All Topics / Overseas Deals / High yield NZ – advice please?

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  • Profile photo of Vokat25Vokat25
    Join Date: 2015
    Post Count: 2

    Hi there,
    Last year I became aware of 3 properties coming up for sale in a low socio economic, small town in NZ.
    The properties are owned by a family who inherited them and have decided to sell and split the cash following ongoing disputes with each other.
    They are all 3 bedroom, 1 bathroom weatherboard homes 1960s era and they hit the market for $39k NZD each!
    One sold to a long time tenant and the other two are still available. I am looking at one of them which has a tenant whose been there for 18 years, has their rent of $125 a week paid direct from their social security benefit each week and is praying that whoever buys the property will let them stay on for good.
    Recently my husband and I paid out a Citibank ready credit loan early and they’ve now offered us $25k at 5.9% for 2 years. We’d normally turn offers like this down and not be tempted but after speaking to the agent trying to sell the properties he’s said I should be able to by the house in question for $30k NZD and I’m tempted to take the offer from Citibank, top it up out of our savings and buy the house in NZ. We’d be able to pay it off in less then 2 years and then have ongoing income of $125 less expenses which in NZ really isn’t much at all. They have no stamp duty, land tax or capital gains tax and my father in law in NZ who is quite the handyman and bored out of his brain during retirement is happy to manage it for us.
    We currently are renting on the Gold Coast, husband earns good money and although we’ve been for a home loan here and been approved, we’ve always decided against going ahead because of all the costs involved and the property prices but we like the idea of having an investment property at home in NZ.
    The rates are $1856 per year and the house is valued at $67k NZD
    There probably wouldn’t be much capital growth but if we bought the property without a mortgage and then owned it outright I was toying with the idea of using it as collateral to buy another investment property later on and then maybe even using them both as collateral to buy our own home in NZ when we move home later on.
    Based on the figures above does it sound like a good investment or am I missing something here? Can anyone suggest something else instead?
    Thanks in advance

    Profile photo of laurieklauriek
    Join Date: 2015
    Post Count: 35

    Based on the figures you’ve given I came up with the following
    Gross – 21.7%
    Net – 15.1%
    Net Cashflow – $4,544 pa
    I based this on insurance of $500 and annual maintenance of $500, not having to pay a property manager also helps the bottom line a little.
    These figures are very similar to a property I bought in the U.S.A.
    GRM – 4.6
    DSCR (I/O) – 3.12
    DSCR (P&I) – 0.34 if you intend to fully pay down the loan in 2 years you will need to take money out of your own pocket ie.
    Net profit of Investment Property – $4,544
    Yearly P&I repayments at 5.9% over 2 years – $13,260
    Personal contribution. – $8,716 ($167 per week, can you afford that ?)

    LVR – 83.3% (bonus of no LMI to pay)

    Personally my opinion is that unless you have either or both of
    1. Excellent income(s)
    2. Very controlled spending habits
    That you’re aiming a little high to expect to pay off the loan fully in 2 years. The investment itself (without personal contributions) would take almost 7 years to pay off, however that’s still pretty good.
    Without knowing more about the property, the area, the current tenant, and potential tenant pool (ie. Vacancy rate) it certainly sounds quite reasonable.
    Hope some of that info helps, any other questions just ask

    Profile photo of MilkTruckMilkTruck
    Join Date: 2010
    Post Count: 15

    Hi Vokat. I came across this recent announcement from New Zealand about the introduction of capital gains tax. MT

    Profile photo of eljay1eljay1
    Join Date: 2014
    Post Count: 7


    We own a few cheap houses in NZ (a couple around $100k) and have rented them successfully for years. I’ve looked at some of the ones around the sub 100k range and you really do need to do your dd. Just because someone is living in it does not mean that it is fit for habitation i.e. standards in rural NZ can be extremely poor in terms of property condition. You may be shocked at what you see. It is likely to be either in an area that has been in serious decline for many years. So if you have problems with this tenant that are undisclosed, or they leave you may have issues getting someone else. This may also be an issue if you need to sell it in the future and find that you can’t. A quick look on trademe will tell you that many have been on the market for absolutely years in rural NZ with no sign of a sale.

    You’d need a trustworthy builder to do an inspection. I can assure you that repairs and maintenance in rural NZ are anything but cheap and this can eat all of your income if you select the wrong property. $125 pw is not a lot of money gross. By law you need an RE to manage rentals if you’re living overseas, so you need to build in that cost if you can’t get someone you know to do it. Agree with you that other than that no major cost other than ongoing maintenance. I’m not saying you shouldn’t do it, but you need to go and look at the property yourselves (if you haven’t already) because if you buy it there may be no going back for a good number of years. Personally, I have found that it’s worth paying more i.e. $100k upwards and for that you can get a house in a good condition, you could aim for brick rather than board (have you seen the cost of paint in NZ?!!)less maintenance, possibly in an area with better future prospects for growth and ongoing tenancy and better chance of selling on if needed.

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