The Government's threatened changes to the way residential property investment is taxed has scared off buyers. We put our house on the market in February (nearly 3 months ago). The main lookers have been DINKs (double-income-no-kids) couples looking for a house for themselves, or parents looking on behalf of their grown children. The market has since had a flood of properties come on, less buyers out looking and a very real rise in mortgagee sales. So just what is it the Government are planning to do that has scared people off investing in residential property?
Here's an excerpt from the National Party's www:
"we will not be developing any proposals for a land tax, a comprehensive capital gains tax, or a risk-free return method (RFRM) for taxing residential investment properties. These decisions were taken after detailed consideration of the pros and cons.
Since there is only a certain amount of land, and it can't be moved overseas, a land tax appeals to economists as an efficient way to raise revenue. However, a land tax is effectively a lump-sum tax on people who own land at the time the tax is introduced, would only fall on people who hold their wealth in one particular form, and would create cash flow problems for many landowners, especially those with lower incomes.
An RFRM is another tax that, while having some conceptual appeal, would also create cash flow problems for taxpayers. A property owner could have a very sizeable tax bill each year under an RFRM, but little or no ability to pay it, except by putting up rents.
A comprehensive capital gains tax extends the tax net and is highly progressive. However in the Government's view it would make the tax system more complex to administer and comply with, and may encourage taxpayers to hold on to assets longer simply to avoid tax.
These new taxes are therefore off the table.
However the Government does believe there is a gap in the current tax system around property investments where income is being derived but, in aggregate, no tax is being paid - in fact the Government is actually losing revenue in this sector. We will therefore be making changes to the way property is taxed, which will result in increased Government revenue and more fairness for taxpayers. These changes will be announced in the Budget.
The Government is also carefully considering a modest increase in the rate of GST, to no more than 15 percent."
So the capital gains tax is not going to happen, the land tax is not going to happen, but something is going to happen. It is this uncertainty that is keeping buyers at bay. (There's lots of sharks about though - people with cash who can swoop in and pick up bargains as some vendors get more and more desparate to sell).
The way that depreciation on a rental property is worked out is likely to change.
The May 2010 Budget also promises to deliver an income tax cut across the board, but particularly for higher income earners. Including the ACC Levy income earned over $70,001 is now taxed at a whopping 40 cents in the dollar! This is the new post 1 April 2010 personal income tax breakdown:
Up to $14,000 = 14.5 cents per $1
14,001 - 48,000 = 23 cents per $1
48,001 - 70,000 = 35 cents per $1
70,001 + = 40 cents per $1
This isn't as high as Germany, but in New Zealand is it fair? Companies are taxed at 33c in the $1 and they get to write off the expenses incurred to earn that $1. Money invested in mutual funds and some overseas share funds etc is taxed at 30 cents in the $1.
Goods and Services Tax is going to go up from 12 cents to 15 cents. Prime Minister Key, on his Party's www, says people will have more take home cash, and it will be their choice to save it, or pay off their mortgage and thus not incur GST on it, or they can consume. Lower income earners will pay proportionately more GST because they have to use more of their income to live, that is, they have to 'consume'. Businesses and sole traders registered for GST get to claim at least some of it back.
As a vendor trying to sell in this stagnent property market, we just want the uncertainty cleared up so people can get on with making their investment decisions. It's fair enough that they have to wait - you can not calculate potential cashflow in this environment.
Sunday, April 25, 2010
Saturday, April 24, 2010
A Boat for a Beautiful House: Would you swap?
This beautiful house is on the market at $350,000. It's in Paeroa, of Lemon and Paeroa, the drink. Would you swap it for cash and this launch asking price $150,000:
I think not.
Thursday, April 22, 2010
Paying The Deposit - Now The Land Is Ours, Nearly
Real estate agents would have you believe you have to pay the deposit upon signing of the Sale and Purchase agreement. There's no point doing that unless both parties are signing and even then this is a negotiable. The agents of course want to get the deposit, because they're the first ones who will get paid out of it. The deposit goes in to their Trust Account and should be held there until the deal goes unconditional. Once it goes unconditional, the Real Estate Agency deducts its commission or part thereof.
When selling privately, the cheque can be paid to the vendors solicitor and held in their Trust Account. In a previous sale, I remember my solicitor paying over the deposit to me once the deal went unconditional. She took her fees out at settlement.
