Listing Number:  312
Posting Date:  01 October 2007

Listing:15.1% BELOW RV ~ $122,000 INSTANT EQUITY, POTENTIAL FURTHER $13,000
Type:Unit/Flat : Do-Up
Category:Double Settlement
Region:Hawkes Bay
Site Area:784 m2
Address: Login
Building Area:370 m2
Property Image


This is a great deal that has a huge amount of built in equity - $122,000 in immediate equity - 15.1% below registered valuation ($807,000), with the potential for an additional $13,000 in equity.

Many of you will recognise these units. I picked the 7 units that make up this block off Kent (Fatbelly) back in early August. I have since fully renovated the block of 7 (with the exception of Unit 23). I am now putting 4 of the units back out to the billboard community, with $122,000 equity left in it for the next investor, with potential for another $13,000, making a total of $135,000 equity! There is potential with this deal to have a portfolio of units worth $824,000 with the ability to recycle your entire deposit (and more) out within 6 months, for no money down and cash back.

Property Details:
Units 20-23 are 4 units in a group of 7 units. These units have been architecturally designed and built in the 1980s. The units are on 4 separate cross-lease titles. The mix provides for 2x3 beds and 2x2 beds. While the design of the units allows them to feel more like a set of houses than a block of units, they are all joined in some way by firewalls in between each unit. Every unit has its own private carport and lock-up garden shed. All units have quite a substantial lawn area out the front.

The construction is of timber exterior and aluminium joinery and they are in a good area of central Hastings, amongst a mix of predominantly owner-occupier and some rental properties.

So what have I done to these units since you last saw them?:
Since I picked up the block of 7 back in early August I have fully renovated 6 of the 7 units (Unit 23 being the exception). Below I have listed more specifically what Ive done to each of the four units:

Unit 20 With this unit the entire interior has been painted, new carpet and lino through out, kitchen upgraded and other minor cosmetic repairs completed.

Unit 21 - This unit underwent some major cosmetic upgrading as it was in poor condition when I got it. The entire interior has been painted, new carpet and lino through out, kitchen upgraded, new reconditioned stove, new curtains, new supertub and other cosmetic repairs completed.

Unit 22 This unit had the same work completed as Unit 20.Entire interior has been painted, new carpet and lino through out, kitchen upgraded and other minor cosmetic repairs completed.

Unit 23 is currently tenanted and we have not had access to complete the required renovations to this unit. The valuation is based on current as is condition. This unit was in one of the best conditions of the block. It has been repainted recently by the current owner. This unit could do with new carpet and lino (I have quotes available and a great team of guys who can complete this for you) and possibly some new curtains and other very minor repairs. I estimate required spend would be max $4,000. With this work completed you would be able to achieve a new valuation of $217,000 (current as is $200,000), based on other valuations of completed 3 bed units and discussions held with valuer. Thats 425% return on your investment of $4,000.

I have also tidied up the grounds of the block, with most of the focus on the road frontage. This involved clearing away trees and shrubs, new fence, and upgrading letter boxes. This has vastly improved the road appeal of the units.

Details of the Deal:
$685,000 Purchase Price
$807,000 Registered Valuation (August 07 - Updated valuation pending on 2 units)
15.1% below RV
$122k Instant Equity
$13k Additional Equity after further renovations
$40k Deposit
Settlement 26th October
Rental Assessment: $870 pwk

This is one of the best deals I have worked on this year. I have had valuations performed on units 21 & 23 with valuations pending on units 20 & 22 These units will have an AS IS value of $807,000.
These units can be purchased via contemporaneous settlement for $685,000 which is 15.1% under the current valuation!
As mentioned with an additional spend of $4,000 on Unit 23 you can increase this valuation up to $824,000 which would bring it to 16.4% below market value (based on purchase price of $685,000 + $4,000 renovations),and give additional equity of $13,000 (increased value in Unit 23, $17k, less $4k renovation costs)

Ive have been working with Kris Pederson (kris@propertyfs.co.nz), expert finance broker, on these units. In discussions with Kris the real advantage with these units is that they are all on separate titles, which means you can spread your lending across a couple of different lenders. A couple of months back you could have potentially been lent up to 80% of the valuation amount by certain lenders on this deal meaning it would be a virtually a no money down deal, with only $39,400 of your funds required to settle!
Given the tightening in the finance community recently this may be more difficult to achieve now. On the safer side Kris did has confirmed that he has some lenders that will lend 85% of cost based on low doc (assuming full time investors purchasing). The benefit here is the investor can look to revalue the units in 6 months time and pull out all their funds invested in this deal, and some extra and move onto the next project. Potentially a property valued at $824,000 for FREE and CASHBACK in 6 months time.

Options for the Deal:

I feel this deal can suits both those looking for quick trades and those seeking deals to hold that they can strongly leverage off, but more so those looking to leverage. There is virtually no work to do on this deal, the choice is yours:

1. Sell all units individually

If you purchase this property, you could on-sell all units individually to release all of the $122,000 equity as profit.

2. Sell some units, hold the rest

Optionally you could also just sell only a couple of the units and hold the remaining units. The profits from the sale of the units could help reduce the mortgage on the other units and improve the cashflow. You could hold or sell any combination of units. These units are negatively geared so this strategy would significantly help improve the cashflow.

3. Hold all units, leverage off equity (recommended)

With this strategy you would be to remortgage 6 months down the track at 85% of RV, allowing you to pull out $118,150 in equity, which would covers your initial deposit of $102,750 ($685,000 @ 15%), plus any funds spent on renovations and purchasing costs (assume $7,000) and will provide you with more than $8,400 cash back (this is based on assumption renovations have been completed to Unit 23 and the portfolio is now valued at $824,000). This allows you to pull all your money back out, and some more, and move on to purchasing the next deal.
While this has the huge advantage allowing you to pick this portfolio up with no cash (in 6 months), the portfolio will be negative cash flow given the current rentals and interest rates.

Valuations and rental assessments are available on request and so are more photos of the properties. As stated I have a great team in Hawkes Bay that can help with any further renovations that may be required.

I would prefer to sell the block together as four units, but as they are on individual titles if people are interested in only picking up a couple of the units Ill consider it. Drop me a line and we can discuss.

As I am based in the UK I can be contacted via email on houghieuk@hotmail.com, or you can send me a text on my UK mobile which is 0044 7776034184, with your details and ill give you a call back (remember guys there is 12 hours difference but im available from 6am to midnight). Kent (Fatbelly) also knows this property well and has offered to help be my New Zealand contact for any general queries (021 2880119). Thanks Kent.

Thanks and happy investing everyone.

Kind Regards