buying house to rent out?

[soundbeltfarm]

i know a few people on here do this so is there an amount to pay for a house that gets the best rent in return?
EG a 300k house might get 280 a week rent whereas a 400k house may get 360 so the cheaper house is a better return.
not sure if that makes any sense.
im not worried about capital gain just the most rent for the house.
and not really worried where the house would be but i want it where there are always people wanting to rent.
i know nothing about house market but on the farm a house is supplied so we thought get a house and get someone else to help pay for it basically.
any help appreciated
SBF

[JimO]

capitol gain is your friend...... tennants are a major pain in the arse

[kickingzebra]

Cashflow is indeed your friend... If you can honestly afford to lose the money, if the tenants don't pay for example, and you have to cover all outgoings, then buy something like your examples, otherwise, you need to do something to stimulate capital gains, eg renovate, or get creative.

reccommend Steve McKnights info, as being legit and above board.
www.propertyinvesting.com

[Highlander]

Cashflow is the key. I wouldn't touch either of your examples.

PM to come...

[jrandom]

Yeah, what the other guys said. Property investment is all about capital gain. Rental income is just another variable in the cashflow spreadsheet. You'll never even cover mortgage interest and maintenance with rent, let alone make a profit out of it.

If you have, say, $350K sitting around and you want a secure sub-10% return, there are many lower-stress ways of investing it than in residential property. If you do go that route, the way to go is to put down 10 $35K deposits and bet on capital gains exceeding the ongoing cost of ownership and netting you a sweet return in several years time when you cash up. Nobody ever pretends that it makes sense to buy mortgage-free residential property and then treat the rental income as ROI.

Buying rental properties is actually a pretty risky thing to do in the short term. Long-term, well, population and demand just keeps growing, but it's not like there's more land being manufactured for people to live on. Rental property investment works best when you can stomach the idea of sitting on your properties and eating the TCO for a decade or two.

[soundbeltfarm]

Thanks for the help so far.
just done some figures and gee the rent some people must pay is bloody high.
I can see why it must be hard to buy a house if you are paying rents.

This may be harder than i first thought.

[soundbeltfarm]

whats TCO?

[Nasty]

You need to get an 8% return to make it worthwhile ... even though it pays to check on tax law cos you need to do repairs and maintenance and avoid capital spends. Apart from that I don't really know much about paying a house to let .. but I manage a few properties in Wellington

[DougB]

My son, 45, has purchased six rental properties, five in Auckland and one in Hamilton. He held a party when he owed the banks $4,000,000 because it meant he had a $1,000,000 in assets and was therefore a millionare. He has managers in all cases and draws $900 a week from his appreciating assets so is now semi retired. He is, like his father and brother a motorcyclist, so he must have some sense. Last month he bought a new Honda Goldwing for $35,000.
His hobby now is related to teaching people how to make a good investment. It is a very complicated buisness and he says only about one property in 10000 is worth looking at if you want to make a good investment.

I would suggest that you attend one of the seminars on property investment. His association is with one called Rich Mastery. It costs but is money well spent if you are serious.

I once asked him how people wothout any money could get started. He said there are several ways and told of one:-
You get one of every credit card there is obtaining maximum credit. Use each to its maximum to buy a carefully selected property, when it is in your name take out a loan on the property and pay back the cards, you have your first paying asset.

[Highlander]

Word of caution about attending seminars - while there is plenty to be learned from them, and some of it is Really good, life changing stuff, be aware that some of these people hosting seminars make as much (or more) out of selling their system as they have from real estate in the first place.

[kickingzebra]

I second that... it can be a dog eat dog world in this market, so finding advice that is benficial to all is our modus operandi. I never want to die knowing I screwed someone or ripped them off.

[Dilligaf]

I think the key is to get a good accountant. Otherwise, I would recommend giving the house to Housing New Zealand. For 10% you get guaranteed rental for a fixed term of 5 or 10 years and the house brought back to standard when it was first rented (general wear and tear excluded - i.e. if you put new carpet you will get 5 year old carpet - they won't put new carpet back in unless serious damage has been sustained). Also they have a company who does all of their house repairs so any maintenance that is done on your property is really cheap.
This is from a family member who has made loads using the property market.

Just been speaking to the rental accountant about our stuff and asked him about the tax for you guys at the same time if you bought an investment property. Basically these are the steps:-


The Accountant works out the projected 'loss' amount of your investment property for the year ahead (ask him before you buy the house so you can get a quick guide)
You then tell him what your projected salary will be for the coming 12 months (ie. base plus any indicative amount for bonuses)
He then applies to the IRD for a flat tax rate for you for the coming year (this costs $75 for the Accountant to prepare for you - or you can do it yourself for free). IRD take 3 weeks to process this info
You are then sent a certificate which you hand to your employer and this is the tax rate that they have to load your salary at. As soon as you have the certificate you start getting paid at the new tax rate so effectively you start getting weekly pay increases because you get paid weekly - this clearly helps you offset your loan.
As an example (the one the accountant told me):-

Say you were on $60k pa and your investment property is expected to make a loss of $30k for the year (rental income less expenses less depreciation).
You are then taxed on $30k all through the year (ie. $60k salary less $30k loss = $30 salary tax is still required to be paid on)
The rate that you would be taxed in this example is, very roughly, 30%. Basically $60k income evens out to be a tax rate of around 30% based on the different tiers that make up this $60k so you would pay tax on $30k only
Using this example, you are therefore earning $30k tax free, which at (say) 30% = an extra $9000 pa that you have to put towards your rental property. Although the rental "loss" is projected at $30k, you have $9k extra to put towards this meaning a 'loss' of only $21k that you have to find. Out of this $21k, there would be depreciation of (my estimate only and not the Acct's) say $5k meaning the actual CASH LOSS that you have to finance is $16k.
To make this even more attractive, instead of finding a property that has a loss of $30k pa (his example), do the numbers with him and find out what sort of loan/property value you should be looking at to try and bring this down to a nil expense for you (after tax refunds).

Hope this helps

[dickytoo]

I got caught out with depreciation. If you are claiming depreciation, then if you happen to sell the house, you will have to pay IRD back the depreciation or the tax on the profit you made in selling (which ever was the lesser amount, i think).

it's a little involved but I ended up paying $7K back to the gov't when i sold my rental property.