On this current deal, our solicitor advised not paying the deposit. There were many risks she needed to point out to us first. We paid the deposit today. It feels like the section is ours but we don't go unconditional until tomorrow and we're still waiting for confirmation of finance.
There's been lots of lessons already on this project. We rushed it. We didn't do our research properly before making an offer (e.g. we didn't look at the sales history on the property). We didn't allow enough time between signing and going unconditional to complete due diligence. Our solicitor really wants us to meet the other cross-lease owners to see if they're going to be supportive or not. It would also have been useful to meet the neighbours at the back, whose driveway we need to come down with the relocatable house.
We're going to go with the ex-Castor Bay house, the one for $30,000. The house mover checked out the section today and confirmed he can get the house on there no problems. Next step is to pay the deposit and get the Auckland City Council out to inspect the house. Our solicitor wants to check out the contract first though. It was a relief to find out the house removal company does insure the house until it is in our possession, and whilst they want the final installment paid before delivery, it's held in their solicitor's Trust Account and refunded if they drop the house and wreck it.
More learnings around land titles: The title at the moment is a "residue" title. Once we've got Code of Compliance on the new house, we have to have the property resurveyed and a new flats plan drawn up, and new title documents. These Title documents have to go to the other cross-lease owners for signing. This is when we incur and have to pay their lawyers' fees. Whilst, the Council may still grant a reasonable building consent even when the other cross-lease owner might have opposed it; things can come unstuck at the new Title stage. An opposing cross-lease partner could at this point withhold agreement, forcing costly legal action. And, we'll need that new title to refinance over the land with house. Without it a mortgage is only secured over the land only. Oops!
So, we move in to tighter budgetry conditions from tomorrow as uncertain weather on the horizon threatens to wash away all that lovely capital gain we thought we'd secured.
When selling privately, the cheque can be paid to the vendors solicitor and held in their Trust Account. In a previous sale, I remember my solicitor paying over the deposit to me once the deal went unconditional. She took her fees out at settlement.
On this current deal, our solicitor advised not paying the deposit. There were many risks she needed to point out to us first. We paid the deposit today. It feels like the section is ours but we don't go unconditional until tomorrow and we're still waiting for confirmation of finance.
There's been lots of lessons already on this project. We rushed it. We didn't do our research properly before making an offer (e.g. we didn't look at the sales history on the property). We didn't allow enough time between signing and going unconditional to complete due diligence. Our solicitor really wants us to meet the other cross-lease owners to see if they're going to be supportive or not. It would also have been useful to meet the neighbours at the back, whose driveway we need to come down with the relocatable house.
We're going to go with the ex-Castor Bay house, the one for $30,000. The house mover checked out the section today and confirmed he can get the house on there no problems. Next step is to pay the deposit and get the Auckland City Council out to inspect the house. Our solicitor wants to check out the contract first though. It was a relief to find out the house removal company does insure the house until it is in our possession, and whilst they want the final installment paid before delivery, it's held in their solicitor's Trust Account and refunded if they drop the house and wreck it.
More learnings around land titles: The title at the moment is a "residue" title. Once we've got Code of Compliance on the new house, we have to have the property resurveyed and a new flats plan drawn up, and new title documents. These Title documents have to go to the other cross-lease owners for signing. This is when we incur and have to pay their lawyers' fees. Whilst, the Council may still grant a reasonable building consent even when the other cross-lease owner might have opposed it; things can come unstuck at the new Title stage. An opposing cross-lease partner could at this point withhold agreement, forcing costly legal action. And, we'll need that new title to refinance over the land with house. Without it a mortgage is only secured over the land only. Oops!
So, we move in to tighter budgetry conditions from tomorrow as uncertain weather on the horizon threatens to wash away all that lovely capital gain we thought we'd secured.
Wednesday, April 21, 2010
The Excitement of Negotiating
We went back to the Real Estate Agent and renegotiated the price of the section in Otahuhu. We had to bring the price down to make the figures stack up. It's hard to believe it, but we managed to get it down by $12,000. It was that or the deal falls over. They've given us one day to hand over the deposit and go unconditional. To achieve this we said we'd remove the conditions requiring them to remove the old garage (that exists from prior to the section being subdivided and thus spans the new boundary) and the rubbish. That's just a bit of dirty labour for us and some rubbish dumping fees (or a skip). Maybe we could sell some of the garage for scrap metal?
