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Renovate then Rent

With all this talk about the housing market gaining ground; it is a good time to check out how you might also gain from the situation. From our own experience we have found that many of our more established clients have grown their wealth through property investment. Sometimes with very little cash from their own pocket.

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With all this talk about the housing market gaining ground; it is a good time to check out how you might also gain from the situation. From our own experience we have found that many of our more established clients have grown their wealth through property investment. Sometimes with very little cash from their own pocket.

Q: Can I buy something with good cash flow and good potential for increase in value?
A: I don’t think so

When you are looking for a rental property you will find that there are two particular types, the ones which provide a good cash flow and the ones with a really strong potential for growth in value over time.

The main reason for this is; in areas where you have the strongest capital gain you have emotional buying. By this I mean more desirable suburbs have parents and couples looking for something they can build their dream life around. So what tends to happen is that a bunch of these emotional buyers will get together in a room and push the price up. This is also called an Auction.

In an area which is full of renters and sometimes are less desirable places to live, you will have investor buyers who look at pure numbers, usually how much will this cost me and how much will this rent for. There are some suburbs which have a bit of both of these types as well.
In saying this there are suburbs which can change from one type to another but I have never taken a course in fortune telling so will leave this for you experts to ponder.

Why renovate then rent?

This might be easier to understand if we use a real live example: Names and details have been changed.
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Paul and Peter bought a house in a very average suburb, they decide to buy a do up. Because of the condition of the property and lack of emotional home buyers, Paul and Peter have a lot less competition in price. Buying for $320,000 with a 5% deposit($16k) they have to pay $321 per week interest only or $396 per week over 30 years at 5.50%. Rates and insurance is approx another $50 per week. Rent in this area for property in this state is $350 per week. Realistically the couple will be paying approx $100 per week from their own pockets or approx $50,000 over ten years.

If housing inflation is 5% on average then this property could be worth $500,000 after ten years. If Peter and Paul pay principle and interest, their mortgage will also be substantially lower after this time.

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Surprisingly in this suburb if Peter and Paul spent $15,000 in renovations, rent returns can increase to $420 per week, that is another $70 per week. The opportunity cost of not using that extra $15,000 to lower the interest payment on their mortgage by increasing the initial deposit is approx $15 per week. So effectively they gain $70 per week in rent by losing $15 per week in interest. Plus a renovation of $15k will bring the value of their property up by $25k usually if spent in the right places.

Apart from the positive impact of having a nicer living environment for the tenant, renovations can also bring down vacancy rates of your rental and mean a better quality tenant.

Accounting & Finance

Low Interest Rates Winners and Losers

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Lower mortgage interest rates is a big deal for most homeowners and buyers.

Existing homeowners can hunt around for a better deal with the same or another lender and in the process save hundreds, if not thousands of dollars on interest payments. Even if a borrower is locked into a fixed rate deal on a fixed term, it often pays to break it and reap the rewards of paying a lot less interest.

For first time home buyers, lower interest rates can be the difference between renting and owning a home. Existing homeowners trading up or down, see lower interest rates as a great time to sell and buy too, Therefore there is always a frenzy of activity in the mortgages sector when there is movement in interest rates and there will be winners and and there will be losers.

Winners and Losers

Lower interest rates sends a signal to vendors with homes to sell, that there are more buyers in the market. This can get unsold properties sold which is a win win for vendor and buyer.

More buyers in the market, however can also push the sales price up, as vendors aim to get the best price and there can be only one buyer, the one who is willing and able to pay the most.

In this situation it’s more of a win for the vendor. The eventual purchaser is likely to have paid more than they were comfortable with and thus borrowed more to get the property. Plus there were many buyers locked out by the higher price.

First Home Buyer Tip

The tip for first home buyers is to always be ready to take action as soon as the timing is right.

For first home buyers, it’s always a good time keep a financial advisor or broker up to speed on your personal financial position. This way when the timing is right, like a downward move in interest rates, you can just ask the question:

“What can I afford to borrow, now the interest rates are lower?”

There is no such thing as one size fits all when it comes to borrowing money. Your position will determine how high risk you are to a lender.

