Joe was getting a little discouraged before joining the mortgagehq community. His property development concept for his backyard hadn’t panned out, although that is back on the cards now and working in his favour. It took him a long time to get the ball rolling.
He is a self-employed TV show producer. He has owned his property in Sandringham, Auckland for some time. With good equity and good cash flow, Joe was enticed by a mortgagehq advert that offered ways to reach financial freedom. He got in touch and figured out a method.
Joe was initially interested in Wellington properties owing to his financial position, but he missed out on a few of them and his focus shifted. Tenders are common in Wellington and he was consistently about $100k off the mark with house prices skyrocketing.
An agent he was working with from Wellington introduced him to this Christchurch deal and Joe went with it. Sitting on a 1162sqm section, this large house was over 100 years old and converted into 5, 1 bedroom units. The previous owner had done a great job restoring it from near derelict, however, a bit of work was needed to bring the building up to healthy homes standards.
The property itself is under 2 titles. The builder’s report came in with nothing unexpected for an old home and so Joe went in with a cash offer unconditional; a smart play when an initial offer has fallen through.
The previous offer was for $1.3million and Joe got this property for $1.1million. The valuation came in at $1.14million, but this would be a little higher if done again now.
Although Joe settled at 20% deposit before rules came into force, calculations for financing will be done at 40% so that we can gain a good understanding of today’s market.
$30k was put aside for the renovations to get the property up to rental code and with other expenses such as legal fees, the final cost of the property is $1,165,251.
Joe assumes there are no capital gains on the property. The cash outlay is $466k, but he can get this out of his existing property. He earns $1500pw in rent. After doing his research, the vacancy rate is low in Linwood, where the property is situated; about 1 week.
The property management fee is low at 6.5% however, being Christchurch, insurance rates are through the roof.
Even with the new tax rules, Joe is looking at about $20k net income with the 40% deposit. If he uses 100% finance, he is still cash flow positive at $7,500.
So, who said you can’t invest in older properties? This deal certainly says otherwise!
Joe is enjoying a gross yield of 6.69%, a net yield of 3.16% with the new tax rules in play and mortgage coverage of 11.16%. He can make this higher if he wants, by putting some cash into the deal, whether it be directly from his income or through other sources.
Joe will decide what his future plans are and react accordingly for the best outcome.
This is a very good result.
Also, the process was an interesting one. This was Joe’s first investment property and he bought in Christchurch whilst residing in Auckland. He was supported throughout the whole process and it gave him a lot of confidence having succeeded in it, after having a few other investment knockbacks in the past.
It’s important to remain open to other areas outside of where you know for investments. Joe says, ‘if the numbers stack up, go for it!’