Tomorrow, the builder half of us, checks out the house. We've already found some worrying conditions in the house removers contract - like we have to insure the house, and they want the final 50% of the payment at the latest 2 days before they deliver the house! Huh!? They want to be paid in full before they transport the house or put it on piles, and they don't insure it. So, if they drop it on the way and ruin it, bad luck for us. They put the roof framing back on, but not the roof tiles. These things could be deal-breakers. Our lawyer wants to see the contract first anyway. I'm crossing my fingers. I really want it to work in our favour for once. Sounds like I'm hoping for a lotto win, like it's gambling, like we're speculating. Exciting but risky. Are we there yet? Do we have lift off? It's a day at a time, hoping, tempering the emotion, trying to stay rational - think figures, focus on profit. Sleep would be welcome.
Tomorrow, the builder half of us, checks out the house. We've already found some worrying conditions in the house removers contract - like we have to insure the house, and they want the final 50% of the payment at the latest 2 days before they deliver the house! Huh!? They want to be paid in full before they transport the house or put it on piles, and they don't insure it. So, if they drop it on the way and ruin it, bad luck for us. They put the roof framing back on, but not the roof tiles. These things could be deal-breakers. Our lawyer wants to see the contract first anyway. I'm crossing my fingers. I really want it to work in our favour for once. Sounds like I'm hoping for a lotto win, like it's gambling, like we're speculating. Exciting but risky. Are we there yet? Do we have lift off? It's a day at a time, hoping, tempering the emotion, trying to stay rational - think figures, focus on profit. Sleep would be welcome.
Tuesday, April 20, 2010
Assessing a Relocatable Home
Today I checked out a cheaper relocatable home. It's 120 square metres, has french doors leading in to the lounge room (nice T&G - tongue and groove - wooden floors polished). A wall has been cut out opening up the dining area to the lounge. Off that are a bedroom and the large kitchen. A sunroom off this constitutes the 3rd bedroom. A doorway on the other side of the kitchen leads to a hallway, off which is the large main bedroom with one wall of wardrobes, and the bathroom.
This is a cheapy. We could get this for $30,000 all inclusive (including delivery and siting on piles). That's $19,000 below relocatable house No.2 and $33,000 less than the cost of moving the beautiful house we were given. But...
Here's the work: there's signs of borer, so have to assume we'd have to get the house treated. The concrete tiles on the roof look in good nick, just there's some missing and there's a big sag; there's some woodrot in some weatherboards but not major, and some wood in the eaves is rotten. The bath looks like a keeper, but it's falling through the floor below which has suffered flooding and already been replaced with particle board sometime in the past, so new bathroom floor needed. The Serotone on the bathroom walls looks ok and the vanity basin could stay. A lot of wall lining and ceiling relining is needed throughout. Salvagable in the kitchen is an island bench top and maybe a dishwasher. The floors throughout need a polish. Kitchen and bathroom floors need new vinyl. Hot water cylinder is gone (but they usually always are). One window pane has been smashed. Interior paint throughout, and exterior - though exterior paint job is reasonable and will only need a light sand. New guttering, lining and insulation in roof, insulate under floor, curtains, steps and decking, fencing, concrete the driveway and carport or single garage pad, landscaping.... Are you feeling tired?
Everyone thinks we're mad. Remember we both work fulltime and have a 5 year old daughter, no family close by to help with childcare and we're trying to sell our house privately and Mum's.
As I said to the mortgage broker, we're bored. We've fixed up the house we're living in, we're ready for our next project. The challenge is tempting - having the chance to make something, to bring the project in under what it will finally value at; to create a decent home we can feel okay about renting out, a home that will stand up to years of tenants. And, in the end there's the actual aim which is to get started on getting ahead - to have an asset that brings in positive cashflow and appreciates over time.
This is a cheapy. We could get this for $30,000 all inclusive (including delivery and siting on piles). That's $19,000 below relocatable house No.2 and $33,000 less than the cost of moving the beautiful house we were given. But...
