Sometimes I think I’m just too stupid to be property investing. I’ve always said “Learn by doing and then learn some more by failing” well I’m certainly learning a lot this year.
Lucky for me it’s a rising property market and for now my idiotic purchases are being smoothed over by ever increasing property values.
They story begins last July when I got it in my head that I wanted an apartment in the city.
Oh geez why the hell did you think that was a good idea?
Because it was cool and if we moved out of town we’d always have a place in Auckland to use as a base. I spent a month looking and it was just doing my head in. So many open homes. Parking in the city zipping from building to building. I went to an Auction and got outbid by $200,000 (the market was and still is exploding) for a very dated (but excellent location) apartment. My only key criteria was that it had to have car park.
Anyway I’d all but given up on finding a place when a canny realestate agent gave me a call and asked me to come look at apartment. I told him no, I’d refocused my search to Tauranga and I wasn’t looking anymore, but he was persuasive and offered to drive me there himself so I took the bait. He showed me two apartments in the same building, one was vacant and one had a tenant but it was under rented.
The vacant apartment was really nicely staged, I was swayed by cheap furniture and borrowed artwork. Fresh paint and new (cheap) carpet also added to the illusion of a quality apartment. It had all shiny new appliances and had the appearance of luxury.
I decided to make an offer because I thought I could get this place at a reasonable price, all the talk by the agents lead me to believe the vendor wanted a quick sale and that I seeing it first before anyone else so I should get an offer in before the open home that weekend.
Of course it was all talk.
So with a lot of back and forth and agents driving me sale and purchase agreements across town at 7pm to create a aura of urgency and importance we finally settled on a price of 447,500 for a 1 bedroom 67m² apartment with a carpark.
The bank very wisely insisted on a valuation and that came back at 455,000. (Amazingly!). The agents had also “thoughtfully” provided me with a rental asessment of $500-550 per week. I ran my numbers optimistically on a middle figure of $525 and figured it would break even.
I later learned that the place had been bought 1 month before by the vendor for $390,500 so they made a tidy profit. Even my initial offer would have left them with a tidy sum. The agents were damn good at their job, the whole time making out like they were helping me get the apartment I wanted while driving up the price for the vendor.
Renting it out took a few weeks, it shouldn’t have but the property manager got sick and didn’t really get round to asking any of her colleagues to take over the showings. Then the rent achieved was only $500. I was pretty surprised, but it was my own fault. I trusted the supplied rental assessment and I didn’t do my homework. I didn’t research rental prices in the building or get and independent rental asessment. Unforgivable really when so many property managers will do one for free (in the hopes of getting your business I suppose.)
But there have been some amazing upsides to owning the apartment. The lack of maintenance compared to my other properties is quite a relief. Everything is taken care of by the body corp fees and those fees cover insurance. It really is hassle free. While it was vacant I got to use the car park. That was fun.
Mortgage payments: $22,921
Rental income: $26,000
Body Corp Fees: $3,406
That works out to a nice tidy loss of $1,563 a year. Yes thats right I actually purchased a $1563 debt every year. Are you keeping track of how much money I’m loosing this year? My other rental property is losing $1054. So far thats a grand total of $2617 per annum. Or $50.32 a week. That is starting to hurt my cashflow!
Properties which cost money to hold are not an investment. However, the rising market and capital gains are increasing my net worth. But buying houses with the hope of values going up makes me a speculator and not a very good one. Buying properties that break even are not investments either. Unfortunately I am damn stubborn. I refuse to let it go. So I eat the loss wait for a day when the damn place actually makes me some money.
Any good news?
Well interest rates are low, and getting lower. I split the loan into 3 parts and each will roll onto a lower interest rate in the near future.
Rents are apparently rising. So they tell me. But I really feel that $500 a week is still a fair rent for the property. I will get a professional rental assessment when the tenants fixed term contract ends.
It will only take an increase of $30 a week or a reduction in expenses of $30 a week to make this place break even. I’m pretty sure I can achieve that in the near future..
So what are the lessons here?
Four main things I learned from this purchase.
Real estate agents work for the vendor – Not you! If they appear to be helping you get the deal done, take a step back, is it really in your best interests?
All that glitters is not gold. Staging makes a place look way fancier that it is. Whats lurking when all the glam is gone?
Get independent rental assessments and use the lower figure for running your numbers. Rental assessments, in my opinion, are usually inflated.
Set yourself some criteria. Without criteria its easy to get talked into buying something that won’t work for you. If I was buying an apartment again, it would be, carpark, views, natural light, sound proof.