A trusted advisor in the know, can act fast on your behalf when lending conditions favour you. Lenders who see you a good ‘investment’ will be keen to move quickly too, to secure your business and thus beat their competition, i.e. other lenders.

Recent news of an OCR rate drop by the RBNZ, spread like wildfire around the country and the early worm is sure to get the best deals.

Homeowners with advisors already up to speed on their current position, will be busy acting on their behalf, to find the best deal saving their clients hundreds if not thousands in interest repayments over the term of their loan.

Property price increases have cooled in Auckland, increasing by just 1.7 percent compared to the previous year. Listings too have been lower, however that’s all about to change. More buyers, trigger more listings and with more buying power, higher property prices.

Timing is everything, so whatever your circumstance, talk to your mortgage advisor and act on the deal that’s right for you.

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Accounting & Finance

Property Listings Drought Adds Fuel To Fire

A property listings drought is adding further fuel to our over-heated property market. Property prices are increasing everywhere except Taranaki according to Trade Me Sales Price Index and that’s got the RBNZ considering further action to curb demand.

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A property listings drought is adding further fuel to our over-heated property market.  Property prices are increasing everywhere except Taranaki according to Trade Me Sales Price Index and that’s got the RBNZ considering further action to curb demand.

The RBNZ’s LVR restriction on Auckland property investors has done little to dampen their appetite and many have also moved their focus to other areas where property prices have been on the increase since October 2015.

The listings drought suggests most home owners are electing to improve their properties using the equity in their homes over moving house.  Some Aucklanders have chosen to leave the city for change of lifestyle and Tauranga has been one of the main benefactors as well as the region of Hawkes Bay.

Curbing demand is how the RBNZ want to deal with the property market and they’re considering a variety of measures.  Bernard Hickey in a news item on NZHerald believes we’ll know more on the RBNZ’s next move  in the second half of 2016.  Bernard mentions two dates in particular: 19 August is the deadline for Auckland  Council to accept all or some or reject all the Unitary Plan.  The Government is hinting at wading in if the Unitary Plan does not meet their goals of an Auckland growing up and out to meet new housing supply targets.

The other date to watch out for is 30 November.  On this day the RBNZ presents it’s Financial Stability Report.  One of the measures under consideration by the RBNZ is the fixing of the income to loan ratio.

From the news item on NZHerald

“The Reserve Bank helpfully included a chart in this week’s report that showed around 35 per cent of owner-occupiers and 60 per cent of investors had borrowed more than 5 times their income.”

New rules are coming and if what’s happened to date is anything to go by the RBNZ is not shy at taking action so keep these dates in your diary.  No doubt investors are now very aware of their income to lending ratio and will be taken the necessary steps to survive the next round of RBNZ restrictions.


This blog article was written for PropertyBlogs by Mobilize Mail.

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Accounting & Finance

How Low Can Mortgage Rates Go?

News of lower wholesale interest rates suggests we may be in for another round of super low home loan interest rates as early as next week. A news item on interest.co.nz provides examples of the correlation between swap rates and the mortgage rates with one example being SBS Bank’s one year rate as it was back in November 2015.

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News of lower wholesale interest rates suggests we may be in for another round of super low home loan interest rates as early as next week.   A news item on interest.co.nz provides examples of the correlation between swap rates and the mortgage rates with one example being SBS Bank’s one year rate as it was back in November 2015.  At the time their rate was big news as it was the lowest at 3.99% while the one year swap rate was at 2.72%.

Fast forward to February 2016 and SBS Bank’s one year rate is at 4.35% while the one year swap rate is currently lower than it was back in November, its currently 2.58%.  A downwards move is predicted and SBS Bank could move back to where it was in November 2015 at 3.99% or go even lower.

It really just takes one lender to make a move and the other lenders are sure to follow.  Borrowers in the know are regularly speaking to their mortgage broker to keep up to speed on the best deals and terms on offer.

So how low can mortgage rates go?  Possibly lower than they were in 2015.


This blog article was written for PropertyBlogs by Mobilize Mail.

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