Wellington Market Update - August 2019
The Wellington market doesn’t seem to ever stand still. After a period of very few good investment opportunities, the market has changed and now we are finding more opportunities where we can purchase to renovate and add significant value and rental return. There is always lots of speculation written in the media as to rental shortages, or huge buyer demand or average prices increases.
There may be some statistics to back this up but what I am currently seeing in this market is that renting out your investment in the inner and outer Wellington suburbs is particularly difficult, especially if you have a rental with over 3 bedrooms. This is of course normal for this time of year as the tendency is to ensure one year fixed term tenancies from around January to January.
Seller expectation is still very high and prices seem to be holding firm and in some cases increasing. I suspect this is fuelled by low interest rates and the lack of good investment stock coming to market.
First home buyers are still out in force and now make up a larger percentage of buyers than investors, however I sense the market is getting more selective and we are seeing some properties not selling at these record highs as there is much less “desperation” to get into the market and buyers becoming more selective.
On saying the above, there is still strong demand for investment properties in good locations.
An example of a deal that I completed last week was for a premium buyer on my books who is a NZ citizen, residing offshore. She already had an average performing property in the outer suburbs and wanting me to find her a higher yielding property in the inner suburbs which would have a greater chance of increased capital gains.
I found her a property in the high demand area of Newtown, Wellington, which is currently configured as a 3 bedroom flat upstairs and a 3 bedroom flat downstairs. There is also a 1 bedroom stand-alone flat at the front of the property and ample parking for 4 cars.
Once I viewed the property, I could identify that with little effort we could convert the 2 x 3 bedroom flats to 2 x 4 bedrooms and significantly increase the rent and also add great equity when the new rent would be achieved.
After sending my client a “walk through” video, we then worked together to ensure we did all our due diligence upfront. This involved searching the archives, identifying any issues in the LIM, securing insurance, getting an independent rental assessment, getting an architect to view the feasibility of bedroom changes, getting the lawyer to check the title and lastly getting a building inspection completed before tender due date.
This enabled us to work out a tender price to level where my client would get the yield and cashflow she was after.
We agreed that the ideal purchase price would be $1.2m based on the desired outcome so the tender went in.
There was obviously high demand for this property with 8 tenders received and although our tender wasn’t quite the highest, it was presented as a cash unconditional sale. This secured the deal for us and really highlights the point about the value of unconditional offers.
Here are the high-level numbers for this deal:
- Purchase Price: $1,200,000
- Renovation Costs, including our finder’s fee $150,000 (lot of work required for complete makeover of 1 bedroom flat as well as redecorate the other 2 flats)
- After repair rental appraisal $1,850 (midpoint of appraisal range)
- Gross Yield 7.14%
- Positive cashflow $400 per week, based on 100% Interest Only funding at 4.1% and PM fees of 8% + GST and including a budget of $2,500 annually for repairs and maintenance.
It should also represent an equity gain of around $120,000 straight away enabling a refinance and some more capital to go searching for the next good deal!
With successes like this in Wellington, I now have some open spots for more premium buyers so if you are interested, please get in contact and we can talk about your needs and how we may be able to help