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.


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.


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  • thor42

    Very good article.

  • Michael Littlewood

    The Squirrel is counting on one of two things to happen before his investment decision makes any commercial sense. The first is that rents must increase beyond his weekly costs. Allowing for the contingencies he refers to, that could be some time away in Taupo though who really knows? The true current deficit, allowing for contingencies is more that $25 a week.

    The other requirement is an increase in the value of the house and that is almost certainly the main reason The Squirrel is prepared to take on a fully leveraged investment. Let’s assume the increase happens – if the Inland Revenue is doing its job, that gain will be taxable income because, as his own sums show, he did not buy the house to produce taxable income from the rents. If I were the Inland Revenue, I would assume that anyone who bought a rental with more than, say, 50% gearing is buying with the purpose of re-selling for gain. Under current tax law, that will be taxable in the year of receipt, no matter how long the Squirrel waits to sell (the test is at the point of purchase).

    Here’s a question for the Squirrel – would he recommend a 100% leveraged share portfolio? If not, why not? The answer is not that shares might decrease in value. The same could happen to houses in Taupo. Unfortunately for the Squirrel, his bank won’t reduce the mortgage if the property falls in value.

    • jagilby

      “Here’s a question for the Squirrel – would he recommend a 100% leveraged share portfolio? If not, why not? The answer is not that shares might decrease in value. The same could happen to houses in Taupo.”

      My question exactly!

      I have a huge issue with people passing themselves off as property investment advisors/coaches/experts who dish out advice like this.

      Imagine how quickly the FMA would be all over a financial advisor (i.e. real advisors) who’s only investment recommendation, regardless of an individual’s circumstances, was:
      1. leverage as much as possible;
      2. gain as much exposure to a single asset class as possible; and
      3. guaranteed returns will follow.

  • Owl, Parrot, Squirrel… I’m going to have to step in and put a stop to this. At least chuck in a Deepthroat somewhere, geez.


  • Harroputza

    What good is a house in Taupo when my whanau is prepared to buy my state house in Orakei for a casual million?

  • James

    The main issue with this is that when it comes to selling the house the IRD SHOULD treat any profit on sale as taxable income. This is because the numbers did not stack up for there to be any value other than through sale (as it is loss making from the start). An argument could be raised about potential future increases in rental incomes but these would have to be pretty watertight to avoid the view that the investment was entered into for the purpose of making money through a gain in the value of the investment rather than the income stream itself.
    Although this is predicated upon the IRD doing its job – which it doesn’t seem to be doing with the vast majority of rental investments thus far.

    • Col

      Not sure, but if you own one house, no tax etc, in this case it would be no tax? If you own several properties u should be paying tax? Is that right?

      • Michael Littlewood

        Nope. The tax on gains can apply to the first property bought; even to the family home though the intention to buy principally for capital gain is more difficult to prove. It always entertains me to see owners in the Herald’s Property Press saying ‘they are ready to move on to their next project’ when explaining why they are selling. That should be a red flag for the Inland Revenue, if it were doing its job.

    • Euan Ross-Taylor

      I don’t see any evidence that the Squirrel intends to sell? I note he/she says “will become an asset that you can borrow against for your home in Auckland or elsewhere if you have moved on., “, so it seems to me that the idea is to keep an asset that should continue to grow as the rent income pays it off. What I would like to know is, how many readers here who are renting have ever had a reduction in their rent from one year to the next? What ever happens to house prices, I bet rents don’t decrease.

      • Michael Littlewood

        Yes but when arguing intentions, The Squirrel will need to demonstrate that he did not buy it with the intention of re-selling for gain. Running a cash deficit on acquisition should raise the presumption of acquisition for gain, rather than income. Mind you, if The Squirrel didn’t claim the mortgage interest and other outgoings as deductions from the taxable rent, he would probably be OK but I suspect he doesn’t do that.

        • Euan Ross-Taylor

          I don’t follow your reasoning; plenty people buy businesses that make a loss with the intention of trading through them into a profit. Why would this be any different?

          • Michael Littlewood

            It sounds like The Squirrel makes a habit of buying houses where the current net rents are negative. That’s one pointer to intentions with any of his future purchases. Buying a business and trading through initial losses may be fine as long as the buyer can demonstrate the likelihood of future taxable profits; buying a single rental may also be fine as long as The Squirrel can demonstrate that likelihood with evidence. His story above didn’t sound like the sort of pitch he should be making to the Inland Revenue.

          • philbest

            Because people buy businesses expecting them to grow consistently. Property investment in distorted-supply markets is all about trying to buy in the troughs, not at the peaks. It’s like trying to buy in to share markets when the P/E ratio is not too crazy already.

            Take a look at the graph on page 7 of the below paper: that is how the UK urban land and housing market has behaved since they started “planning” for growth containment – well before everyone else, BTW


          • johnbronkhorst

            “Because people buy businesses expecting them to grow consistently.”
            What planet do you live on? People buy businesses for the potential of growth, they input their time money and expertise into their NEW business to make it grow! It doesn’t just happen and people don’t expect it to.

          • philbest

            Semantics, semantics. As if I didn’t know that.

