BigSheep asks:
Hi Olly,
Would very much appreciate your advice here. Have done some residential investing and have a positive cashflow portfolio with >50% equity and now looking to buy Commercial for the first time – the property is in the retail centre of a provincial NZ city, main street, good position, building divided into 2 with two separate tenancies, both new for 8 years, one with an international retail/optical company and the other a retail shoe store moving in to fill a hole for this in the city. I believe these are good tenants and there is a sound business opportunity for each of them.
1. I understand that rates, insurance and interior fitout and maintenance is provided by the tenant – is this std in a commercial lease agreement? 2. It appears I can get it with 8-9% gross return on purchase price – is that reasonable? 3. Do banks charge different mortgage interest rates for commercial properties compared to residential?Many thanks
Olly replies:
Dear BigSheep.
I cannot do justice to your question because the details you have supplied are woefully insufficient. Any purchase of any commercial property needs proper analysis of every page of every document and detail.
The purchase of a simple house is complicated enough but a commercial investment is one that only professional advisors should answer.
Typically when one of my clients wishes to purchase a commercial property it takes some time to gather all the information and it is sometimes staggering how an apparently good investment often turns out to be a dud, and vice versa.
Taking your situation in particular I have questions for you.
1. Provincial Town? Not good enough. Some provincial towns are dying and others a doing OK. It varies enormously whether such a property is in Huntly or Hamilton, Taupo or Taihape, or Tokoroa or Thames etc.
2. Good tenants? How do you know? Have you seen their accounts? Statements of Position? Previous history? Any PG’s
3, Divided shop? Has this been done legally? Have you checked with the Council?
4. New 8 year leases? Really? Somewhat unusual. Are there rent reviews and /or rent renewals during the term? Makes all the difference.
5. Rates, maintenance, fit outs? Is the rent based on the bare shell or on the the fit out? Who owns the fit out? Makes an enormous difference to the rent. And there is no such thing as a “standard lease”. The common lease is the ADLS version but which version- there are many? All leases can be re drafted to suit in any event.
6. 8%-9% may be a bargain or a jack up. How do you know if the rents are below market or above market? May be they have been hydraulicked? Take care.
7. Gross return? A gross usually means the landlord pays all expenses including GST . Do you mean net return? Have you allowed for all expenses to get to the net return? That’s the only return that matters.
8. Banks usually charge more for commercial and lend less- but not always. That needs sorting as well.
I could go on and on but I think you get the picture by now. The best advice I can give you is to get hold of an independent and experienced advisor such as myself, be prepared to pay a fee, and do the job properly.
BigSheep asks:
Hi Olly,
Thanks for your comments Just wonder if you can explain what Hydraulicking is? After further research something just doesn’t ring true with this deal – which is in Wanganui – a building 2 doors down is very similar – (similar age and size, divided into 2 and has telecom and a bookshop as tenants BUT the rent is less than half of what is being claimed here) – I agree an 8 yr lease is unusual, there are no renewals or reviews in that time, the rents appear well above market, but tenants have signed such a lease – I don’t know what being hydraulicked means but suspect its when the rents are somehow made to look higher – I believe that is the case here. BUT there is a lease signed with new tenants – the price being asked is $1.2Mill, RV is $450k, rent is $99k/yr, building was bought in 2004 for $250k… The mentuoned building 2 doors down was valued last year at $520k – something fishy here.
Olly replies:
“Hydrauliking” is the expression used to explain rents or asking prices that have been pushed up over the market rate. It has been known for some sellers to get the tenant to pay more than market rents and to refund them the difference in private. That’s why it is so important to check all the details out professionally. I have had many clients sucked in by this method and there is little that can be done without facing a massively expensive court case. One of the most blatant cases I handled was where an investor bought an industrial property which was offered with a rental of $120k p.a net. He paid $1.45M for it (8.3%). The day after he settled for it the tenants closed the doors and vanished. At that point he consulted me and investigations showed that the actual market rental should have been $70K ($850K value approx). The cost to take the vendor to court would have cost a fortune with less than a 50/50 chance of winning. He chose not to pursue it in the end and suffered a $600K loss for his pains. Had he seen me in the first instance he would never have fallen for this old trick.
