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how much do you need to buy an apartment


Apartment Specialists Podcast No: 156

Summary:

How much do you need to deposit when buying an apartment? What are the restrictions and bank limitations when you are taking out a loan for an apartment purchase? Watch the video and read the article to get more information and insights about getting your financial needs in order when buying an apartment.

How Much Do You Need to Buy an Apartment

As an overview the basics on how much you need to buy an apartment are pretty straight forward and can be put into three different categories.

1) Owner occupiers apartments or apartments with the most capital gain opportunity.

These apartments are not your shoe boxes and so are of a descent size. To buy one of these apartments you will need at least a 20% deposit.

2) Investor Apartments or Income focused apartments.

These are your smaller apartments, income focused and to buy one of these apartments you will need at least a 50% deposit.

3) Lease hold apartments.

These are generally lifestyle purchasers or in some cases high return purchases. To buy a leasehold apartment you will need a deposit of at least 50%

Now, unfortunately it is not that simple. BANK CRITERIA makes it quite confusing as they are all different and cause a lot of buyers to waste a lot of time and energy.

For a buyer, there is nothing more frustrating than finding the perfect apartment only to find out that you can’t buy it because the bank won’t give you the money you need.

For example Banks have restrictions on:

  • Apartment size (i.e. if an apartment is under 40m2 or with another ban 50m2)
  • Apartments in hotel leases
  • Apartments that are in a building that once was used for something else (i.e. an office building that has been converted to an apartment)
  • Apartments that are leasehold
  • Specific Apartment buildings

And plenty more.

This is why I highly recommend seeing a broker who will, for free, match you with the best bank for your needs and at the lowest rate; and in most cases, get you a better deal than if you walked in off the street.

The important thing however is to use a top mortgage broker who knows apartments and has relationships high up in the banks.

What do you need to know about Apartment Buying in Auckland? How do you get the best deals? Download our Buyers Guide to get much sought after insights. You can also email andrew@apartmentspecialists.co.nz or call +6421 424 892 to get the best Auckland apartment expert to help you.

TRANSCRIPTION:

How much do you need to buy an apartment? Andrew Murray from Apartment Specialists here. I’ll be talking about how much money you need to by an apartment.

Everyone is talking about apartments. We all know that finance is different when coming to buy a house compared to buying an apartment. I’m going to first start off with the basics, and you can put apartments into three categories when talking about purchasing.

We’re talking about owner/occupier or capital gain purchases. Number two, being investor apartment purchases. These ones are more income-focused. Then three which is leasehold apartments and  lifestyle purchase or in some cases – very, very high return purchases. All this because of the negative stigma surrounding the leasor.

Number one, being an owner/occupier or a capital gain purchase. Now, your finance is generally restricted to give a blanket rule to about 80%. These are apartments of a decent size. If you’re going to buy an apartment that’s $400,000, you’re going to need an $80,000 deposit. If you’re going to buy an apartment that’s $500,000, you’re going to need $100,000 deposit and so on.

Number two, your investor apartments which are focused more on income. These are your small apartments. Because they’re restricted by bank criteria, that means the prices are lower and the rents are higher compared to the prices. This means you’ll get a higher return.

These apartments are restricted by the banks that’s why the finance is only 50%. If you’re going to buy an investor apartment, say as a smaller apartment, then that means you only need it financed for around about 50%. However, if you’re buying a $300,000 apartment, you’re going to need $150,000, which is quite restrictive. That’s why it’s generally an apartment you buy later in life when income’s more important than capital gain.

Number three, our leasehold apartments. This is your lifestyle purchase or your purchase with a view to high return, because it’s a smaller apartment. It’s leasehold but because of the stigma and the lack of people being able to purchase, less people purchase them. Leasehold across the board, generally speaking, is 50%. If you buy a leasehold apartment and they ask a million dollars, you’re going to have a $500,000 deposit. If you buy a leasehold apartment that’s $300,000, and you’re going to need $150,000 deposit.

