Auckland, New Zealand · Member since 2018 · 34 posts · 1 vote
I have not studied to much about real estate, I have read the Ultimate Beginners Guide by Bigger Pockets, side course with 6 lessons and about 10+ articles from bigger pockets so I have the general understand of everything. The course taught me some good calculations that everyone should know and told me to put it to the test on a local MLS. Everyday I have a look and just calculate things to try and understand more. Before asking my question I just want whomever is reading this to know I am still learning alot by the day so would appreciate it if you gave me advice/help instead of getting bothered.
My question is, Is it possible to pay the mortgage of a property you are renting in less then 10 years? I looked at apartments and houses in a similar price range. The one I chose to go in full detail with I found that I was making roughly $250-300 NZD (170 USD) after expenses (Dis-including Mortgage). Now the problem is to get out a $700,000 NZD (460000 USD) mortgage with a 50000 NZD (33000 USD) Deposit I would have to do minimum repayments of 800 a week. Now as you can tell that's well over what the house is bringing in. I guess the leads to another main question that has been playing on my mind. How does one even purchase a property that is able to pay for weekly mortgage and expenses.
Thank you for reading my question, once again I appreciate all feedback.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
This isn't a deal. Understand the difference between "cost to buy" and "cost to control". You want to reduce both. You want your tenant(s) to buy your property for you through positive cash flow.
Any money that comes out of your pocket, is a cost to buy to you. This includes:
1 - Down payment 2 - Negative cash flow 3 - Added money out of pocket to pay off mortgage faster.
If you put $20k down, have $4k negative cf per year, and add $4k month out of pocket to pay down mortgage faster, your cost is $20k plus $8k/year. If you hold this situation for 10 years, that property cost you $100k...and you have to recover all of that $100k before you start making a profit.
However, if you put $20k down, and you have positive CF, that property cost you $20k...period. That means as soon as your total positive CF = $20k, you start making a profit. That's because your tenant is actually buying the building for you. That's their job. Don't help them.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
This isn't a deal. Understand the difference between "cost to buy" and "cost to control". You want to reduce both. You want your tenant(s) to buy your property for you through positive cash flow.
Any money that comes out of your pocket, is a cost to buy to you. This includes:
1 - Down payment 2 - Negative cash flow 3 - Added money out of pocket to pay off mortgage faster.
If you put $20k down, have $4k negative cf per year, and add $4k month out of pocket to pay down mortgage faster, your cost is $20k plus $8k/year. If you hold this situation for 10 years, that property cost you $100k...and you have to recover all of that $100k before you start making a profit.
However, if you put $20k down, and you have positive CF, that property cost you $20k...period. That means as soon as your total positive CF = $20k, you start making a profit. That's because your tenant is actually buying the building for you. That's their job. Don't help them.
Rental Property Investor · Littleton, CO · Member since 2014 · 150 posts · 114 votes
8y
Hmm I have a similar question. My properties can pay themselves off in 10-12 years using only cash flow, and we plan to have them paid off roughly when we retire. We have planned for expenses, plus 5% repair, 5% cap ex, and misc at 3%, and still can pay the mortgages plus $1000-1200 additional principal per month. The mortgage interest rates are between 3.75-4%. Are there downsides to this?
This isn't a deal. Understand the difference between "cost to buy" and "cost to control". You want to reduce both. You want your tenant(s) to buy your property for you through positive cash flow.
Any money that comes out of your pocket, is a cost to buy to you. This includes:
1 - Down payment 2 - Negative cash flow 3 - Added money out of pocket to pay off mortgage faster.
If you put $20k down, have $4k negative cf per year, and add $4k month out of pocket to pay down mortgage faster, your cost is $20k plus $8k/year. If you hold this situation for 10 years, that property cost you $100k...and you have to recover all of that $100k before you start making a profit.
