Gary Lin a seasoned investor joins me on this little korero about developing to rent.
From two houses to six
Gary reckons that his current gross yield is approx 3 – 3.5% in West Auckland with two houses, in his mind when thinking of the loss of interest tax deductibility, its probably closer to 2%. After development it gets to around 5%. This means it goes from cashflow negative to almost neutral.
Obviously if things do get a bit tough cashflow wise, he would most likely be able to sell after five years without incurring a tax on the capital gain. However if he had bought further existing properties, this would be ten years.
Time Frame and Funding?
For Gary to get his resource consent, he reckons it will be around ten months to one year, the building consent will be around three months. With building time frames taking a year, it would be around two years or longer before Gary will see the finished product.
Getting a loan approved for anything more than two to fours houses can be viewed as a commercial deal by the banks. This can mean they require further equity compared to a normal build. Generally this goes from needing only twenty percent equity for one house out the back to needing about fourty percent for four or more.