Cheers, Olly
FH asks:
Hi Olly,
This is an expensive and painful lesson, it clearly indicates that commercial investing needs very carefull DD before signing the dotted line, in this instance could the purchaser not found out what the likely rent could have been from a company who leases on behalf of investors?
Surely this is not hard to find out, would have also uncovered the true return.
FH
Olly replies:
Quite right FH – for some reason some investors blind themselves to the truth because of their desire to purchase – no matter what.
Time and again you see how smooth talkers seem to hypnotise people into opening their wallets without thinking of the consequences. In fact they go out of their way to avoid being questioned on the matter at all.
What seems to be happening is that people love to dream and buying the dream is a close as they can get to the reality.
Much like buying a lotto ticket where the chances of winning are virtually the same whether you buy the ticket or not.
Look at the people who fell for the BlueChip con-job, the Nigerian letters, the acia fruit juice franchise or the US tax liens rort.
And if you warn them they accuse you of being a dream stealer and resent you for it.
Olly
FH asks:
Olly, I appreciate your honesty on this subject. And having your post bring this out for people to see what can go wrong when you go into property investing without proper research is really great for newbies starting out.I was fortunate enough to find people who I trusted to ask for advice when I first started out. It took me a while to decipher which information I was being shown was good and suited my style, and for me is very important in deciding which stategy to use and who you decide to get advice from. I read a book recently and it said many people often shout loud statements but if you really listen its what they dont say that tells you about there real motivation, listen for the little things and you will uncover a lot about a person.
I believe that many people like you say see the dream and it somehow blinds there common sense, instead of taking a step back and really looking at what they are getting themselves into. I made mistakes in my investing but look back on them now and are gratefull for them, I now know what I wont do next time, I will live to invest another day, but I think if I lost huge sums of money it may have dented my confidence too much. Then again how big a lesson would you learn from losing lots, quite a big lesson I think.
Anyway getting way off track, just wanted to say thanks for all the great replies, it is great to read thru them and pick out what is relevant. We need more positive posts like this one to help us move forward.
Keep up the good work. FH
Choc asks:
Hi Olly,
I have invested in small commercial and found it to be most satisfactory. My initial yield on one property was over 12%. Obviously that has fallen as property prices have risen. I have found tenants of commercial tend to be decisive and very easy to deal with. Contrast that with the more emotive nature of residential investing.The banks are obviously less accomodating lending usually only up to 60% (sometimes higher in the boom but I wouldn’t expect that now). That doesn’t help if you are just starting out and deposit is an issue.
I read a very good article a number of years ago about property and the ripple effect. Notably the further you go from the centre (say Auckland city centre) the bigger the ripple. People will always desire to be near the city and this drives demand; reducing the downsize when they come.
The best advice I ever got was always buy something you would be prepared to live in, as one day you might have to.
Olly replies:
choc: The best way to get into better quality residential properties is to treat the cheaper homes as “stock” to buy and sell for straight profits in order to build up capital. Any rents collected on the way merely oils the wheels. You will likely be liable for tax- but so does any business that buys and sells for a profit.
Cheers, Olly
LAJ13 asks:
Hi Olly,
By this Hello Olly I am new to the property investment business. I am in my early fifties with approx. $500k equity in our home property which is valued at approx. $800k.Having had no discernible savings plan up until now, I am in a hurry to make amends! From the reading I have done recently, I believe I have no option but to take a riskier approach than, for instance, someone in their thirties or forties, in order to attain financial security by my early sixties. As a result, I am considering the following scenario:
Utilising the available equity in our home, purchase 8 properties at approx. value of $240k each, for a net asset / debt ratio of 2720k / 2220k i.e. around 80%. For the properties I am considering, it would appear that rental returns would be equivalent to the interest repayments, so, at first glance, it looks viable. I have a regular income that I can fall back on to supplement repayments, should e.g. interest rate movements become an issue. My aim is to purchase 2 further properties at the start of year 2, then 2 more at the start of year 3 (assuming favourable price increases), increasing the portfolio at every opportunity.
