Friday, August 22, 2008

House Hunting

Lauren and I have been househunting. This is our first foray into investment buying together and it's fun. We spent all day Wednesday in a nearby city looking at houses and thinking about things like renovations required prior to rental, maintenance required in the near future, potential resale value.

We looked at eight houses and discounted five of them almost immediately. One was already rented which was appealing. The house itself looked great but it was too expensive, considering its nearest neighbour was the local cemetary. One was across the road from a joinery - poor resale value and only two bedrooms. One looked like good value until you noticed the kitchen benches had been painted and were now peeling and the kitchen had those awful foam tiles glued to the ceiling - too much work for the price.

The three we really like are in three different areas. One is perfect, excellent condition, good yard, reasonable area - just right at the top of our budget. One is tiny, in a great position, with loads of character and potential to add a third bedroom - but already right at the top of our budget. The third one is in a reasonable area with a good kitchen, just a horrid pink bath and tacky floor coverings. The benefit of this one is that it's cheap enough that we could change the bathroom and floor coverings and still spend less than either of the other two. Even though the first two houses appeal to us more, this one makes more sense for an investment.

It's amazing how I've had to change the way I look at houses and think about them when I'm buying purely for investment purposes. I've never done that before. Every house I've bought previously has been with a view to live in it, renovate and then, if I can afford it, rent it out when I move on to the next house. I've bought houses based on what I like and want in a house, not what would be the best financial decision.

And that's the really fun part over with. Now I have to check insurance companies to find out how safe each of the areas are, the city council to find out yearly rates charges, and spend some time with a spreadsheet calculating potential % return for each house. Then comes arranging for a building and pest inspection, sourcing the funds and engaging a solicitor to do the conveyancing. It's going to be a very expensive couple of months before the house is settled and rented and we start seeing any sort of income from it. Providing we get the house we want at the price we want in the first place.


Jim Harris said...

Wow, I didn't know you were so enterprising. Over the years I have met people who had a clutch of rental houses that made them a nice income, but it sure does sound like a lot of work. Unless you love fixing up houses. Here in the states they have all kinds of TV networks devoted to that. By the way, how is the housing market in Australia? I'm sure you've heard about our housing crisis.

How many houses do you think you need to own before you can retire from your day job?

glediar said...

I have heard things aren't good in the US but haven't taken the time to find out exactly what's happening or why.

We've had a couple of very quick interest rate rises - stupid decisions by the Reserve Bank - knee jerk reactions with no wait time between to see if they're working. These rises have had the impact, within six months, of placing incredible pressure on home owners that run close to the wind with their ability to repay. That means more houses have come onto the market because people can't cope with the interest rate rises anymore, and the prices have dropped.

The rates are probably going to drop next month which means fewer people will need to sell their houses so it's a good time to buy before then.

How many houses do you need to own? The word 'own' is the key. If I didn't have mortgages to pay, four houses rented out would provide me with a reasonably comfortable income. It's having to pay the mortgages that is the killer. I have one house rented out now and, with only one mortgage to pay, it's allowed me to work part time. I'll probably have to go back to full time work next year to be comfortable with two mortgages.

I'd love to be enterprising and entreprenuerial but I'm not sure I could apply those terms to myself. I just don't want to teach forever. I want to get out of the classroom while I'm still enjoying it so I have good memories of teenagers. What I really want to do is write full time but I can't kid myself that I'll be able to live off that income, at least not in the short term, so I need to find something else that requires little effort once it's set up and maximum return. Rentals offer that.

I love fixing up houses but we're not looking for a "renovator's special" with this one. Neither of us have the time to devote to that. We want something in good condition that we can just hand over to a property manager and pay them 8% to look after it for us.