Is it more difficult to buy a house than it used to be?

Over the weekend there was considerable discussion about housing affordability. One reader/commenter has sent in this guest post.

Property-Investment_sml

Is it more difficult to buy a house than it used to be?

I want to show you that you can buy a house for less than $50 per week.

I have been pondering this since all the hype over the heated Auckland market.

This is not a first of course, the Auckland market cycles every 7 – 10 years. But how can Joe average enter the market?

Maybe it is time for first home buyers to think a little outside the box. Here is a scenario that I use and I share it with Whale readers.  

This is not titled buying your first home, but rather buying your first (and subsequent) house(s).

There is no difficult or ‘new’ information here but a collation of what I have learnt over the years.

Leave your emotions in the bedroom, this is a business decision. With this scenario, you are buying a house not a home, so don’t get emotionally attached to a property.

Trade Me is an excellent resource allowing you to do most of your prep from your keyboard. So here are my steps to buy a house:

  1. Identify the source of your finance, for someone with limited savings, can you access security from a relative allowing them to take a lien over the new property  But for most, buying in an area as outlined below is not too difficult.
  2. Identify an area that has reasonably priced houses, and a strong rental demand. Today I have found no where better than Taupo. This is because Taupo has a strong summer and winter clientele and so there is a strong service industry = strong rental demand.  To test your theory for a location, go to Trade Me, look at what is for sale and look at what is for rent. Are there lots of places for rent that have been on the market for a long time, or are landlords offering first week free etc. to entice tenants- this could mean that rental demand is low. (Rotorua is such a place, beware)
  3. Weekly rent rate expectation needs to be as close to double the house price as possible eg. house at $140k purchase price needs to rent for as close to $280 per week. I use a maximum of 60% ie expected rent of $280 per week x 60% = purchase price of $168k.
  4. When making offers, be sure the agent is aware that this is a business decision not an emotional one (remember the agent works for the vendor and has a vested interest in achieving a high sale price.) I tell the agent that this is my best offer of $xx so please do not bring me any counter offers (by doing this you get the agent fighting for you as they will want the sale) As you have  not become emotionally attached you will easily be able to walk away if the vendor doesn’t accept your offer.
  5. Always attach a due diligence clause to your offer giving you (solely the purchaser) 10 working days to do the title check etc and allowing you to back out of the purchase for any reason.

So how do the numbers stack up? Using the example of my last purchase in Taupo:

  • Cost of house $155,000
  • Rented at $270/week.
  • I am not including one off costs such as legals and bank fees etc.
  • Cost of servicing loan at 100% purchase price (possible because of my equity situation) = $220/week
  • Taupo rates = $40/week
  • Insurance = $35/week
  • Total ongoing cost to service house purchase = $220+$40+$35= $295 less rent income of $270 = $25 TOTAL COST to me.

There are other costs and considerations like a rental management fee if you are not able to look after the rental side of things yourself usually around 7.5% income.

  • Repairs and Maintenance
  • Weeks of no occupancy (between tenants)

If managed well this house will provide you a steady income within 5 years and will become an assett that you can borrow against for your home in Auckland or elsewhere if you have moved on.

If you want to know more detail including interesting houses that are available on Trade Me, copy of due diligence clause I use, or anything else, then

feel free to contact me at  thepropertysquirrel[at]gmail[dot]com

I am happy to share my gleanings free of charge.

by the Squirrel.


Do you want:

  • Ad-free access?
  • Access to our very popular daily crossword?
  • Access to daily sudoku?
  • Access to Incite Politics magazine articles?
  • Access to podcasts?
  • Access to political polls?

Our subscribers’ financial support is the reason why we have been able to offer our latest service; Audio blogs. 

Click Here  to support us and watch the number of services grow.

As much at home writing editorials as being the subject of them, Cam has won awards, including the Canon Media Award for his work on the Len Brown/Bevan Chuang story. When he’s not creating the news, he tends to be in it, with protagonists using the courts, media and social media to deliver financial as well as death threats.

They say that news is something that someone, somewhere, wants kept quiet. Cam Slater doesn’t do quiet and, as a result, he is a polarising, controversial but highly effective journalist who takes no prisoners.

He is fearless in his pursuit of a story.

Love him or loathe him, you can’t ignore him.

To read Cam’s previous articles click on his name in blue.

Tagged:
48%