I guess what I’m asking is, for someone in my position, is this simply too risky?
Many thanks for the opportunity of asking a free question, and hopefully I’ve spelt out my game plan clearly.
Olly replies:
laj13. Your situation is common but rushing into debt is not advisable. You say using the equity in your home you would like to buy 8 properties at around $240K each.
According to your figures your equity is $500K but you may not be able to access that whole amount. If the value of your home is correct at $800K then borrowing say 80% = $640K less what you currently owe of $300K = $340K in the hand (maybe).
Eight properties of $240K each average = $1,920,000 x 80% borrowings = $1.536M which you just might be able to scrape into with the $340K cash raised on your home.
But you are effectively borrowing 100% ( your home and the rentals) so interest on the total package at ( say) x 7.2% =$138,240 p.a. or $17,280 per property or $332 per week . Deduct off rates, costs, repairs, management, vacancies etc and the net per property will be likely closer to $250 per week.
The shortfall could therefore be $34,240 approx p.a.or more if interest rates rise.
However the realities are that banks would be very unhappy with this structure unless you have other income which is substantial enough to cover any shortfall.
Having said all that, it is possible, but you would have to make each purchase a winner to ensure capital growth in a flat market. Where you buy, and what you buy will also be a big factor. You might be better advised to use non bank sources for finance which is more flexible but a little more expensive.
You could also consider commercial property ( shops factories etc) because the returns are higher and the out goings are usually covered by the tenants. But the vacancy factor is higher, and the lending criteria tougher.
I suggest you read my website and give me a call for a no-obligation chat because although your plan is workable in theory, it will be much harder to do in practice.
The alternative is to do nothing which = 0
Olly
Ruvita asks:
Hi Olly,
Just wanting to check. Is it possible to just have a Transfer of name instead of going through all the normal checks. Have a friend wanting out of there current mortgage and basically just want someone to take it over. I havn’t done any of the homework yet, but just checking if this is a possibility?
Olly replies:
ruvita: It is not possible to transfer a property into your friends name with it’s mortgage without the consent of the mortgagee. However it’s possible to enter into a private arrangement with your friend where he pays the mortgage and uses the property but you will still remain liable. The mortgagee could call up the mortgage in the event of default or if they regard your arrangement as a disposition ( e.g. sale). This is a dangerous practice and not recommended. Check with a lawyer.
Ruvita asks:
Hi Olly,
Thank you. It would be the other way round, where my friend is wanting out of her property and we are wanting to increase on our current 1. I will be doing all the checks beforehand, but just wanted to see if this was a possibility first to transfer to our name without having to go to the bank as such to get a mortage approval.Thank you
Some of these questions were asked of Olly at discussion forum PropertyTalk.com
AHAR asks:
Hi Olly I like to buy properties that give themselves to me for nothing ie, get enough rent to cover a 20 year PI mortgage on100% finance….@ 7% interest, need 10% yield
Problems…
1- can’t find any more properties with 10% yield. But long enough in the tooth to know that history repeats….one day the tide will turn
2- so long in the tooth that not sure I can afford to wait more than 5yrs for the market to correct…might not get finance
3- and the thought of risking what I’ve acquired by accepting lower yields scares me silly…don’t ever want to be in the position of having to start again!I guess I’m asking 2 questions
1- requirement of “getting the property for nothing” realistic…have done it in the past
2- do you think that property is still way overvalued, in which case, wait for the tide to turn. Many thanks
Olly replies:
Ahar: To buy a property for “nothing” (I presume no money down) requires you to find a deal where either
(a) You can buy it 20% below its current value and then raise 80% of its actual value (100% funding) or
(b) You buy a property where you can add value ( e.g. extra bedroom, sleep out, garaging renovation etc) which takes the value up above your buy price allowing you to refinance the higher value and pull your equity out.
The banks are tougher now then before, but it is done every day and if planned correctly is quite achievable.
To achieve maximum return you have to probably have to turn the property(assuming it is residential) into a mini boarding house where people rent a room rather than the whole property. It can be a management hassle and is not every ones cup of tea.
