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Five Buying Strategies In Auckland

Innovation is the name of the game as young Aucklanders find strategies to start climbing the property ladder. Amy Hamilton- Chadwick reports.

By: Amy Hamilton Chadwick

18 April 2016

We've heard all the stereotypes about struggling first-home buyers in Auckland – young people won’t give up their lattes and holidays; they aren’t willing to buy in less desirable areas; they have ridiculous expectations of their first house.

Yet many young Aucklanders are making sacrifices, thinking strategically and starting at the bottom to get their foot on the ladder. We talked to seven young investors to find out how they’ve managed to break into the Auckland market.

Strategy 1: Flatmates

Singles, couples and even families can rent out rooms in their house to help pay the mortgage. Umesh Thakur is only 25, but he’s used this strategy to leverage into the property market. Thakur and his wife managed to buy a home in Botany, selling their car to cobble enough for the deposit. They took in three flatmates to help pay the rent.

When their baby arrived, most young couples would have chosen a house to themselves, but by continuing to bring in rental income, Thakur and his wife managed to buy a section in Takanini and build a large four-bedroom house. Construction has just finished and Thakur estimates it will be cash flow negative by about $20 a week, but the 30% equity he has created more than makes up for that. He’s had advice from Property Apprentice, but the money’s all come from the couple’s thrifty ways.

“We saved all the money for our first house ourselves,” Thakur says. “My wife has a good job, and I have a good income, and we save, save, save,” he says. “Now I’m looking in Mangere, because I guess that area is going to boost like anything.”

And how is it living in a house with his wife, a baby and two flatmates? “It’s different for the first few months, but then you learn the house rules and you get a feel for it.”

Strategy 2: Buy In An Affordable Area, Rent Somewhere Else

Josh Farry and his girlfriend are currently renting a room in Riverhead from a friend, but they are looking to start a family in the near future and would prefer their own place for that. The couple had been working on super yachts, earning “awesome taxfree money”. In 2010, while on holiday in Waiheke Island, they paid $315,000 for, “a pretty crappy little 59sqm place, on a nice 809sqm section with sea views”.

That rental is now cash flow positive, and the equity growth means they are now considering where to make their next move: Investment or first home?

“It’s a bit of a tricky situation in terms of the best thing to do,” Farry says. “We just got pre-approval to around $600,000, and that’s really restricting. It would be good to have a rental in the Massey/Swanson/Ranui area, but I went to a pre-open home last week and there were 40 people through and five offers the next day. It sold for $520,000 and it was supposed to go for $450,000.”

He’s weighing up whether to buy a home in the more affordable Hibiscus Coast. He recently viewed a three-bedroom family home for $562,000.

“I don’t have rich parents who can help out,” he says. “If we didn’t have our rental it would literally be impossible. I’m 30 and I don’t know anyone with $100,000 in the bank – and that’s only going to buy you a $500,000 house.”

Strategy 3: Buy In An Affordable Area; Renovate

Buying in a more affordable area and renovating can be a way to kick start a serious investment portfolio. Andrew Hope rents a room in a two-bedroom unit in upmarket Parnell, and recently decided to invest in the most central suburb he could afford. After some deliberation, he settled on Avondale. His conservative estimate showed he’d make $30,000 in equity after his $65,000 renovation; but since the December 2014 purchase, average prices in Avondale have risen from around $615,000 to around $660,000, at least doubling his gains. The yields are modest at less than 6%, but Hope says rising rents will soon eliminate the small amount of negative cash flow.

Hope could afford to buy a house for himself, but he believes renting for a longer period will accelerate his returns. At 28, he sees himself focusing on investment property for another 10 years.

“They call us the ‘now generation’, and you get people who say, ‘We bought our first property in Glenfield!’, but then you could drive to work in 20 minutes and now it’s more like an hour,” Hope points out. “Don’t go and mortgage yourself to the hilt to buy your own home closer in. It’s not such a good investment.”