However, if you put $20k down, and you have positive CF, that property cost you $20k...period. That means as soon as your total positive CF = $20k, you start making a profit. That's because your tenant is actually buying the building for you. That's their job. Don't help them.
Appreciate all of the input Joe! However I understand all of that, I might of worded my question wrong. Let me try and re word it. The average house in my city cost roughly $1,000,000 NZD. They go for a average rent of about $600 - $700 a week before expenses, now the mortgage for a house of that price is going to be a minimum of $1400 a week. This is where I am struggling with, how am I able to find any property that makes positive cash flow when the minimum weekly repayment for a mortgage is higher then all homes at that price range? I feel as if I am missing something.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
8y
You are. What you're missing is a plan of how to use what you have. What you have are properties that won't cash flow unless you pay all cash. Since you never, EVER, under ANY circumstances, EVER, want to use your own money to buy anything in RE,..what do you do?
The answer is in the timing, and whose cash you are using. Both the timing, and "whose cash", are the same events.
First, you must flip your current cash (seed money), and reinvest all profits until your "seed money" has at least doubled.
Second, continue to flip your now larger seed money. Now, you want to use your profits to buy rentals (they'll now CF) with all cash. What's the difference? This way, you're not spending your seed money...your spending your profits...which is OPM.
You are. What you're missing is a plan of how to use what you have. What you have are properties that won't cash flow unless you pay all cash. Since you never, EVER, under ANY circumstances, EVER, want to use your own money to buy anything in RE,..what do you do?
The answer is in the timing, and whose cash you are using. Both the timing, and "whose cash", are the same events.
First, you must flip your current cash (seed money), and reinvest all profits until your "seed money" has at least doubled.
Second, continue to flip your now larger seed money. Now, you want to use your profits to buy rentals (they'll now CF) with all cash. What's the difference? This way, you're not spending your seed money...your spending your profits...which is OPM.
I understand the whole idea of increasing your seed money until you are able to purchase properties with all cash allowing for positive cash flow. But there are two things I would like to know, I always here of others paying off their mortgage every week as well as their expenses all from weekly rent from tenants. How are they able to do that when the weekly minimum repayment is so high? My other question would be, what are some good ways to double increase your seed money? Me and my partner are studying house flipping as a way to increase our seed money to be able to purchase a property with all cash. Are there any other better methods in your opinion?
You are. What you're missing is a plan of how to use what you have. What you have are properties that won't cash flow unless you pay all cash. Since you never, EVER, under ANY circumstances, EVER, want to use your own money to buy anything in RE,..what do you do?
The answer is in the timing, and whose cash you are using. Both the timing, and "whose cash", are the same events.
First, you must flip your current cash (seed money), and reinvest all profits until your "seed money" has at least doubled.
Second, continue to flip your now larger seed money. Now, you want to use your profits to buy rentals (they'll now CF) with all cash. What's the difference? This way, you're not spending your seed money...your spending your profits...which is OPM.
I understand the whole idea of increasing your seed money until you are able to purchase properties with all cash allowing for positive cash flow. But there are two things I would like to know, I always here of others paying off their mortgage every week as well as their expenses all from weekly rent from tenants. How are they able to do that when the weekly minimum repayment is so high? My other question would be, what are some good ways to double increase your seed money? Me and my partner are studying house flipping as a way to increase our seed money to be able to purchase a property with all cash. Are there any other better methods in your opinion?
First, who pays rent by the week...unless you're talking about a motel? If you mean every "month", and the question is "how do you cover the mortgage and expenses if the monthly payments is so high?", the answer is simple. Don't buy those properties.
As far as ways to double your seed money, don't think if flipping properties...think of it as flipping your seed money. Properties are just one way of doing it.
Here's a short list of ways to "flip your seed money":
1 - Flip a house 2 - Flip a contract 3 - Flip a partner 4 - Sandwich lease options 5 - Short term lending (bridge loans...not HML) 6 - Selling LLC's 7 - Wholesaling LLC's with attached purchase agreements 8 - Borrowing from your retirement plan 9 - Borrowing using non-collateralized loans 10 - Partnering 11 - and many, many, more ways to "flip your seed money".