Here's the work: there's signs of borer, so have to assume we'd have to get the house treated. The concrete tiles on the roof look in good nick, just there's some missing and there's a big sag; there's some woodrot in some weatherboards but not major, and some wood in the eaves is rotten. The bath looks like a keeper, but it's falling through the floor below which has suffered flooding and already been replaced with particle board sometime in the past, so new bathroom floor needed. The Serotone on the bathroom walls looks ok and the vanity basin could stay. A lot of wall lining and ceiling relining is needed throughout. Salvagable in the kitchen is an island bench top and maybe a dishwasher. The floors throughout need a polish. Kitchen and bathroom floors need new vinyl. Hot water cylinder is gone (but they usually always are). One window pane has been smashed. Interior paint throughout, and exterior - though exterior paint job is reasonable and will only need a light sand. New guttering, lining and insulation in roof, insulate under floor, curtains, steps and decking, fencing, concrete the driveway and carport or single garage pad, landscaping.... Are you feeling tired?
Everyone thinks we're mad. Remember we both work fulltime and have a 5 year old daughter, no family close by to help with childcare and we're trying to sell our house privately and Mum's.
As I said to the mortgage broker, we're bored. We've fixed up the house we're living in, we're ready for our next project. The challenge is tempting - having the chance to make something, to bring the project in under what it will finally value at; to create a decent home we can feel okay about renting out, a home that will stand up to years of tenants. And, in the end there's the actual aim which is to get started on getting ahead - to have an asset that brings in positive cashflow and appreciates over time.
Monday, April 19, 2010
Location, Location, Location
Here's a good article explaining what this common phrase means: http://www.thebull.com.au/articles_detail.php?id=10834
Sunday, April 18, 2010
Subdividing a Full Site
Today we went over to Point England to check out a few open homes. The properties were all advertised around $400,000, which indicated they were big enough sites to chop up. At the first one we got to, the agent promptly told us the section was Zoned 5 and therefore was not allowed to be subdivided. She claimed the whole street and the next street over, where the second property on our list was showing, were all Zoned 5.
She's wrong according to the Auckland City website. Surely she doesn't think the fibrelight clad 3 bedroom house on 677 square metres is worth the $439,000 price tag? No wonder, she was so quick to scratch out that figure and write $410,000 and say conspiratorially, "and that's highly negotiable."
We didn't get in to see the others - it's so quiet, the Agents are packed up and gone before the open home time is over, or they didn't bother doing the open home at all. At one place, we pulled up with 10 minutes to spare, but the agent had already locked up and was collecting her signs from the ends of the street. She saw us sitting there, but drove on! How would the vendors feel if they knew the agents were making a token appearance, and or indicating that the house can be bought way under the asking price? The money the agent is so ready to give away is of course, their commission, that they no doubt said they'd get on top of the vendors desired price.
This property we missed out on seeing, had already been subdivided but was being sold with the 2 titles at $479,000. No work has been done on fencing off the back section. So, the 3 other properties that can be chopped up selling at $399,999, after the $20,000 (rough guess) needed to crosslease them, can look forward to asking in the high $400s. Doubt these prices will be realised in this market, however.
It was interesting to see the wide disparity in prices being asked for houses in Point England (which is barely distinguishable from Glen Innes in the streets back from the waterfront) and Otahuhu. We can't help feeling that the Point England places are over-priced, despite the many and varied new so-called 'traffic calming' interventions (huge roundabouts at intersections and paved and planted growths that grow out from the footpaths to put people off even driving down the street and to slow the traffic that has to drive there). These are apparently the result of an Auckland City Council study to reduce the number of road crashes in the area. As visitors to the area, it made it feel more shut off, enclosed, condusive to children playing softball in the middle of the street and well - ghettoish. Another, downfall is that it stops big trucks, with say a relocatable house on the back, from being able to come down the street - so there goes that idea.
She's wrong according to the Auckland City website. Surely she doesn't think the fibrelight clad 3 bedroom house on 677 square metres is worth the $439,000 price tag? No wonder, she was so quick to scratch out that figure and write $410,000 and say conspiratorially, "and that's highly negotiable."
We didn't get in to see the others - it's so quiet, the Agents are packed up and gone before the open home time is over, or they didn't bother doing the open home at all. At one place, we pulled up with 10 minutes to spare, but the agent had already locked up and was collecting her signs from the ends of the street. She saw us sitting there, but drove on! How would the vendors feel if they knew the agents were making a token appearance, and or indicating that the house can be bought way under the asking price? The money the agent is so ready to give away is of course, their commission, that they no doubt said they'd get on top of the vendors desired price.