Those are the basics and this is where it gets confusing. Every bank is different. One apartment that could be under the owner/occupier or capital gain purchase category in one bank, in another bank it could be an investor purchase. This is because of their size criteria. For example, ASB Bank will lend 80% on apartments 40 square metres or higher, where say Westpac will lend only 80% to apartments that are 50 square metres or higher. I’ll cover the actual current bank criteria in a different podcast, but that gives you an idea.

There’s nothing more frustrating than a purchaser coming to purchase an apartment to find out that their bank won’t give them the money they need. Put yourself in that situation. You’ve found that apartment and all of a sudden you can’t get finance. Now, on top of this, they also have restrictions on apartments and hotel leases.

Apartments that have been converted, for example, a used office blocks or used for something else, and it has been converted into apartments, it will often go for 65%, a common figure in most of the banks. And then they’ll also not lend on specific buildings if they’ve lent to too many people in that building. So, that’s another one you need to know from your banks – which apartments they won’t lend to.

Now that doesn’t mean that’s a bad apartment complex. It just means they’ve got too many clients that they’ve lent to in that building. I must agree, it does get confusing and there are plenty more rules when you get into finance. That’s why I do not advise going straight to a bank. I’d advise going to a broker, and make sure you go to one of the top brokers that specialise on apartments.

I can recommend you to some – just flick me an email. These are the ones that have relationships up high, and will get you better rates and better deals. You can get them free and what they do is they put them out to all the banks and see who will give you the best deal. They will also match the apartment you’re looking for, or what you’re looking for with the sizes.

I hope that helps. Andrew Murray talking about how much you need to purchase an apartment.

Cheers!

What do you need to know about Apartment Buying in Auckland? How do you get the best deals? Download our Buyers Guide to get much sought after insights. You can also email andrew@apartmentspecialists.co.nz or call +6421 424 892 to get the best Auckland apartment expert to help you.


Apartment Specialists Podcast No: 133

Summary:

Is your prime objective capital gain when buying an apartment? Then you might be this type of buyer. Watch this video to know what kind of an apartment you should be going after.

TRANSCRIPTION:

Buyer type number two. You are an investor and you are looking at buying an apartment. Your prime objective is capital gain.

Basically, you are looking for an apartment where you are going to be renting it out, and then selling it to an owner/occupier down the track. You are going to be buying it, obviously, you are going to get the best numbers you can. For example, rent minus expenses. But the objective is to then sell it to an emotional purchaser who will pay a lot more.

The key thing with this is actually the size. You have got to have the whole market. For example, if you bought an apartment that was 45 metered squared, and it is a two bedroom, not all the banks lend 80% on that. You are cutting out half your market. You are looking at two bedrooms above 55 square meters and you are looking at one bedroom above 40, ideally, 45 square meters and basically, the bigger the better.

The other thing is, that it needs to tick all the boxes. It needs to be livable. I do not mean livable in regards to high-end. I mean livable as in – apartments are the future. It is not going to be long until the average house in Auckland is going to be a million dollars. It is already well over $700,000 and it is going to keep on going up.

If you want to buy a house below $500,000 and you are looking at a 40 minute commute, apartments are where it is going to be. You can see it is going to happen, and it is happening now. I repeat myself that buying in this market, it is a market that is, obviously, livable and desirable. This is a market that is moving. You’ve got to quote area as size.

If you think about car parks and it is the middle of the CBD, doesn’t it have to have a car park? That is a bonus. If it is on the fringes and it has to have a car park. If it is a one bedroom, you will find it has to have a car park, unless it is at the very central. On the fringes and my pick is the two bedroom market, because you think of a couple buying their first property. It will not be a house because they will not be able to afford it. They are going to want another room for when they have the first child. And it is going to be their first property.

Think of all those people who have a house in this younger generation. What is their first investment property going to be? It is not going to be another house because it is too expensive. It is going to be an apartment. That is the market that is moving. That is the market that is going to continue to move.