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
It stretches my brain trying to convert weekly to monthly to annually and NZD to USD, but I'll tell you what's important.
Trying to buy rentals listed for sale with agents will not work there. They don't work that way in my area or lots of areas here, either. You need an off-market deal. A seller that's a don't wanner. Maybe a different asset type that can be re-purposed like an old warehouse or mall in a good location. A closed up storefront or poorly run storage or mobile park.
The good deals are never found on a device or at your computer in your underwear. Hit the streets and drive/walk/ride for dollars. Take different routes to work and look for opportunities. Be around 'old guys' at diners in the morning or at senior circuits at the gym. Theatre, cancer walks, chamber of commerce meetings, what have you. Network with seasoned people that own stuff and know everybody.
My question is, Is it possible to pay the mortgage of a property you are renting in less then 10 years? I looked at apartments and houses in a similar price range. The one I chose to go in full detail with I found that I was making roughly $250-300 NZD (170 USD) after expenses (Dis-including Mortgage). Now the problem is to get out a $700,000 NZD (460000 USD) mortgage with a 50000 NZD (33000 USD) Deposit I would have to do minimum repayments of 800 a week. Now as you can tell that's well over what the house is bringing in. I guess the leads to another main question that has been playing on my mind. How does one even purchase a property that is able to pay for weekly mortgage and expenses.
Thank you for reading my question, once again I appreciate all feedback.
Joe V talks about a particular strategy that may be applicable in his market which is cheap housing in the depressed areas of midwest USA. You are living in NZ which has completely different market dynamics. In the rest of the world properties that rent for enough or are cheap enough to cash flow with 100% financing is unheard of. The population density and market values of housing will never support that. You cannot use the strategies talked about by US investors who buy properties on land which has practically zero value and often depreciate over time in other parts of the world. Also cost of credit and access to credit in the US is looser than anywhere else. Having the government take all risk of the table for the banks allows this to happen (because the banks have bought the government). Anyway, the point of this is to say you cannot apply the same strategies touted on BP to other countries or for that matter the desirable areas of the US either (like California or New York or Seattle etc).
It stretches my brain trying to convert weekly to monthly to annually and NZD to USD, but I'll tell you what's important.
Trying to buy rentals listed for sale with agents will not work there. They don't work that way in my area or lots of areas here, either. You need an off-market deal. A seller that's a don't wanner. Maybe a different asset type that can be re-purposed like an old warehouse or mall in a good location. A closed up storefront or poorly run storage or mobile park.
The good deals are never found on a device or at your computer in your underwear. Hit the streets and drive/walk/ride for dollars. Take different routes to work and look for opportunities. Be around 'old guys' at diners in the morning or at senior circuits at the gym. Theatre, cancer walks, chamber of commerce meetings, what have you. Network with seasoned people that own stuff and know everybody.
I really do appreciate all of the input on this, you have helped quite a lot and I thank you for that. I am going to assume you have previously owned properties before, was this your main way of finding the good deals and if not what are the other methods? Apologies for all the questions I am just trying to learn everything I can and noting it as I go along.
My question is, Is it possible to pay the mortgage of a property you are renting in less then 10 years? I looked at apartments and houses in a similar price range. The one I chose to go in full detail with I found that I was making roughly $250-300 NZD (170 USD) after expenses (Dis-including Mortgage). Now the problem is to get out a $700,000 NZD (460000 USD) mortgage with a 50000 NZD (33000 USD) Deposit I would have to do minimum repayments of 800 a week. Now as you can tell that's well over what the house is bringing in. I guess the leads to another main question that has been playing on my mind. How does one even purchase a property that is able to pay for weekly mortgage and expenses.
Thank you for reading my question, once again I appreciate all feedback.