Other methods include subdividing off a part of the land and recouping a large part of the outlay in that manner.
In theory property is never over valued in the long term. There used to be a cartoon in every real estate agents office of an old bearded man, bent over a walking stick with the caption “The man who is waiting for real estate prices to come down”.
PC Asks:
The recession doesn’t seem as bad as my recollection of the 90′s. Do you think it will deepen and present better buying opportunities?
I have deposit ready for 3 more properties – but haven’t started knocking on doors and making hard offers yet. No hurry? Or get moving?
Thanks.
Olly replies: PC- This recession was as nasty as any I can recall but I we are now coming out of it. Barring major unknowns it should be just a bad memory by next year.
Unhinged asks:
Hi Olly,
Completely new to the forum and new to property investment. Myself and partner own our home with a mortgage of about one third its value. We have used the 2/3 equity in our home to purchase our first residental investment in November. We are paying our own motgage off at twice the rate need currently. We borrowed 100% on a floating rate, the yield is about 6.5% and we need to top up the mortgage payments by approximately $20/week.
Our first experience has be good and we are ready to purchase again and in a hurry given some bargins around at the moment but are a little worried about tax changes. we have bank pre approval to borrow up to 100% again under $300k
We are both employed and are also in kiwisaver. Our thoughts are moving forward is to purchase another property now and if the tax changes and rising interest rates effect our cash flow we can take a Kiwisaver holiday, if need be to service our mortgages.
Is this a reasonable decision? We will fix our mortgages once rates start to rise.
Olly replies:
Unhinged : I am not that thrilled with all this 100% borrowing. You should tread carefully lest you find yourselves topping up mortgages beyond your budget. However if you are certain that you can manage the tax changes mooted might mean that any depreciation losses cannot be used against your other income. However these tax changes are not clear and may not happen at all. I have made my views clear on the topic in my latest article on my website www.ollynewland.co.nz
EMP asks:
What is the best way for someone in their young 20′s to get into the real estate market in todays current economy?
Buy and hold for long term? Buy, renovate and sell quickly? Look into other investment opportunities in business/shares or sit on the sideline for a few years? Buy own home and rent out spare bedrooms?
I’m based in North Auckland and in kiwisaver (6 months so far in the scheme) if this makes any difference. Thanks. I loved your books and TV show as a teenager also.
Olly replies:
ENP: Thanks for the compliments. The quickest way forward is to buy something run down and do it up- carefully watching the budget all the while. Then you have the choice of living in it and maybe one day selling it for a profit or selling it right away. Income tax may apply if you buy and sell regularly. Renting out rooms will help the budget if your nerves can stand it. Sitting on the side line is not an option.
Cannon asks:
Hi Olly,
Thanks for taking the time to answer questions.
A simple one from me please (you may have commented in other threads and if so please forgive me): I am in the Auckland ‘low end’ market (very much a beginner). It seemed to have a bit of a mini boom at the end of last year and now has seemed to have quietened down again somewhat (tax change talk seems to have impacted quite hard here). What do you see happening in that market for the next year? Values Up/Flat/Down? Rents?
I am aware that HNZ is now buying very strongly again in South Auckland after several years out of the market altogether.
BTW, I know this is somewhat crystal ball gazing and other factors may change things, but your crystal ball seems to be a bit clearer than most and certainly it has the most experience so I would just really appreciate your opinion. And if you really don’t mind going out on a limb, when do you forsee the next ‘boom’ in NZ to be (roughly)?
Thanks Olly, I appreciate your time.
Olly replies
Cannon: The “low end” of the market has indeed quietened down since last year. The reasons are simple:
(a) Investors are finding that low end property attracts too many “low end” tenants.
(b) Capital growth is stunted as buyers in this sector have limited funds.
(c) It is no secret that the majority of forced sales are in the low end as well. This has a dampening effect on prices.
Rents will likely increase in the near future but even if rents went up in the low end properties the actual dollars left would hardly buy a latte and muffin a week.
As the market recovers it will be middle value properties that will benefit as buyers in this sector typically have more discretionary funds and rent increases are less of a problem.