This property we missed out on seeing, had already been subdivided but was being sold with the 2 titles at $479,000. No work has been done on fencing off the back section. So, the 3 other properties that can be chopped up selling at $399,999, after the $20,000 (rough guess) needed to crosslease them, can look forward to asking in the high $400s. Doubt these prices will be realised in this market, however.
It was interesting to see the wide disparity in prices being asked for houses in Point England (which is barely distinguishable from Glen Innes in the streets back from the waterfront) and Otahuhu. We can't help feeling that the Point England places are over-priced, despite the many and varied new so-called 'traffic calming' interventions (huge roundabouts at intersections and paved and planted growths that grow out from the footpaths to put people off even driving down the street and to slow the traffic that has to drive there). These are apparently the result of an Auckland City Council study to reduce the number of road crashes in the area. As visitors to the area, it made it feel more shut off, enclosed, condusive to children playing softball in the middle of the street and well - ghettoish. Another, downfall is that it stops big trucks, with say a relocatable house on the back, from being able to come down the street - so there goes that idea.
Saturday, April 17, 2010
Trading Property for What Have You
We 're also trying to sell Mum's beautiful grand Art Deco dame of a house in Paeroa. With limited marketing, we've finally had someone through who loves the place. The only catch is we've got to take his beautiful 38 foot launch as part of the trade.
At least Mum would be able to get out of being alone, so far away from her daughters. Paeroa is one and a half hours drive from Auckland. The house is big and the main bedroom is upstairs. It's a worry for Mum and us that she's on her own there.
When Mum's husband died, she was left with a small mortgage over the house and a significant sum of Empire Trade Exchange dollars. These are usually traded, but can be used to buy goods and services. Trade deals often include boats, cars and sometimes diamonds or other valuables, so the offer before us is not unusual.
Mum has less need for a boat, than she does for a house with stairs, but at least she could move on and look for a more suitable property to swap the boat, e-banc dollars and cash for. A hard decision. Easy for us - we find ourselves fantasising about having a launch, even if just for a short time and on loan.
What would you do?
At least Mum would be able to get out of being alone, so far away from her daughters. Paeroa is one and a half hours drive from Auckland. The house is big and the main bedroom is upstairs. It's a worry for Mum and us that she's on her own there.
When Mum's husband died, she was left with a small mortgage over the house and a significant sum of Empire Trade Exchange dollars. These are usually traded, but can be used to buy goods and services. Trade deals often include boats, cars and sometimes diamonds or other valuables, so the offer before us is not unusual.
Mum has less need for a boat, than she does for a house with stairs, but at least she could move on and look for a more suitable property to swap the boat, e-banc dollars and cash for. A hard decision. Easy for us - we find ourselves fantasising about having a launch, even if just for a short time and on loan.
What would you do?
Buying a Ready-made Renter
Today we looked at a 3 bedroom, 1 bathroom house on 385 square metres in Otahuhu. It's got a lock up garage, is reasonably tidy inside and out. It's not a crossleased section. It's tenanted and the tenants want to stay. Rent is $350 a week. Government value (upon which the rates are calculated) is $260,000.
The agent said it was going up for quick auction, whatever that means. Property values, especially in Otahuhu are trending downwards with a drop of 6.7% over the last year. We could expect this property to sell under GV - possibly around $240,000 or lower if there's some urgency to the sale.
So let's do the figures.
The banks would look at lending 70%, that's $168,000, requiring capital of $72,000 from us.
Rental income of $350 per week over the year = $18,200
Interest on a mortgage of $168,000 at 5.95% p.a. = $9996
Rates, insurance, and allowance for maintenance and vacancy = $4649.70 p.a.
So that's a potential positive cashflow of $3554.
It's not great return on the investment of $72,000, being only about +4.9%, but that's better than what banks are paying. Haven't factored in tax. Plus, overtime the property market should rebound, and the capital value should improve again. In the meantime the tenants pay off the mortgage.
Concerns would be the age of the house - it's Circa 1909, that's 100 years, weatherboard, with tin roof. The nice paint job could be hiding all sorts of wrinkles. It could be a fairly recent bog and flog, so a thorough inspection of the building, including looking up in the roof and under (although that doesn't look possible as the house is flat to the ground) would be required.
It would be interesting to go to the Auction later this week to see how it goes.
Tomorrow, we're going to check out some properties, with a house sitting on a full site - ripe for cutting up.
