Edmund Overcame the Barriers in His Investing Journey and Acquired His First 6%+ Deal!

Leverage Addicts Case Study

Entrance Cost: $626,500
Completion Value: $680,000
Gross Yield: 6.3%
Cash on Cash Return: 5.47%
Borrowing Capcity: High equity low income

Edmund is a long time listener, first time investor. He came across Blandon years ago. After eventually getting in contact, he gained valuable knowledge through the masterclasses and groups. 

But nothing happened for him. Life got in the way, his two daughters came on the scene and his priorities were elsewhere. Now that they are a little older, something shifted for Edmund and since he had:

  1. The knowledge
  2. The time
  3. The motivation, 

He was able to purchase this property in Rotorua that provides a brilliant opportunity for him.

Purchase and Plan

Initially, Edmund was hesitant to look outside of Auckland. Although his efforts were fruitless in finding an Auckland property that offered good yields, he was unwilling to take the plunge and invest in an area that was unfamiliar to him. 

He was without the motivation, coming from an affluent background and earning good money himself. After considering the cost of children and looking at future spending, he hoped that a shift into earning passive income would align his life goals and expectations. 

After his girls went to bed, he would spend an hour or two searching through property listings. Edmund then got in touch with Anna, who was local to Rotorua and after learning to be more open to other regions from the mortgagehq group, he decided it was time to start his investment journey. 

His vision was to find properties with high cash flow and high yield but still with full sections for decent capital growth. Capital growth and development potential is a future goal, but he is not quite there just now. 

So arrives Selwyn Heights, Bay Of Plenty. It is a home and income property. He was shown two and this was his second choice having only just met the criteria of a minimum of 6% cross yield, but since the other fell through, he went with it. 

This property backs onto a large park and is right next to the luge. It is surrounded by green space, which is really nice. It also has a decent 736sqm section, which is just under the size for subdivision in this region, but this is not a concern. 

The 3 bedroom, 1 bed stand alone unit is in an OK condition. It is dated, but the builder’s report showed no major red flags apart from some flooding signs underneath the toilet and laundry floor in the main house. Edmund flagged this to the vendor and got a $3.5k reduction in the overall price, but since he was planning on renovating the toilet anyway, it wasn’t a big worry for him. In hindsight, Edmund believes he could have been more aggressive, but he was already happy with the price.

Financing

His rental assessment suggests that for the 3 bedroom house, he can fetch $490-$530pw and the 1 bed $290-$310pw. Should he wish to rent the entire property, he is looking at $620-$640pw. 

Since Edmund is looking at doing some cosmetic renovations to the property such as painting, replacing vinyl flooring and tidying up the bathroom, all at a cost of about $25k, he hopes to push up the rental assessment figures. Edmund however, does not assume that he is going to gain much, if any value on this property. 

The purchase price is $626,500, with about $15k in fees. Rotorua is similar to Auckland in terms of low vacancy rates, but with high rates, high insurance over two dwellings and a 10% maintenance estimate, he calculates his figures conservatively.

Results

Edmund ends up with a 6.3% gross yield. This is potentially a conservative figure with the rent perhaps a little higher and bringing him to that 6.5% that he is after. The cash on cash return is about 5.5%.

All in all, this is a great result. The location is not bad at all, he has a nice piece of land in decent surroundings and to see a result after years of inaction is heartening to all those who have helped him on his journey and who are watching on themselves in a similar boat to Edmund. 

It is awesome to see someone progress after being stalled for so long. When he was looking, he was looking for a higher gross yield than what he ended up with, which was still a positive result. This property doesn’t impact his borrowing capacity too much. The next one should be easier.

Links and Resources

  • Delve deeper into this great deal here and check out the conversation unfold.
  • If you have any questions about Edmund’s investing journey, feel free to get in touch with us at mhq.co.nz

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