The foregoing is a generality of course depending on which areas you are talking about. It should not be read as all encompassing.
Cannon says:
Hi Olly,
Thank you for your reply, that makes sense. I am focused on South Auckland. I have been told that it always gets hit hardest first when the market slumps and is the last to rise when the market goes up again. I guess those factors coupled with the increased tenant hassles (although I have had none really, my tenants are really good so far) are the price we pay for a better yield. Would you agree?
I spoke to a real estate agent this morning who told me that her sole focus at the moment is selling houses to Housing New Zealand and that they are buying a lot. I wonder how that will affect things?
Thanks Olly.
AMR asks:
Hi Olly,
What is your negotiating style? Do you have any tips?
Olly replies:
I use a very simple negotiating technique. I make one offer and expect one counter offer. My next counter-counter offer is my last and I make it clear that that is the case.
Other people like the back and forth offer technique but run the risk of paying too much by falling in love with the process.
Others still will play the long game by walking away for long periods to make the other side sweat.
Any of these will work as long as you never loses sight of the end game i.e. a deal that makes you smile.
Hec asks:
Hi Olly
Did your weekend course back in 2001. Very good idea it was as well. Have learned from you to keep things as simple as possible and done the best deals when doing so. Thanks again for being so helpful with good down to earth advice since then. May you continue to enjoy the frills the game has to offer. Hope you’re not tired yet!
Hec
Olly replies
Thanks Hec. No I’m not tired at all. Maybe once a month when I have to collect the rents it becomes a little wearisome but that’s all.
Kiwi asks:
Olly, Given that us NZ’ers are known for our propensity for property investment, DIY and home ownership, why aren’t there any real media-savvy home/investment-related entertainers that are household names here? The UK is similar to NZ in its peoples love of home ownership, yet they have the likes of Sarah Beeny, amongst others, that are genuine household names. Sure, it’s just infotainment, but a similar thing hasn’t seem to have caught on here. Why do you think that is?
Olly replies:
The reason why we have less “names” being used in the property investment media is the cost of producing any sort of TV programme. I was involved, as you might know, with “Property Climbers” on TV one over two years. The production costs to make the series was huge. Although it rated in the top 10 in both years, TV1 found it cheaper to import ready-made TV programmes from overseas.
squaretomato asks:
Suburb picks
Hi Olly,
Me too, read all your books and thoroughly enjoyed them.
Which suburbs in the Auckland Isthmus area would be your pick as ‘hot spots’ for the next couple of years?
Thanks
Olly replies:
Any suburb that is (a) Near the water (b) Near good schools (c) Handy to good transport (d) Not a nappy valley. Areas in particular I like are Mt Eden, Sandringham, Mt Albert Meadowbank, Kohi, Glendowie, Mission Bay, St Heliers, all central city areas, all north shore areas No point in buying a house in a beach area if you cannot see the water or walk to it within 5 minutes. It might as well be anywhere then. Do not invest in the poorer parts of Auckland where there are endless cheap ticky-tack houses until you have checked the crime statistics for the locality. And that goes for the smaller towns out of Auckland as well.
sorrnivek asks:
Hi Olly We currently own 10 residential rentals that are managed and almost financially supporting themselves. They are mostly in the lower end of the market in Whangarei We have around $450k in equity and have good incomes and no mortgage on our personal home. Would you suggest selling some/all of the rentals and investing in commercial Cheers
Olly replies:
It is quite advisable to spread the risks not only across residential but across commercial as well. Commercial is quite different from residential so everything you have learned about residential you can forget and start again. Commercial investment is quite different from residential in the way the tenants are controlled, pay their rents, handle their tenancies or cooperate with the landlord. There is no Tenancy Tribunal, and no rent controls. In other words both you and the tenant can more or less agree or do what ever you please. It is quite possible to double (or halve) the value of a commercial property with a stroke of the pen and it’s therefore not a game for beginners. Many of my clients have done very well in commercial and it can be enormous fun at times. It can also be very dangerous if you don’t know what you are doing. With the equity/cash you have it is quite possible to get into commercial but get good totally independent advice first.
squaretomato asks:
Hi Olly,
What are your views in regards to the future of the Tamaki Edge area ie. St. Johns, Glenn Innes, Point England, Panmure and Mount Wellington. Do you think there are potential growth in these areas?
