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.
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