Thinking of Buying a rental, some questions

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Oriphix

516 posts

Ultimate Geek

# 205717 24-Nov-2016 10:40

Hi All,

I have some money set aside and was thinking to invest it in property (to be specific a rental).
Some research I have done says to secure your current property with whats called a LTC? And not to borrow from the same bank as that's putting all the eggs in one basket.

I also came across these guys / have heard them on the radio. I am wondering has anyone used there services before?

http://www.nzinvest.com/
http://www.positiverealestate.co.nz/

I went to the http://www.positiverealestate.co.nz/ seminars and there sales pitch was that they set the LTC and accounts etc for a one off cost of 9k for lifetime membership of there services. They actively find properties for you to invest etc.

Also how much would one look at as a upfront cost to get this setup correctly before I even look at getting a property. I believe there would be lawyers / accountants involved in setting this up. This isn't a problem just need to factor that in.

I would also be interested to know if someone has managed to do invest without the help of third party and if it was a hard learning curve etc

As you have already guessed I'm a complete novice in this so any information is highly appreciated.

Thanks

iDear

60 posts

Master Geek

# 1676618 24-Nov-2016 10:52

You can pay 9K to set up LTC and get the leftover deals from some investor, or borrow couple books from library and learn about property investing, spent couple hundred to join your local property investor club and learn from there, use your free time to look for deals, search on realestate.co.nz, trademe, go to open house and talk to the agents. Once you are ready to buy, spend 2k-3k set up that LTC.

EDIT: What I'm trying to say is if you are serious to be an investor. You need to put in the hard work and learn about property investment. Paying that 9K will not make you rich, you are making them rich.

Disrespective

1846 posts

Uber Geek

# 1676623 24-Nov-2016 10:57

Do you currently own any property?

How involved do you want to be?

There will need to be lawyers involved to set up the LTC but I suspect any good conveyancing firm will have a 'package' type fee they can give you to estimate how much they will charge to set up an LTC. Accountants will be used to help leverage the tax deductible from the rental debt.

A good definition of an LTC is here: https://www.squirrel.co.nz/property-investing/converting-your-home/

"The debt on a rental is tax deductible so you’ll want to put as much into your investment property as possible. The way to do this is to sell your existing home to a Look Through Company or an LTC, which you own. The LTC buys the home at a fair market price and then borrows 100% against it. You then provide a personal guarantee to the lender using your new property as additional security.

You use the proceeds of the sale to clear the mortgage on the old property and put any extra into your new home. In this way you can move the equity from your old property to your new home."

I'd be calling my lawyers and asking them about their fees to set the LTC up, and whether they can provide any further advice. I'd also be calling an accountant and asking the same. In all honesty I wouldn't be using a middle-man service for something some legwork, calendar reminders and good book keeping can handle.

Disclaimer: I haven't done what you are doing, but am thinking about it, too.

Oriphix

516 posts

Ultimate Geek

# 1676631 24-Nov-2016 11:22

iDear:
You can pay 9K to set up LTC and get the leftover deals from some investor, or borrow couple books from library and learn about property investing, spent couple hundred to join your local property investor club and learn from there, use your free time to look for deals, search on realestate.co.nz, trademe, go to open house and talk to the agents. Once you are ready to buy, spend 2k-3k set up that LTC.

EDIT: What I'm trying to say is if you are serious to be an investor. You need to put in the hard work and learn about property investment. Paying that 9K will not make you rich, you are making them rich.

I have been looking at property on the market and trends and researching online but that's a good tip to join the property investor club. Thanks

Oriphix

516 posts

Ultimate Geek

# 1676632 24-Nov-2016 11:24

Disrespective:
Do you currently own any property?

How involved do you want to be?

Yes I own a property at the moment.
As involved as I need to be to be. I believe the less you want to be involved means someone else earns that money which you can. So happy to go the leg work myself but I need to know how to and or shown the ropes which is why the links above looked tempting as there is a bit of hand holding.

doublek69

31 posts

Geek

# 1676633 24-Nov-2016 11:25

A Look Through Company is the new approach, that replaced the LAQC. My personal thinking on the types of firms you mentioned is that I don't support them. If you are passive (don't want to get in and roll your sleeves up/you're not sure what/where/how to invest) then you should look at a proper managed fund. If you are active, you will be doing the work to reap the rewards (hopefully). BTW - these two descriptions I just made are not meant to be disparaging! :-)

For support, information and possible guidance, try http://www.apia.org.nz/ They may also help with information around how to manage the property once you have acquired it, so that you are a great landlord who enjoys working with great tenants.

My other suggestions;

- Engage with a professional (lawyer or accountant) that can help you structure this from the outset. Dependant on how much you are prepared to do the leg work around setting up the LAQC etc will directly reflect in the costs from these people.