Joe V talks about a particular strategy that may be applicable in his market which is cheap housing in the depressed areas of midwest USA. You are living in NZ which has completely different market dynamics. In the rest of the world properties that rent for enough or are cheap enough to cash flow with 100% financing is unheard of. The population density and market values of housing will never support that. You cannot use the strategies talked about by US investors who buy properties on land which has practically zero value and often depreciate over time in other parts of the world. Also cost of credit and access to credit in the US is looser than anywhere else. Having the government take all risk of the table for the banks allows this to happen (because the banks have bought the government). Anyway, the point of this is to say you cannot apply the same strategies touted on BP to other countries or for that matter the desirable areas of the US either (like California or New York or Seattle etc).
This is definitely some advice I am happy someone has mentioned to me, thank you for that I really do appreciate that. BP is what got me in to all of this and helped me start it all so it does suck that I am not able to use some of the strategies found here. Besides all of that, are there any sites/blogs or any areas I can get information that is related to my countries home market? I noticed that you said "for that matter the desirable areas of the US either". Are there any areas were people of those markets get together? That way I might be able to apply their knowledge to my market as they are similar (besides access to credit).
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
THere's a whole lot of things here that you need to sort out @Dale Viljoen.
Firstly are you sure you want to invest in the USA. I am a kiwi who invests in the USA but I had many years experience in NZ first. You can really easily get into trouble in the USA and lose your capital. So if you can afford to invest in NZ I strongly suggest you start there.
But let's assume you insist on the USA. One of your questions was is it possible to buy cashflow properties that will cover all expenses including mortgage payments from rental income. The answer is yes absolutely. So step 1 is to pick a cashflow market. I invest in Memphis which is a cashflow market. So is Atlanta. There will be hundreds of cities that do but you'll have to pick one. In my city you can buy a decent rental property for 80K that will rent for $995 a month.
You'll see below this cashflows at $134 a week before the 60K loan at 7% and $9.98 after the note.
This is just a typical example of the houses I buy in Memphis. So choose a cashflow market. Get some local knowledge and start looking for a property.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
Yes, I've owned property. I'll let my stats do the talking there.
Just yesterday I was dealing with an overflowing dumpster created from a move-out I 'encouraged'. Old friends that own stuff and are influencers (I know from the Main St Association, a historical preservation club) stopped to chat and told me of a friend of theirs that also owns stuff and has an empty dumpster this week just down the street. I should go ask him if I can utilize it.
I met 'Dale' and talked to him for 15 mins as he showed me around his shop. He knew me as the apt guy, but we'd never met before. Anyway, he bought his property for $5k in 1968. Didn't have $5k, so paid the seller $50 a month for 100 months (thats $12 a week to you). We laughed about how being young and broke made us be creative and I enjoyed the story and visit with him very much. I asked him to keep me in mind if he ever decides to hang up his cabinet making and pottery cleats and wants to sell.
THere's a whole lot of things here that you need to sort out @Dale Viljoen.
Firstly are you sure you want to invest in the USA. I am a kiwi who invests in the USA but I had many years experience in NZ first. You can really easily get into trouble in the USA and lose your capital. So if you can afford to invest in NZ I strongly suggest you start there.
But let's assume you insist on the USA. One of your questions was is it possible to buy cashflow properties that will cover all expenses including mortgage payments from rental income. The answer is yes absolutely. So step 1 is to pick a cashflow market. I invest in Memphis which is a cashflow market. So is Atlanta. There will be hundreds of cities that do but you'll have to pick one. In my city you can buy a decent rental property for 80K that will rent for $995 a month.
You'll see below this cashflows at $134 a week before the 60K loan at 7% and $9.98 after the note.
This is just a typical example of the houses I buy in Memphis. So choose a cashflow market. Get some local knowledge and start looking for a property.
Thank you so much Dean, really nice to here it from a kiwis who is investing in to the USA market. I appreciate you giving that example of the average home you purchase, it really helped me get a understanding of the prices there. I can not believe how cheap a house is as well as how low the repayments for the loan are because of that.