Now, Let us take another story. Say my sister and she has a house. She’s got one child. As soon as they have another child, they are going to need another room.

They have a house in Ellerslie and they need to upgrade. But they have got to get quite a bit of cash. This is what we are going to do. We are going to buy a two bedroom apartment and I will get the rent, so it covers the mortgage. Hopefully, within two or three years it should get $100,000 in capital gain.You are really going to need that and use that leverage to buy your next home and sell your last home.

That is what we did. We bought an apartment in Victoria Street. It was $380,000. A one bedroom with 58 square meters and a high stud. It is a nice area and it is gonna need a lot of money in to refurbishing it. It rents for $595 per week. It is more than the mortgage payments and that is after covering the Body Corporate fee.

Since she’s purchased, she’s already made $50,000, and that was only four or five months ago. If you are going to follow that criteria, then you are looking at capital gain. You are looking at two bedrooms, with or without car parks, if it is in the city centre.  It is in the fringes or in the suburbs, but it needs to have undercover car parking – it just does.

To recap, one bedrooms that are bankable. All the banks will lend on them. They need to be desirable. They need to tick all the boxes. You do not want to buy an apartment that faces south that gets no sun because in the long term, an owner/occupier will not pay as much for that.

You do not want to buy an apartment that has something wrong with it. For example, it is extremely noisy because an owner/occupier in the future will not purchase that. Remember, a desirable apartment, you may have to pay more for now. But that means it is going to go up more because it is going to be more desirable in the future.

That is buyer type number two and you are an investor. You are looking for a capital gain as your primary objective. The rent will cover most, if not a little bit more, than the cost of the outgoings.

Next, I will be talking about buyer number three, which is high risk. Cheers.

Apartment Specialists Podcast No: 132

Summary:

What kind of apartment buyer are you? Are you after the income? What are the main concerns of an income investor? Watch this video to get all the essential information.

TRANSCRIPTION:

Buyer type number one. An investor. You are an investor and your main focus is income. When I mean income, it is income minus expenses. Your major concerns are the rent you are receiving and the body corporate fees, the rates and any other outgoings. Now, if this is what your aim is then capital gain is not as must of a focus. Generally, you are looking at smaller apartments and you are going to be looking, in most cases, below 50 square metres.

Yes, there are some odd cases where you will have a large apartment with lots of rooms in them. But it is often harder to find tenants because you are going to have to have multi-tenancies or find a group of tenants that all want to live together. Generally speaking, you can say your criteria is below 50 square metres and ideally; the highest return is below 40 square metres.

The reason for this is because of bank lending. There are two major banks that will lend at 80 percent on apartments of 40 square metres and above. All the rest are a lot higher. So, if you are below 40 square metres, that takes out all your other occupiers. That lower demographic who are buying to live and cannot afford it.  This means most of the owners of those apartments are investors.

The apartments have not risen emotionally, if you know what I mean. An emotional purchaser is what pushes the prices up and so you will be looking at stock below 40 square metres. But you will be looking at doing it on a 50 percent deposit.

I will give you a bit of a story, this is what I did for my parents. My parents had a house, one of their houses that was $700,000, approximately. Dad was renting it out per room and getting a reasonable income about $1000 a week rent. Yet, the return was horrible. I said, “Dad, what are you doing? Sell, you are not concerned.”

He is not concerned about capital gain and the only person that is going to benefit from capital gain is me. And I am not looking for that. He is as fit as a fiddle, anyway. And, so I said, “Dad, sell them. We will go and buy some apartments. We will get three apartments and we will rent them all out, and I guarantee I will double your income, or your net return.” That’s what we did.

We went and bought three apartments for about 200 odd thousand dollars, furnished them all and rented it and now he is getting double the income.  The great thing now is he has got six that are freehold, just for income and that is his retirement paid for. Every time he wants an injection of cash, he just sells one of them because all his eggs are not in one basket.

