and he is straight on to the next one.
This Tui Road investment really shows the benefits of buying undervalued. The mortgage coverage is phenomenal at 9.5%. Gross yieldt, as aforementioned, is 7.5% and Brendon is happy with this. The ability to recycle equity means he can power onwards with his journey towards financial freedom.