Now you said you got a decent amount of experience in New Zealand before you started in America. Now that is something I definitely want to do first but I have a couple of more questions if you do not mind. First one is, what area/areas did you invest into in New Zealand. I am currently situated in Auckland and I assume you know of how pricey a property here is. Second question is, how did you learn everything you knew? Did you work in a company like Barfoot & Thompson or did you learn it yourself? Personally I am studying Software Engineering in university and will get a job in the field as fast as I can so I do not think I will be able to work in the real estate field to gain knowledge. So to gain knowledge I will be reading as many books as I possibly can and reading websites like Bigger Pockets. So what would be the best course of action for me to take to learn about the market best as I can without working in it?
Thank you so much for your help, I apologies for all the questions.
Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
8y
@Dale Viljoen, I initially attended a 3 day real estate investing conference and then got a mentor from there when I started. But I must have had a natural bent for it as I did extremely well very quickly. In fact I ended up running a real estate investment education business prior to the global financial crisis. Books are of very limited value in my opinion. You are better to pay for some mentoring if you can afford it. In NZ values are so high having someone who knows what they are doing look over every deal is worth every cent as so much money is at stake.
The basic skills required for NZ and the USA are exactly the same. You have to know
1. What a house is worth. Part of this involves becoming an expert in an area, or finding experts to advise you.
2. You have to be financially literate. If you can't work out net yields and understand how to improve internal rates of return through financing then you shouldn't start investing. As part of this you need to know or have someone on your team who knows how to accurately estimate any renovations required. (Americans call it rehabbing).
2A. once you can work out numbers you need to set some specific rules for yourself so you can analyse deals and discard any that don't fit. For example for me in Memphis I only buy brick, I only buy 1.5 baths or more, rent must be $850 or more and I have a fixed net yield amount. So I can ignore 90% of the deals that are sent to me on that basis. This saves a lot of time.
3. You MUST know your own risk profile. If you are risk averse you may need to get some mentoring so you can be hand held for a while to reduce your stress. If you are overly risk tolerant you need someone to be your handbrake so you don't go broke too early.
4. Lastly you need to ensure you have the essentials in place before you start. Generally this means talking to an accountant and making sure you are set up correctly. In NZ this is really important, even more so than the USA.
If investing remotely you have to have someone able to go and do an inspection and if you buy it you need to have a property manager available. These are more critical in the USA as vacant houses get trashed all the time so they must not have a period where they look unloved.
In NZ I have invested in Auckland, Rotorua, Hamilton and Wellington myself and I have helped hundreds of investors buy properties all over the country.
Right now with our market being flat Auckland is becoming good buying again. If you can't afford Auckland then look anywhere from the southern border of Auckland right through to Hamilton and even south of Hamilton. That entire area is going to end up one huge metropolis one day. People already commute from Hamilton to Manukau for work so anywhere through there is best buying in my opinion for future growth. Second after that would be wellington but it's in a boom now so you may pay too much!
My question is, Is it possible to pay the mortgage of a property you are renting in less then 10 years? I looked at apartments and houses in a similar price range. The one I chose to go in full detail with I found that I was making roughly $250-300 NZD (170 USD) after expenses (Dis-including Mortgage). Now the problem is to get out a $700,000 NZD (460000 USD) mortgage with a 50000 NZD (33000 USD) Deposit I would have to do minimum repayments of 800 a week. Now as you can tell that's well over what the house is bringing in. I guess the leads to another main question that has been playing on my mind. How does one even purchase a property that is able to pay for weekly mortgage and expenses.
Thank you for reading my question, once again I appreciate all feedback.
