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Deal Or No Deal?

Friday, February 01, 2013


A week ago we posted a Deal Or No Deal pop quiz on our Facebook page.


Auckland CBD freehold apartment selling at $300,000 with an assessed market rent of $400 p.w.  Body corp fee of $2,800 p.a. and rates of 850 p.a.  Assume 2 weeks vacancy which is when you will be carrying out major repairs and maintenance (budgeted at $800 p.a.).  Fully financed at today's ANZ New Zealand floating rate of 5.74% p.a. minus your APIA home loan discount.  Assume no further costs.
 
What is the actual return as a percentage? Will this apartment give you a positive or negative cashflow? Finally, tell me, Deal Or No Deal?

 
Well, the answers are in, and we are pleased to announce the winner - Q.J. Lee who correctly stated: 5.18%, negative compared to the interest rate 5.49% you get. (-0.31%), no deal. 
 
Working on the return on investment is a skill all investors should know inside out.  By analysing the deal before you jump in, you strip away the emotion and look answer the very basic question: Should I or shouldn't I invest. 
 
A while ago we talked about how to work out your return.  For this particular example:


 
The net return being 5.18% compared to the interest rate of 5.74% means that this particular investment will give you a negative cashflow and would mostly likely be a dud for many investors.*

Back when we were young and carefree, we posted a video explaining how to work out investment return.  Have you seen it yet? 



 
*Note that we are assuming that there are no improvements to the property value, no insurance costs and no property management costs.  In real life this will most likely not be the case but we do hope this quiz serves as a good example for how to work out your return. 

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The Tenancy Practice Service and TPS Credit Control work closely with the Auckland Property Investors' Association. Our vision of bringing helpful resources, documents and high quality services to Auckland Property Investors and Property Managers is shared by APIA, so its a partnership that works well. 

The Auckland Property Investors' Association is a great organisation for those who want access to advice and information from a range of industry experts and partners. 



Mathieu Holt- Managing Director, The Tenancy Practice Service & TPS Credit Control
Through the Association I found the channels and methods to fund the purchase of property I never dreamed about. Grant Brown

All round it has been one of those things Neil and I felt was really worthwhile belonging to. We have learned so much it has just built our confidence in what we are doing.

Janice Bieleski
I read two articles in the monthly magazine that saved me over $5,000. That is my membership fee for the next 26 years and I am sure I will learn a whole lot more! John Duncan
Fantastic organisation. The networking opportunities are brilliant and provide us with information and opportunities that cannot be obtained anywhere else. We learn something new at every meeting and we've been in this game for nearly 20 years. Pauline and Gyanen Kumar

I find the information obtained from various APIA meetings very useful in guiding my own property investment and rental management.  I also enjoy the networking opportunities with like-minded investors.  I am inspired by other investors’ success and find the more experiences and knowledge that I share with others, the more confident I become.  

Thanks to all APIA event organizers and administrators for your brilliant work. 

Stella Shao

I like talking to people and learning from their experience because it gives me the confidence to invest well. I think it is a knowledge thing. I now know I am doing things the right way.

Stephen Weatherall

My APIA membership has become a total success.

Every time I attend a monthly or regional meeting I come away with so many useful and positive tips that have added value to my property investments and management.

Not only that, the website is a great place for practical advice and useful information. It has now evolved into an important resource for my business.

Talk about value for money! The discounts I have been getting at Bunnings when I present my APIA membership card have more than paid for my annual subscription!

Tim Duffett, Plan A Investments Limited