The agent said it was going up for quick auction, whatever that means. Property values, especially in Otahuhu are trending downwards with a drop of 6.7% over the last year. We could expect this property to sell under GV - possibly around $240,000 or lower if there's some urgency to the sale.
So let's do the figures.
The banks would look at lending 70%, that's $168,000, requiring capital of $72,000 from us.
Rental income of $350 per week over the year = $18,200
Interest on a mortgage of $168,000 at 5.95% p.a. = $9996
Rates, insurance, and allowance for maintenance and vacancy = $4649.70 p.a.
So that's a potential positive cashflow of $3554.
It's not great return on the investment of $72,000, being only about +4.9%, but that's better than what banks are paying. Haven't factored in tax. Plus, overtime the property market should rebound, and the capital value should improve again. In the meantime the tenants pay off the mortgage.
Concerns would be the age of the house - it's Circa 1909, that's 100 years, weatherboard, with tin roof. The nice paint job could be hiding all sorts of wrinkles. It could be a fairly recent bog and flog, so a thorough inspection of the building, including looking up in the roof and under (although that doesn't look possible as the house is flat to the ground) would be required.
It would be interesting to go to the Auction later this week to see how it goes.
Tomorrow, we're going to check out some properties, with a house sitting on a full site - ripe for cutting up.
Thursday, April 15, 2010
To Build or To Buy: Ah There's The Rub
Another option we have considered is building a new home altogether. Grandma burnt her house down you see, which created the opportunity (potentially) to buy her property and build a new house on it. We'd have to sell our house first, however, as we'd need all the cash we could scrape together to buy the section and undertake a build project.
The timing wasn't quite right for us, as we were nine months out from coming off our fixed mortgage. We'd fixed for three years and originally suspected at the end of that we'd want to sell to move in to zone to get our daughter in to a desirable school. She's just turned five. Unfortunately, most of the primary schools around us are Decile 1 (which means they serve, predominantly, children from families in the lowest 10% socio-economically).
School Zoning Contributes to Property Boom Bust Cycle
Just an aside about this school zoning thing - it must be one factor that fuels New Zealand's property boom bust cycle. When you don't have kids, you don't have to think about the desirability of the local schools you're in zone for. You buy in an area for other reasons. Once people have a child or two, and as those children near school age (5 yrs) there's a flurry to sell in areas with less desirable schooling and a shift to housing in areas zoned for better schools. Certainly, it's a home marketing factor. Having to sell and move to manoeuvre children closer to desirable schools, doesn't just happen once however. A second move may be required to gain access to the desired Intermediate (middle school for 11-12 yr olds) and High School.
Another negative outcome of the zoning policy is that it probably contributes to ethnic and socio-economic alienation, segregation (i.e. ghettos). This occurs as the demographics in an area change. Increasingly, over the next 30-40 years there will be more and more Maori, Pacific Island and Asian people making up Auckland's population. If socio-economic disparity by ethnicity is not addressed and reduced in New Zealand - this increasing ethnic diversity of school populations will result in 'white-flight' as socio-economically advantaged xenophobic or racist Pakeha move their children out of schools serving a growing proportion of ethnic minority groups. To be fair to those Pakeha parents who do not believe they are racist, they may simply not be happy with their child being one of a minority ethnic group at school.
Wouldn't it be good if you didn't have to sell and move to gain access to great schooling?
Anyway, I digress... back to the question of whether to build? It was exciting dreaming of our 'Grand Design' and dreaming about living in a beautiful house with everything right where you'd want it to be: to have a walk-in pantry and a kitchen bench that extends out on to the deck so meat could be cooked outside, and a separate toilet or two, positioned well away from the bedroom or any areas within ear-shot of the kitchen, dining or lounge room areas; to have a wet-area bathroom with exterior entrance so you can enter from the beach or boat and wash off without traipsing sand through the house... it was a nice dream.
The timing wasn't quite right for us, as we were nine months out from coming off our fixed mortgage. We'd fixed for three years and originally suspected at the end of that we'd want to sell to move in to zone to get our daughter in to a desirable school. She's just turned five. Unfortunately, most of the primary schools around us are Decile 1 (which means they serve, predominantly, children from families in the lowest 10% socio-economically).
