As you will be aware there are lots of people looking to buy an investment property in this red-hot market that has taken off heading for orbit like one of Peter Becks Electron Rockets. However, in this crazy market there are some limiting factors at play which are creating a ‘brick wall effect’ where many investors feel they are struggling to find a deal that stacks up.
It has become very difficult currently to find property that is cash flow positive and even more importantly exempt from the interest deductibility rules which have been introduced by the Government which effectively takes to your surplus cashflow with a giant slasher.
Many Investors are now ‘ignoring’ their rule book and solely buying for capital growth, which we think is a big mistake. The fundamental box to tick with any rental property you purchase is Positive Cashflow, if you can purchase undervalue as well then even better. By far the easiest way to achieve owning a ‘leveraged’ positive cashflow property moving forward is for it to be exempt from the new interest deductibility rules.
We have done extensive homework in the last few months looking at which specific markets are currently presenting buying opportunities and we have found an interesting market that is ticking a lot of boxes. Due to some unique circumstances, this market is currently presenting some great opportunities to buy well from some vendors that are more motivated to sell compared to the general NZ Property market.
This Market is a specific type of brand new Apartments
This does not include any type of, or all Apartments, there are a number of specific things we are looking for, these are:
To be exempt from interest deductibility rules the apartment must be new. Now we are not talking about buying apartments off the plan that haven’t been built or even started yet.
We are referring to Apartments that are already built. To be classed as new builds and therefore exempt from the new interest deductibility rules and have only a 5 year bright line rule apply, you need to buy them within 12 months after the Code of Compliance Cert (CCC) was issued. So we are focusing on new apartments that are built and nearing practical completion and issue of CCC and title and therefore settlement is looming in the next few months, or apartments that have had CCC issued recently inside of 12 months.
In the right location, we have found that certain high capital growth areas are showing the most potential for rental demand and more importantly value growth. In the last 3-4 years where house prices have skyrocketed the apartment market stalled without seeing the same extreme levels of price growth. However, we are now starting to see a catchup in values underway due to the fact people are now looking at apartments as a far more affordable alternative to the insanely hot standalone house market they have been priced out of.
Proven Development Companies, we are focusing on new apartment blocks which have been constructed by proven Development companies that have a long track record of quality developments.
Rental Demand, like anywhere there are good and bad areas for rental demand. Using Auckland CBD and surrounding suburbs as an example we have identified five specific locations of rental demand, out of these five we only want to target two of these areas as we have identified them as hotspots of high-quality rental demand.
Motivated Vendors, unlike the general NZ housing market we are finding there are vendors who are far more motivated to sell. Many of these vendors purchased apartments ‘off the plan’ 2 – 4 years ago before Covid 19 appeared on the scene and due to a change in their circumstances now need to sell before their apartment is settled. A lot of these vendors are based offshore and have been affected by Covid lockdowns and job losses where their plans have now changed and they need to exit their off the plan Apartment purchase, in some cases they simply will not be able to settle themselves. In some situations we can now buy at or below the price they paid 3 or more years ago!
Low to No Maintenance with brand new apartments, when you buy a brand new property you do not have to worry about any renovation or maintenance costs for several years. As an example I purchased off the plan apartments in 2003 and have only just painted and replaced carpet last year in 2020, that is seventeen years of very low or no maintenance costs. Remember with an apartment the Body Corporate looks after all external and general maintenance and a good Body Corp is always a result of a good Development company.
With this insanely hot housing market not looking like slowing down in the short term due to interest rates remaining relatively low and very strong demand outweighing supply, we wanted to find an angle or twist where we could get away from the mainstream and find a market with some potential and upside and get back to the basic fundamentals of buying well from motivated vendors, positive cashflow and even buying below value (try doing that currently in the general housing market!).
We have discovered a ‘Niche’ market with specific Apartments that have been sold off the plan and are now approaching settlement that are located in desirable high growth areas and are cashflow positive.
We have been assessing these locations for several weeks and are currently negotiating with a number of vendors. We plan to make some of these opportunities available for other investors if this is of interest to you.
We feel this particular market has seen a temporary ‘disconnect’ from the general NZ housing market and has some ‘catching up’ to do. By targeting desirable high capital growth areas this bodes well for upside moving forward. Combining this with a positive cashflow property that is exempt from the Govt rule changes (so we actually get to keep the surplus cashflow) it’s a winner.
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Shane Allen & Clint Taylor