Thanks
Olly replies:
Squaretomato: These areas are classic “working class areas” and like Japanese cars are popular but not necessarily top quality. Although they rent easily and are in demand the problem is that there is a cap on growth simply because the working class can’t afford to pay more. Areas where there is greater discretionary money to spend are better bets. I have seen too many of my clients talked into buying in the cheaper areas and then face years of stagnation. These type of properties are better for buying, scrubbing up and and reselling -but the margins are thin. In other words go where there is more “blue sky.”
freezinhot asks:
Olly, in your opinion, how long do you think we have left in this slump phase before we start seeing a recovery. I realise we have now a small window of opportunity to buy below market rate but would like to know just how long we have left before the window closes.
Regards
Olly replies:
We might be in for an extended period of flatness with the odd hiccup up and down. The opportunity to buy any old dunger and make money while you sleep has passed. I give it another 1-2 years because by then the politicians will feel the heat of the electorate and take stimulus seriously The only “hope” is for the return of inflation because inflation oils the wheels of capitalism. With the money that is being printed around the world there’s a fair chance that this will happen.
DaveW asks:
If you THINK you can’t afford Milford then you can’t afford Milford. You’ve got to get creative and think outside of that damn square.
The slumlord definition is interesting. Olly, does it apply to commercial property too? – like the flats above the shops scenario, or the empty space that is now accommodating boarders. Could be a good location but nevertheless it has a high management residential component.
Dave
Olly replies:
DaveW: Commercial/residential mix covers all the bases. The market is dictating a change as the commercial market is not immune from the recession. There are many empty factories and offices and some investors must be seriously burning. You can plainly see that the more naive investors in commercial never considered alternative uses. When ever you buy a commercial property one of the first questions to ask is “what can this be used for if the tenant leaves or goes under?”. Converting part or whole to residential for the duration is often the answer.
shanec asks:
Hey Olly,
Hope your week is going well. Not sure if someone has already asked this, but what are your thoughts on the new proposed tax changes to effect property investors ?
And do you think they will be implemented or watered down ?
Thanks
Olly replies:
shane: With as much modesty as I can muster, I would draw your attention to the following link:
http://www.ollynewland.co.nz/articles.php
My views have not changed. Indeed I am more certain than ever that the Government will rue the day they chose popularity over pragmatism. Note: is it my imagination or has Housing NZ pumped up its advertising for leasing rental properties from the private sector? Now why would that be I wonder?
Will asks:
Hi Olly,
Love your new service. What effect will the tax changes have on property prices in Auckland?
Olly replies:
Thanks for the compliment.
Any tax changes that cost the landlord something they are not paying now will tend to push rents up. Auckland in particular is growing quickly and has the worst housing shortage. The answer is obvious.
G
avin asks:
Hi Olly,
You shouldn’t be encouraging the ‘ask your question free’ to me. I always have a tonne of questions to ask you and could keep you busy for quite a while!
Well anyway …
I am the one who sometimes rings you from T*, I have got the Arcade here in T*. What I have got there is offices and retail shops downstairs and upstairs used to be a Hotel.
Now, I am thinking of turning it back into accommodation upstairs.
I seem to recall reading an article about having/owning Motel, Hotels etc somewhere. Was it you that wrote something about the good and bad points of owning these type of investments?
If not, do you have any knowledge of these types of investments or can you refer me to someone or even some literature that I can up skill myself on. This may not be the question you could answer in a short sentence and I guess you are probably a busy person. Thank you for your time in advance.
Olly replies:
Dear Gavin I have fair idea about motels vs rental accommodation but, as you say, it would take some time to analyse your particular situation.
Listing ‘good and bad points’ is not productive as it all depends where the hotel is, its history, and the alternatives such as basic rental accommodation.
There can be a lot of money at stake so you should go to: http://www.ollynewland.co.nz/mentoring.php and then we can do the job properly.
