Terrance works as a payroll systems advisor for Countdown and is based in Auckland. He has known Blandon for about 3 years and over that time, they have spent countless hours together, McDonald’s chicken nuggets in hand, going over property investment strategies.
But Terrance has been hesitant. He’s been burnt in the past with a failed business deal that tied up a lot of his money and although he is in a strong equity position, buying early and living frugally, it took some time before he understood the process and decided to have a go on his own.
Credit to Anna, for her generosity regarding knowledge and contacts, that helped Terrance get over the line with this Rotorua property deal. Terrance believes that because of her, as well as the knowledge gained from the mortgagehq workshops and the catch-up sessions with other group members gave him the ability to make it happen for himself.
When shown 15B Augustus Earle Place in Rotorua, there was already someone else interested but they hadn’t put down an offer. The vendor was eager to sell quickly with an asking price of $475k and the agent suggesting a figure just over $500k would seal the deal.
Everything was done remotely on this cross lease section and Terrance only went to see the property when he went down to Rotorua for a marathon after going unconditional.
The rent was $525-$535pw so after doing the numbers, Terrance went in at $450k. He wanted the rent to be over 6% gross. The vendor returned with $465k and Tarrance decided to meet them in the middle at $457k. But in the end, he only paid $455k because the builder’s report was returned with a multitude of concerns.
Initially, Terrance felt confronted by the voluminous builder’s report, so asked if he could have a chat with the inspector about it all. It was his first report and he wasn’t sure entirely what to do about it. It turns out many issues were minor, except for the floor in the laundry which had completely rotted out and was not fit for purpose.
The building inspector suggested $2-$3k would fix all issues, so Terrance asked for $5k to be taken off the final price, agreeing to $2k to go unconditional. It was a quick settlement, over 2 weeks.
In the end, Terrance spent $5k on all the renovations, doing a few small things like changing the curtains as well.
He has ended up with $530pw in rent with a new tenant moving in shortly. He has calculated there to be a 2% vacancy rate and all other fees such as the property management fee of 7.5%, rates, insurance and maintenance have been considered in his calculations with the spreadsheets.
When using these spreadsheets designed by mortgagehq, even though Terrance is using 100% finance for this deal, he inputs 80% lending as a constant figure. This way, he is aware of the opportunity cost of his deposit.
Awesome results for this Rotorua investment. His cash on cash return is 7% and considering he is still getting capital gains, this is great. His gross yield is just under 6%.
Net yield is 3.2%, which at the time was 1% above the interest rate. Phenomenal. Net yield covers all of the costs, so if he has a 1% positive difference, that is what he is making.
Terrance has enough equity on his property to just buy this one outright. He can benefit from having this as a freehold property for $450k. So this new, freehold property can be used for borrowing power with another bank, for flips, for more investment purchases. He has freehold security which gives him a lot of options.