In a commercial type arrangement where you have got one large property, with a great return, but you have got to find a tenant. That is one type of buyer.

Just to recap on that, you should start that small. Reasonably large body corporate fees, you should be looking into long-term maintenance plan and location. Car parks are something that are not necessary, because if you are looking generally in the middle of the CBD.

What a car park does is lower your return legally, because you pay a higher body corporate fee and you do not get a very good return for the added cost of the car park and that narrows your criteria.

Now, the next one we are talking about is, you are an investor but you are probably a bit younger. In most cases and your main concern is capital gain with income being secondary.

Cheers.

Apartment Specialists Podcast No: 131

Summary:

This podcast gives you an overview of the different types of apartment buyers in Auckland. Why do you need to know what type of buyer you are? What are the things that a buyer is concern about when they are choosing an apartment? Watch this video to get all the details.

TRANSCRIPTION:

Good day. What kind of apartment buyer are you? Now you go in Trademe and there are 600 to 700 apartments on the market. Are you anyway confuse? Are you trying to figure out values? Are you finding it difficult to figure out what is a good buy and what is not a good buy?

When you buy an apartment, it is not like just buying a house. There are over 14 different types or categories of apartments, and you need to figure out which kind of apartment is going to best suit your goal. Owning an apartment is a solution to a purpose, and you have got to find out what your purpose is. Now it seems a little bit weird talking like this, but the point is, you are dealing with 700 apartments and you are shopping online.

You are going through Realestate.com, or you are going on Trademe, trying to find the apartments that suit you. You are asking all these questions. That is a lot of work and with that many on the market, that is pretty hard to figure it out. I mean I was an agent and I have been in the game for a while now.

However my first six months, I did not know what was going on and I was doing it everyday. Now the commitment from a buyers perspective, how do you figure out what is best for you? You need to figure out what is best for you and you also need to find out what kind of buyer you are.

What is the purpose of the apartment you are looking for? So what I am going to do is help you figure out what kind of buyer you are. You can then go through and take those 700 apartments and get them down to about 15. Now figure which ones are listed too high, figure out the ones that are inappropriate, and make the best purchase for you. Then you will be thanking me in five years and that is for sure.

Anyway, to give you an idea I will put it in five different categories. Now you are either an investor, where return or basically income is your main objective and capital gain is a bonus. Number two, you are an investor where capital gain is the main focus and income is the second main focus. Number three, you are an owner occupier, you have got certain criteria, like you may have pets or you may want to be in a certain part of town.

There are different kind of criteria. You are either concerned about lifestyle, so this is a purchase where it is about how you live. Capital gain is not as important, so that is were a leasehold would be very appropriate. Number five is high risk; that is where you are looking at buildings that are leaky because when they are fixed they are going to be worth a lot more. You are looking at buying into hotel leases, because they are harder to buy into, because of your finance, but when they come out. it is going to be worth a lot more.

What I am going to do is I am going to do a forecast on each type of buyer, and go into a bit more detail on each one of those five types. You can figure out how can you best find the solution that you want. And you could be looking at the wrong category. If you are doing that, you are asking all the wrong questions.

This is about your time, and time is valuable. You have got so many listings in the market and there is a lot of excuse my “French” – crap out there. You need to sort through it and the more education you have, the better purchase you will make. Anyway each week one will come out, and yeah I will talk to you soon.

Cheers.

Apartment Specialists Podcast No: 131

Summary:

This podcast gives you an overview of the different types of apartment buyers in Auckland. Why do you need to know what type of buyer are you? What are the things that a buyer is concern about when they are choosing an apartment? Watch this video to get all the details.

TRANSCRIPTION:

Good day. What kind of apartment buyer are you? Now you go in Trademe and there are 600 to 700 apartments on the market. Are you in anyway confuse? Are you trying to figure out values? Are you finding it difficult to figure out what is a good buy and what is not a good buy?