School Zoning Contributes to Property Boom Bust Cycle
Just an aside about this school zoning thing - it must be one factor that fuels New Zealand's property boom bust cycle. When you don't have kids, you don't have to think about the desirability of the local schools you're in zone for. You buy in an area for other reasons. Once people have a child or two, and as those children near school age (5 yrs) there's a flurry to sell in areas with less desirable schooling and a shift to housing in areas zoned for better schools. Certainly, it's a home marketing factor. Having to sell and move to manoeuvre children closer to desirable schools, doesn't just happen once however. A second move may be required to gain access to the desired Intermediate (middle school for 11-12 yr olds) and High School.
Another negative outcome of the zoning policy is that it probably contributes to ethnic and socio-economic alienation, segregation (i.e. ghettos). This occurs as the demographics in an area change. Increasingly, over the next 30-40 years there will be more and more Maori, Pacific Island and Asian people making up Auckland's population. If socio-economic disparity by ethnicity is not addressed and reduced in New Zealand - this increasing ethnic diversity of school populations will result in 'white-flight' as socio-economically advantaged xenophobic or racist Pakeha move their children out of schools serving a growing proportion of ethnic minority groups. To be fair to those Pakeha parents who do not believe they are racist, they may simply not be happy with their child being one of a minority ethnic group at school.
Wouldn't it be good if you didn't have to sell and move to gain access to great schooling?
Anyway, I digress... back to the question of whether to build? It was exciting dreaming of our 'Grand Design' and dreaming about living in a beautiful house with everything right where you'd want it to be: to have a walk-in pantry and a kitchen bench that extends out on to the deck so meat could be cooked outside, and a separate toilet or two, positioned well away from the bedroom or any areas within ear-shot of the kitchen, dining or lounge room areas; to have a wet-area bathroom with exterior entrance so you can enter from the beach or boat and wash off without traipsing sand through the house... it was a nice dream.
Wednesday, April 14, 2010
How Downers Depress Dreams
Today, I asked the mortgage broker to process an application for a loan to buy this section we've found. We've made an offer on a small crossleased back half section in Otahuhu. Capital value (CV) is $175000, asking price was $179000, we offered $150000; final sale price settled on = $157000. Seems like a good deal. We've found a 3 bedroom relocatable house to put on the section that will cost $49000. Seems all good and cheap so far, right?
Well, property values in Otahuhu are dropping. It's one of the cheapest suburbs in the Auckland City Council. Our calculations suggest that all up, getting the house up to Code of Compliance and redecorated a bit could end up costing us $250000. Today in Otahuhu you can buy 2 bedroom units for $250000 and as low as $150000. There are some 3 bedroom houses for sale around the $260000 range, though they probably need another $40000 spent on redecoration to get them rentable again.
Still, there's a big risk that we could easily over-capitalise. The mortgage broker thinks it's not a wise investment - he thinks we should borrow more to buy in a better suburb where the property will appreciate faster. Spend $1 today somewhere where it's going to be worth $2 tomorrow. He thinks we should buy an existing dwelling. We like the challenge the relocatable project offers. There's a potential to produce a reasonable quality rental property for under what it will value at when completed.
What swayed me really was the chance to keep the overall cost down, borrow less, have the rent cover the properties costs and with such a low mortgage - we could get the property freehold in a much shorter period. We can also get started on this project before selling our home. More costly opportunities, mean we need to try and sell first - mainly because we don't want to have a huge amount of mortgage debt hanging over us.
I'm with Robert Kiyosaki on this one - going for positive cashflow. Our mortgage broker says, 'If you want positive cashflow, go for an apartment. But then you won't have something that's going to appreciate in value... It's the land underneath the dwelling that's going to appreciate.' In other words: buy land, go for capital gain. Yes, that's what we're proposing to do: buy a piece of land and put a house on it. Of course we'd like to see it appreciate in value over time.
Other downer today - the lawyer wanted us to be aware of the potential problems and hidden costs that could arise because this is a crosslease section. The owners of the other half, have to approve the house we want to put on. We have to apparently pay their lawyers fees! What? Hmm that could get costly. If the other owners are difficult to get a hold of, or decide to be difficult, then they could cause delays. Delays cost. Lawyer ends by saying, you'd be better to buy an existing house.
I'm feeling a slight rebellious tonight - like I've been challenged, dared to do it. I feel like proving them wrong. But, even Robert advices, you've got to listen to your team.
