Numbers on crosslease

Question from Courtney updated on 6th April 2015:

Hi there, we are looking at possibly purchasing a crosslease house in West Auckland. It has it's own driveway and section, so it's a totally separate house. It's a do up. Our plan will be to do it up and then sell. Do crosslease sections put a lot of buyers off? Should we be considering this when we put in our offer? We don't want to do it up and then find it hard to sell due to it being a cross lease section. As the house is separate with a different driveway could we look into getting a separate title? How would we look into this before purchasing? Thanks, Courtney


Our expert Ron Hoy Fong responded:

Buying and trading properties does need a lot of due diligence and it is all to do with numbers, profit and whether the return on investment (ROI) is worth the risk. Many novice property traders do not take into account the time that it takes to turn properties over, delays in renovation work and council costs (and building permits required if any). There are holding costs like interest, rates, insurance and the loss of rent. Along with the rising cost of labour and materials. Any gross profit made on sale of the property would be subject to the company tax rate of 28% and there are real estate fees and legal fees. Should you manage to make an after renovation profit of $50,000 you may be lucky to have an after-tax profit of $15,000. Then there is the inflationary cost to replace the original property, in the Auckland market it is very unlikely the original house would not have increased in value and you may find that the replacement could be a lot more than the $15,000. There is also the emotional aspect of whether or not you have a willing purchaser who will pay the price you need. Remember too, often a house left empty without security for too long is subject to burglary, vandalism, and often having hot water tanks, stoves and carpets removed.

As to your question on cross-lease sections, it's best to check out similar houses in the area. Establish what the place will be worth before and after renovations and assess if your desired gross profit (after renovation and other costs) and also your time frame to sell are realistic. A long driveway may be a large cost to your renovations. Naturally the time to sell may well be based on the price you want to sell. 

Ron loves to share his passion for property and his coaching course provides one-on-one mentoring and support that will empower you with tools, strategies and valuable insights so you can achieve investment success and become a property master.

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