Jarrett Shares His Latest 7%+ Deal with 1100m2+ Land in the Regions

Leverage Addicts Case Study

Entrance Cost: $515,000
Completion Value: $600,000
Gross Yield: 7.15%

Jarrett has just gone unconditional on a cash yielding Invercargill deal.194 and 196 Isabella Street, Glengarry is 2 units on 2 separate titles with the full property being about 1100sqm. 

Let’s check out why he chose it, the process and the numbers involved. 

Purchase and Plan

This property is in central Invercargill with 196 already fully renovated. The other held a long term tenant. Initially, only one of the two properties were for sale, but Jarret was keen to buy both properties for $500k.

The vendors came back, initially offering $550k but since Jarrett’s borrowing capacity was low, he negotiated down to 515k. Thanks to the skills he has learned throughout his mortgagehq journey and to his luck, everyone walked away happy.

He is looking for cash yielding properties. With only a single income, it is all about recycling equity and having the cash flow to continue moving forward for Jarrett. He needs to buy properties under value. 

Originally, he scoured trademe and other property listing platforms that had been filtered down to specific properties. Over time, Jarrett built a great relationship with one Malcolm Thomas, a real estate agent in Invercargill, who contacted him with this deal before putting it on the market. 

Financing

Jarrett does all his numbers conservatively. The mortgage required is 75%, he expects the rent per week to be around $740 for both titles and has managed to negotiate a better property management deal at 7%. 

From three different rental appraisals, all around the $370-$390pw mark, he decided to go with Bernie Palmer-Manley. She was willing to do a lot of the heavy lifting for him, was confident that she could fill both units and after several conversations, Jarrett felt like he had developed a mutually beneficial working relationship with her. She planned to contact someone at MSD and find a tenant easily. 

$20k will be thrown at the one flat that is in need of renovations. Again, he is purchasing this property with a LVR of 75%. Although the numbers aren’t great in terms of cash outlay, Jarrett is not buying this property for this purpose, he is buying it to hold and for his cash to keep increasing.

Valuations available on CoreLogic show that the property is valued at $275k and $290k, so he is pretty confident that, if he had a few renovations done, the end result will fetch him $600k.

Results

The tax is a bit of a killer at 33%, but it is what it is. The net income is negative in this situation, but with Jarrett‘s focus being on gross yield (because this is the biggest contributor towards borrowing capacity), this is a good result for him. He believes he can get $780pw for both which brings it to a higher percentage. 

As soon as he reaches 80% LVR, and he will be watching valuation increase over time, Jarrett will be refinancing to a main bank.

Glengarry is a thriving area. It apparently used to be a bit dodgy, but is now a bit up and coming. So he is getting in at a great time. A positive side note, whilst the due diligence was being done, it was checked with the council whether there was a potential to subdivide and with a good case, this can happen in the future. Interestingly, only a pedestrian access is required and not a driveway, reducing the initial expected costs for this future move. 

194 and 196 Isabella Street was bought sight unseen. Not being physically close to your investment properties has its advantages and disadvantages, it is important that Jarrett has a good relationship with his property managers, making sure they are doing their job right. 

This ‘Stage 2’ situation is all about gaining equity and the cash on cash returns can be focused on at a later stage. As gross yield can stop you from borrowing, this is the focus for now.

Links and Resources

  • If you want to check out the conversation, you can find it here.
  • If the included Q&A doesn’t answer your questions, feel free to get in touch with your thoughts at mhq.co.nz

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