Well, property values in Otahuhu are dropping. It's one of the cheapest suburbs in the Auckland City Council. Our calculations suggest that all up, getting the house up to Code of Compliance and redecorated a bit could end up costing us $250000. Today in Otahuhu you can buy 2 bedroom units for $250000 and as low as $150000. There are some 3 bedroom houses for sale around the $260000 range, though they probably need another $40000 spent on redecoration to get them rentable again.
Still, there's a big risk that we could easily over-capitalise. The mortgage broker thinks it's not a wise investment - he thinks we should borrow more to buy in a better suburb where the property will appreciate faster. Spend $1 today somewhere where it's going to be worth $2 tomorrow. He thinks we should buy an existing dwelling. We like the challenge the relocatable project offers. There's a potential to produce a reasonable quality rental property for under what it will value at when completed.
What swayed me really was the chance to keep the overall cost down, borrow less, have the rent cover the properties costs and with such a low mortgage - we could get the property freehold in a much shorter period. We can also get started on this project before selling our home. More costly opportunities, mean we need to try and sell first - mainly because we don't want to have a huge amount of mortgage debt hanging over us.
I'm with Robert Kiyosaki on this one - going for positive cashflow. Our mortgage broker says, 'If you want positive cashflow, go for an apartment. But then you won't have something that's going to appreciate in value... It's the land underneath the dwelling that's going to appreciate.' In other words: buy land, go for capital gain. Yes, that's what we're proposing to do: buy a piece of land and put a house on it. Of course we'd like to see it appreciate in value over time.
Other downer today - the lawyer wanted us to be aware of the potential problems and hidden costs that could arise because this is a crosslease section. The owners of the other half, have to approve the house we want to put on. We have to apparently pay their lawyers fees! What? Hmm that could get costly. If the other owners are difficult to get a hold of, or decide to be difficult, then they could cause delays. Delays cost. Lawyer ends by saying, you'd be better to buy an existing house.
I'm feeling a slight rebellious tonight - like I've been challenged, dared to do it. I feel like proving them wrong. But, even Robert advices, you've got to listen to your team.
Tuesday, April 13, 2010
Getting Started
Do you ever feel like you're just not getting ahead of where you were last year, or the year before that?
I feel like I've been financially stuck in the same place for at least the last 3 years. My salary has gone up a bit at least once a year. But, I guess the rising cost of living is wiping that out.
We bought our current home in Panmure, Auckland in June 2007. It was boom time, just before the peak in the property market. So, we paid just under top dollar. Now, 3 years later, we've completed fixing up what needed fixing and we're trying to sell. But, we're on the downward side of the peak and sliding.
We listed our house for sale beginning of February. We've had over 2400 views on Trade Me and several couples look through. But, the National Party are threatening to hurt property investors in the upcoming budget causing buyers to back off and wait; and, it's triggered some property investors to throw properties on the market. Some Real Estate Agents are saying it'll take nine months to clear the backlog of properties now on the market - and our house happens to be one of them.
This blog is about the ups and downs of trying to get ahead financially. Follow us as we tack back and forth between the different investment opportunities. Whose advice will reign supreme? Robert Kiyosaki's invest for cashflow or Norm's (our mortgage broker) advice to leverage against our home, borrow, borrow, borrow and negative gear?
I feel like I've been financially stuck in the same place for at least the last 3 years. My salary has gone up a bit at least once a year. But, I guess the rising cost of living is wiping that out.
We bought our current home in Panmure, Auckland in June 2007. It was boom time, just before the peak in the property market. So, we paid just under top dollar. Now, 3 years later, we've completed fixing up what needed fixing and we're trying to sell. But, we're on the downward side of the peak and sliding.
We listed our house for sale beginning of February. We've had over 2400 views on Trade Me and several couples look through. But, the National Party are threatening to hurt property investors in the upcoming budget causing buyers to back off and wait; and, it's triggered some property investors to throw properties on the market. Some Real Estate Agents are saying it'll take nine months to clear the backlog of properties now on the market - and our house happens to be one of them.
This blog is about the ups and downs of trying to get ahead financially. Follow us as we tack back and forth between the different investment opportunities. Whose advice will reign supreme? Robert Kiyosaki's invest for cashflow or Norm's (our mortgage broker) advice to leverage against our home, borrow, borrow, borrow and negative gear?
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