Numbers on crosslease

Our Experts Answer:

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.