- Find a balance that suits you around investing in an area that either don't live in or is remote from where you live, versus return. Say you live in Wellington, but feel that yield/investment level/capital gain may be better in Palmy - that needs to be balanced against the fact that you can't just nip up the road when they have an issue or a neighbour rings you to advise that the party at the house is flowing out onto the street....

- Remove all emotion from your property purchase. It is an investment vehicle solely. Yes, your tenants will hopefully want to view it as their "home", but it is a case of the numbers lining up around not only purchase price but also ongoing maintenance etc.

- Ask for references from prospective tenants, eyeball their current property, check for the blink factor when you ask for approval to conduct a credit check... Or if you are just not comfortable, give it to the experts to manage on your behalf.

- Don't forget that property isn't the only investment vehicle open to you. There may be others that are better suited to your risk/reward profile.

Best of luck!

Horseychick

150 posts

Master Geek

# 1676682 24-Nov-2016 12:33

My husband and I had a small 2 bed rental for 8 years which we sold about 18 months ago. We now have a much larger 4 bed rental which we manage ourselves. It is not that difficult as long as you are organised.

Personally I wouldn't be paying a third party $9K to set it all up. As others have said a good lawyer and accountant are much more useful. I've also found that managing it yourself is greatly helped by all the information here - https://tenancy.govt.nz/

All the forms you need, legal info etc can be found here. i've also used https://forms.justice.govt.nz/search/TT/ when checking on new tenants to ensure there are no orders against them. Make sure that EVERYONE who is going to live in the house fills out the application form with their details as often you will find that the person applying is not the one with the tenancy order against them.

I have used rental agents to find tenants as well, but then take over the management of the property ourselves, but that is because we firmly believe in having a rental that is local to us for any issues that arise. This has been proven to be best for us so that we can deal with things immediately. If I was buying a rental not local to us I would definitely use a property manager, but I would also check on the property manager every 3 months to ensure they were doing what they are supposed to. The one we used for a brief time would send us pictures from their inspections so we knew they had actually done them.

MikeAqua

5385 posts

Uber Geek

# 1676709 24-Nov-2016 13:19

Setting up an LTC is easy enough with little research. 'Investment' firms charge big fees for boiler plate documentation and registration processes you can do yourself.

Sure it's a 'lifetime service fee'. But once the initial set up is complete, they may just ignore you. Or you may find your service agreement is with a subsidiary company and these companies get wound up and replaced on 1 - 2 year cycle.

Mike

Oriphix

516 posts

Ultimate Geek

# 1676733 24-Nov-2016 14:46

Horseychick:
My husband and I had a small 2 bed rental for 8 years which we sold about 18 months ago. We now have a much larger 4 bed rental which we manage ourselves. It is not that difficult as long as you are organised.

Personally I wouldn't be paying a third party $9K to set it all up. As others have said a good lawyer and accountant are much more useful. I've also found that managing it yourself is greatly helped by all the information here - https://tenancy.govt.nz/

All the forms you need, legal info etc can be found here. i've also used https://forms.justice.govt.nz/search/TT/ when checking on new tenants to ensure there are no orders against them. Make sure that EVERYONE who is going to live in the house fills out the application form with their details as often you will find that the person applying is not the one with the tenancy order against them.

I have used rental agents to find tenants as well, but then take over the management of the property ourselves, but that is because we firmly believe in having a rental that is local to us for any issues that arise. This has been proven to be best for us so that we can deal with things immediately. If I was buying a rental not local to us I would definitely use a property manager, but I would also check on the property manager every 3 months to ensure they were doing what they are supposed to. The one we used for a brief time would send us pictures from their inspections so we knew they had actually done them.

Thanks for that. That's great information. I was looking to get a property in a remote location from where I am based.

Wheelbarrow01

938 posts

Ultimate Geek

Trusted

Chorus

# 1676816 24-Nov-2016 15:59

I'd just start by reading a few books - in fact the more the better. My recommendations for an absolute beginner (which I was once) are:

Making Money in Residential Real Estate - Dolf de Roos

Extraordinary Profits from Ordinary Properties - Dolf de Roos

Building Wealth Through Investment Property - Dolf de Roos

The above three books are all pretty old now, but the basic principles haven't changed, and these books are geared towards kiwis which is helpful. I also read books from many other authors such as Brad Sugars, Anita Bell, Ollie Newland and many other NZ based investor authors.

Start buying the NZ Property Investor magazine, available monthly from most bookshops.

If you're only going to buy a couple of rentals it's probably not worth setting up an LTC. I started before these existed so don't know a lot about them sorry. All my properties are held in my own name.

I've been to a few seminars where they try to flog their wares to anyone who will listen - don't be sucked in by them. They double dip - you pay them $9k to bring you the "best" deals, but by the time you see the deal, their cut has already been added to the price, so they get to clip the ticket twice.

With a bit of research, there is no reason you can't find the right investment for you all by yourself. And when you do, your lawyer and/or accountant can point out any pitfalls you may not have foreseen.