Elbow Grease

Hannah Cullinane and her fiancé Matt McHugh have taken the hands-on approach, buying a house in Ranui and living in it while renovating it themselves. Cash was limited but they could put in plenty of “elbow grease and hard yakka”. A valuation soon after they purchased showed the price had already increased sufficiently to cover the cost of the renovations, making it a low-risk prospect, and recent gains in rents have been “the icing on the cake”.

“We’ll probably buy at least one more rental and do it the same way, because we know how to renovate now,” Cullinane says. “When we’ve got enough equity we’ll buy or build our own dream home – we’d like a lifestyle block in Riverhead or Coatesville.”

In a few months the couple is leaving to go backpacking in South America: “It’ll be luxury not to be sanding and scraping until midnight. Then when we come back we’ll have six months to save for the wedding!”

When we've got enough equity we'll buy or build our own dream home - we'd like a lifestyle block in Riverhead or Coatesville. - Hannah Cullinane

Strategy 4: Buy Outside Auckland, Rent In Auckland

Buying outside Auckland can be an ideal way to build cash and equity to leverage into the city in the future. At 18, Tamzin Letele bought two high-yielding properties in Tokoroa for $40,000 and $44,000. They’ve since been sold, but they were her first stepping stone towards Auckland.

Letele then bought in Eketahuna for $80,000, selling a few years later to buy in Auckland. She then began trading – but when the market turned in 2008, she was left $30,000 in debt. In hindsight, the 27-year-old says trading wasn’t the right strategy for her, and she’s now dedicated to long-term buy-and-hold investment.

Six years ago she met her husband and together they’ve used her hard-won experience to turn the debt into a portfolio with net equity of over a million dollars. They bought a house in Takanini for $210,000 which is now worth around $500,000, then purchased in Papakura and Manurewa. Their most recent acquisition is a city apartment, bought for $225,000; it’s now worth about $270,000 and rents for $435 a week. “You can’t really go wrong,” Letele says.

Cash Flow Positive

“I would tell people to buy in the provinces. Currently our strategy is to be able to create 20% equity in each property so we can buy again, and to be cash flow positive. We’re not going to change that strategy, so we’re now looking out of Auckland again.

I like the look of Hamilton.”

Letele is not the only one eyeing Hamilton. Ryan Dawson and his wife started with no parental help, but managed to “scrimp and save, work overtime, and stick it out”. They bought a house in Panmure, which doesn’t have the best reputation, but Dawson says avoid the rougher areas and know where to buy. By applying as much spare cash as they could to the mortgage, plus a huge DIY renovation, they soon had 75% equity.

They used that money, plus advice from Property Apprentice, to invest in standalone rental properties in South Auckland, where they’ve done well. But they want to expand their portfolio and 29-year-old Dawson found cash flow in South Auckland had dried up. The couple purchased a three-bedroom home in Hamilton on a full section with a sleep-out, and turned the sleep-out into a minor dwelling, doing most of the renovation themselves. The 10.5% yield created by the double tenancy has boosted their whole portfolio, and they’re keen to do it again.

The Dawsons purchased a three-bedroom home in Hamilton on a full section with a sleep-out, and turned the sleep-out into a minor dwelling, doing most of the renovation themselves.

Strategy 5: Buy Off The Plans

The benefit of buying a house off the plans is that the loan-to-value ratio restrictions don’t apply, so you can buy with a 10% deposit. As a potential bonus, in a rapidly-rising market, the value of the property can increase significantly when you come to settle. Jacob Knight has turned $20,000 in savings into his first investment property, with the next one in his sights.

“I bought a three-bedroom house in Takanini off the plans last year, and I don’t need to settle until August this year. I’ve made money without doing anything,” he says. “I’m going to rent it out, leverage the equity, then get some flatmates and buy a house to live in,” 22-year-old Knight says.

Best Value

He believes prices in Auckland are going to take a major tumble, and by securing finance while prices are high, he can buy when the market drops and get the best possible value. By using a combination of strategies, he’s getting a strong foothold in the market and planning to ride out the property cycle.

These young investors are proving that it is possible to buy in Auckland, but you do need to get creative. If you do the numbers, put in the hard work and make some sacrifices, you can get a foot onto the property ladder – even one as slippery as Auckland’s.

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