Blair asks:
Hi Olly,
In your opinion is full ring fencing of residential rental losses likely? (i.e. can’t claim cash losses against other income). It’s not off the agenda and a much more frightening prospect than losing depreciation allowances.
Olly replies:
Dear Blair
I would suspect that claiming investment property losses may very well be curtailed (ring-fenced) in the upcoming budget. By how much – if at all – is in the hands of the Government and we will know on 20 May (Budget Day).
Jay asks:
Hi Olly,
How do you see the rugby world cup will influence New Zealand Economy?
What is your opinion about innercity apartments?
Regards, Jay
Olly replies:
Dear Jay
The rugby cup might have a small influence but I doubt if it will have any long term affect especially if the results are disappointing!
Some inner city apartments will make very good investments – while others will be dogs forever.
It would depend on which apartment block is involved, its size, the position in the block, and what it would rent for.
Linda asks:
Hi Olly,
We are looking at buying in Christchurch. First we would like to have some higher yielding properties, therefore is it better to look at blocks of flats or stand alone houses? And any area you recommend in ChCh for this sort of investment?
Secondly, we would look at higher growth properties. This would probably be houses rather than flats I assume, and which areas in ChCh would you recommend for this type of investment?
Thanks, Linda
Olly replies:
Dear Linda
Blocks of flats would be higher yielding in general but capital growth is more likely with houses. Buy as close to the university or town centre as possible and close to public transport, shops etc. Stay away from poorer areas.
It’s all down to numbers and how well you can purchase which will decide which suburb.
Choc asks:
Hi Olly,
Hi, my question is in regard to tenants and damage to property. I wondered what your view was in regard to property damage by tenants. What yard-stick do you use to establish damage versus fair wear and tear. I have put this question to Tenancy Services and they don’t have an answer.
I recently made a claim against a tenant for damage and despite providing evidence from external sources (including evidence to support that damage had occurred during the tenancy) my claim was not upheld. Based on my experience as a landlord the damage was far in excess of normal wear and tear.
While I have changed my method of reference checking prospective tenants, this has left me wondering what to do to protect myself from being left with large bills in the future?
Olly replies:
choc: Take photos of every part of the property prior to letting and give one set to the incoming tenant and keep one set. The tenant must sign and date each one in both sets as correct.
These can then be compared later if damage has occurred and is better proof than nothing. No guarantees but it will help.
Cheers, Olly
Rob asks:
Hi Olly,
I live in Christchurch and have so far only invested here … there seems to be a lot of investors that choose to invest in higher yield small-town NZ. I’m reluctant to go down that track, as I like to be on hand if the property manager drops the ball or there is some issue that needs to be sorted. Am I on the right track, or missing opportunities?
Olly replies:
Rob: It has been common in the past for spruiker fired-up investors to buy in small towns because the returns are better than in the main centres. The sad fact is that small townships and lower socio-economic areas have become financial grave yards for many investors. Stick to the main centres, and middle class suburbs where there is momentum, demand and a better class of tenant. The returns may be lower, but at least there is the chance of capital growth. Unless you have both-return and capital growth – what’s the point?
Olly
Olly Newland’s Column, April 2010
The latest statistics make interesting reading indeed. What they show is there has been a huge surge in people choosing to rent. There will be serious consequences if this trends continues … which I am sure it will.
Many have come to realise that renting is still far cheaper than owning especially while capital growth remains so elusive.
The last surge in renting was in 2008 but for different reasons. The rise in house prices and the higher interest rates prevalent at the time forced people into renting. Now the picture and the reasons have completely changed.
The following article by Mr B Hickey of interest.co.nz demonstrates what is happening in the market. (Although he and I draw different conclusions.)
Rents unchanged for 2 years despite surge in numbers renting
April 9th, 2010
New Zealand’s median weekly rent was unchanged at NZ$300 in March from NZ$300 in both March 2009 and March 2008, but the number of New Zealanders lodging bond rentals has surged in the month by more than 54% to 19,683 in the last two years as many opt to rent rather than own. …