When you buy an apartment, it is not like just buying a house. There are over 14 different types or categories of apartments, and you need to figure out which kind of apartment is going to best suit your goal. Owning an apartment is a solution to a purpose, and you have got to find out what your purpose is. Now it seems a little bit weird talking like this, but the point is, you are dealing with 700 apartments and you are shopping online.

You are going through Realestate.com, or you are going on Trademe, trying to find the apartments that suit you. You are asking all these questions. That is a lot of work and with that many on the market, that is pretty hard to figure it out. I mean I was an agent and I have been in the game for a while now.

However my first six months, I did not know what was going on and I was doing it everyday. Now the question from a buyer’s perspective, how do you figure out what is best for you? You need to figure out what is best for you and you also need to find out what kind of buyer you are.

What is the purpose of the apartment you are looking for? So what I am going to do is help you figure out what kind of buyer you are. You can then go through and take those 700 apartments and get them down to about 15. Now figure which ones are listed too high, figure out the ones that are inappropriate, and make the best purchase for you. Then you will be thanking me in five years and that is for sure.

Anyway, to give you an idea I will put it in five different categories. Now you are either an investor, where return or basically income is your main objective and capital gain is a bonus. Number two, you are an investor where capital gain is the main focus and income is the second main focus. Number three, you are an owner occupier, you have got certain criteria, like you may have pets or you may want to be in a certain part of town.

There are different kind of criteria. You are either concerned about lifestyle, so this is a purchase where it is about how you live. Capital gain is not as important, so that is were a leasehold would be very appropriate. Number five is high risk; that is where you are looking at buildings that are leaky because when they are fixed, they are going to be worth a lot more. You are looking at buying into hotel leases, because they are harder to buy into, because of your finance, but when they come out, it is going to be worth a lot more.

What I am going to do is, I am going to do a forecast on each type of buyer, and go into a bit more detail on each one of those five types. You can figure out how can you best find the solution that you want. And you could be looking at the wrong category. If you are doing that, you are asking all the wrong questions.

This is about your time, and time is valuable. You have got so many listings in the market and there is a lot of, excuse my “French” – crap out there. You need to sort through it and the more education you have, the better purchase you will make. Anyway each week, one will come out, and yeah I will talk to you soon.

Cheers.

Apartment Specialists Podcast No: 102

Summary:

Are you planning to buy a leasehold apartment in the Auckland CBD? Do you know the extra cost and how it affects the value of the apartment? All these questions will be answered by Andrew Murray on this podcast as well as the other negatives of purchasing a leasehold apartment.

TRANSCRIPTION:

The negatives of purchasing a leasehold apartment in the Auckland CBD. Now, a leasehold apartment has it’s negatives because it has an extra cost – and this affects it’s value. That’s why they’re so much cheaper. When you look at leasehold apartments, generally, they don’t have the same amounts of capital gain opportunities as possible, so generally freehold apartments will have more capital gain in the future than a leasehold apartment.

This is because that ground root will increase over the years. Having said that, leasehold has had such a bad stigma in New Zealand that my feeling is with a lot of buildings – not all – but in a lot of buildings in the CBD they’re undervalued and some yes, there is capital gain there.

And then the other side is if you’re buying something so cheap, on a percentage term it goes up – say you buy it for $200,000 and it goes up to $220,000 then that’s a 10% increase. But if you pay $600,000 for the freehold equivelant and it went up 10%, well then it would have to go up $60,000.

It is a tough one, but basically speaking leasehold apartments are more about living lifestyle, being able to free up your money to use in other ways. Because an investment is an investment, unless if it’s giving you income – and if you’re living in it, that means technically it’s not an investment.

Yes, the big one is – leasehold doesn’t have the same capital gain future that apartments have in my opinion. That doesn’t mean that’s set in stone, but that’s how I see it.

Anyway, hope that helps. Cheers.