            Check out the graph I linked to, and if you are a property investor, take my advice and sell out now before the crash. Wait till the next trough to buy back in. Kieran Trass’ books are good, but he hasn’t updated his thesis to include the effects of a market transiting from pro-growth planning and affordable, to anti-growth planning and unaffordable.
            Also, keep an eye out for affordable US cities imposing an urban growth boundary for the first time. There are very fat and quick gains to be made in property there. I am watching Atlanta with interest, they are debating a strong regional UGB right now. If they impose one, I pick that their house prices will do what Phoenix and Las Vegas did 2004-2007.
            There you go, free advice from an expert. I have your best interests at heart.

  • A-Random-Reader

    An analysis that doesn’t include bank fees, legal fees, or maintenance for the property isn’t much of an an analysis.

    Assuming you don’t live in Taupo – who is going to look after the property? Sounds like even more fees to me…

  • Plue

    This might work but I have personal experience of helping to rescue a friend from this sort of high debt structure. It doesn’t take much to tip the boat over if your debt is high. For example from here my money would be on interest rates rising sooner or later which could be a problem or If there was to be a CGT introduced this could cause a property value shift etc.

    I think it is a fair enough suggestion (if you can stand the risks) but one that should be approached with the usual caution

  • Jman

    Everyone’s a property investing expert until house prices drop. Houses are the simplest of investments because everyone understands what they are and they usually increase in value pretty reliably over time. Unfortunately, every so often, house prices do actually drop, as we saw in 2008/2009 and when they do all these experts end up taking a bath. Having said that, if you can show me a property in Auckland where the weekly rent rate is anywhere near double the house price as in your formula, I’d gladly buy it.

  • rangitoto

    How about this as a nightmare scenario. Tenant converts your shiny rental property into a p lab.

  • GregM

    My first house was a shitty old two beddy ex state house on Bayswater ave. I still own it 18 years later, it’s certainly not shitty anymore, and it’s now my “renter”.
    My formula was to buy the cheapest available property in an up and coming area and stick with it.

    • philbest

      Yeah, but you have owned your starter property during the period of NZ’s biggest ever property price inflation. It is absolutely impossible for anyone to replicate your experience now.

      It is impossible for the prices to inflate again in real terms now, as much as they have for you since you bought. There is much more chance they will go down. It is just a question whether we “manage” them down or they crash and take the entire economy with them one day, from an even higher peak than now. But there is no way that peak will be as big an inflation from now, as what you have enjoyed up till now.

      • GregM

        True, but I haven’t made one cent of profit off it yet. I also think Auckland is 20-25% overvalued, and there will be a big correction coming up.

        • philbest

          Thanks Greg, it is nice to meet a sane contributor on here. I am surprised that WOBH is a hangout for spruikers of overpriced housing, price bubbles, and inter-generational gouging.

          I would put Auckland’s overvaluation at 100%, though. Median multiples in California and Ireland went to 7 – 11 before falling 50% or more. Auckland has exceeded the dangerous “7”. It is now just a question of how much further it might go before it blows. But bailing out in the final year before the crash is a matter of great luck, because the first thing that happens is the sales turnover seizes up. There is no chance that all the specuvestors can get out before the actual price crash.

          “3” is “affordable”, and has also tended to be the long term level that markets have reverted to.

  • philbest

    Cameron Slater, if you believe in free markets at all, start letting links get posted to examples of markets that actually deliver affordable housing.


    Anyone can do the research. Start with the annual Demographia Reports – an early one and a recent one will do. Find the US cites with stable median multiples around 3, and find RE sites for those. And start spreading the truth.

    • johnbronkhorst

      There’s your answer……move to the states!

      • Euan Ross-Taylor

        I’ve already suggested that to him John, he says he is applying to go into the draw for his Green card. let’s hope he is soon successful so he can enjoy his utopia.

      • philbest

        I enter the Green Card lottery on a regular basis. Stuff you Kiwi Boomer Generation traitors to your own culture.

  • philbest

    Nashville: what a free market in urban development does for house prices:

    • johnbronkhorst

      Long commute to Auckland!!!

      • philbest

        A free market doesn’t have to be any further away from Dorkland than “one election”.

  • philbest

    Salt Lake City: what a free market in urban development does for house prices:

    Go to one of the last pages of results to see the bottom end of the market.

    I could post dozens more US city RE site links. I said how to do your own research.

  • AngryTory

    Of course not. The problem is that there are millions of bludgers in NZ who think they “deserve” a house, even more that they “deserve” to own a house!

    Get a grip.

    NZ doesn’t need more “affordable” houses. We just need more slums. Subdivide every room in South Auckland, you can easily sleep 5-6 to most state house rooms, that’s 20-30 per house, problem solved.

    Of course high value citizens don’t want to live next to slums – so just bulldoze state houses anywhere citizens might want to live.

    • James Gray

      What about the ones that are worth less to an employer than the minimum wage. It’s illegal for them to take employment. And frankly, we can’t expect everybody to have the skills and resources to affect other means of raising income, particularly if they are of such low value.

      So you have these poor people, unable to better themselves just so some latte drinking socialists can feel happier, and you want to cast them out of society even further?