Joe V talks about a particular strategy that may be applicable in his market which is cheap housing in the depressed areas of midwest USA. You are living in NZ which has completely different market dynamics. In the rest of the world properties that rent for enough or are cheap enough to cash flow with 100% financing is unheard of. The population density and market values of housing will never support that. You cannot use the strategies talked about by US investors who buy properties on land which has practically zero value and often depreciate over time in other parts of the world. Also cost of credit and access to credit in the US is looser than anywhere else. Having the government take all risk of the table for the banks allows this to happen (because the banks have bought the government). Anyway, the point of this is to say you cannot apply the same strategies touted on BP to other countries or for that matter the desirable areas of the US either (like California or New York or Seattle etc).
This is definitely some advice I am happy someone has mentioned to me, thank you for that I really do appreciate that. BP is what got me in to all of this and helped me start it all so it does suck that I am not able to use some of the strategies found here. Besides all of that, are there any sites/blogs or any areas I can get information that is related to my countries home market? I noticed that you said "for that matter the desirable areas of the US either". Are there any areas were people of those markets get together? That way I might be able to apply their knowledge to my market as they are similar (besides access to credit).
I know nothing about NZ property. But in California people buy properties with negative cash flow or pay high down payments for positive cash flow and wait for it to appreciate. The midwest folks shake their heads in disbelief but while they collect dribbles of cash flow properties here appreciate to the tune of $100K per year.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
8y
@Anish Tolia
...Or lose 100k in value during a severe economic downturn . About Ten years ago people who bought million dollar houses weren’t too excited about appreciation when they couldn’t give their house away and the bank was calling .
Investor · Auckland, Auckland · Member since 2015 · 35 posts · 9 votes
8y
@Dale Viljoen - I'm in Auckland as well. And the numbers on Bigger Pockets basically never work here. The yield is too low and the price is too high. The only way I think is even possible is through BRRRR (talked a lot about on here).
Thats what I'm trying to do at the moment, but the market is very challenging.
...Or lose 100k in value during a severe economic downturn . About Ten years ago people who bought million dollar houses weren’t too excited about appreciation when they couldn’t give their house away and the bank was calling .
Not true. Case in point. I bought my town house 11 years ago. Peak of the market. Bought at 620. Lowest selling price (neighbors home) was $550. So drop by $70K. Current value $1.1M. Ill take those cycles all day long over $100/door cash flow!
@Dale Viljoen - I'm in Auckland as well. And the numbers on Bigger Pockets basically never work here. The yield is too low and the price is too high. The only way I think is even possible is through BRRRR (talked a lot about on here).
Thats what I'm trying to do at the moment, but the market is very challenging.
Absolutely awesome to hear from someone that is starting in Auckland as well. I have a few questions if you do not mind. What suburbs have you been looking at and have you looked out side of Auckland? Personally I have been considering Hamilton mainly for the reason that we go up there every couple of months and will allow me to walk around the neighborhoods and talk to people there to get to know what its like. Also have you bought any properties yet or are you still looking for one? Would love to stay updated on your journey and how you got the knowledge you did if that is okay. Thank you for the input, really helps!
Investor · Auckland, Auckland · Member since 2015 · 35 posts · 9 votes
8y
Hi Dale - mostly west Auckland, just because thats where I am and thus know the area well.
Though not too fussed as long as the numbers make sense.
I've had a couple places under contract that fell through for various reasons, so have come close but haven't fully bit the bullet yet. But its only a matter of time!
I've also looked a little bit in Hamilton - because its much more affordable, and you can get good rent if its in the right place. So that would definitely be a good place to look if you can get to know the areas well.
Hi Dale - mostly west Auckland, just because thats where I am and thus know the area well.
Though not too fussed as long as the numbers make sense.
I've had a couple places under contract that fell through for various reasons, so have come close but haven't fully bit the bullet yet. But its only a matter of time!
I've also looked a little bit in Hamilton - because its much more affordable, and you can get good rent if its in the right place. So that would definitely be a good place to look if you can get to know the areas well.
Hi James, I have messaged you personally to ask you a couple of more things if you do not mind.