Recently discovered the lifestyle and absolutely love it. Wish I had known about this when I was 20 but discovered it when I was 32 so still plenty of time to achieve the goal of financial freedom.
Unfortunately, just before I discovered mustachianism, I purchased a house in Auckland, NZ at an overvalued price. I was very naive, and did not research the area, the house and the school zones etc. I was going through some personal issues, and if I am honest there was also some pressure from my parents (who have only really ever known house prices to rise). Anyway, long story short due to the pressure of the auction situation and my inexperience, I paid $547 for a house that would rent for $420 per month. I am now closely watching the prices of comparable houses and I think I would be able to get about $530k for it, there are a few similar houses up for sale right now so I will watch with interest what they go for.
The market for residential property in Auckland has gone absolutely crazy over the past five years. Prices for detached homes have pretty much doubled in that time. People are paying whatever they can afford with little regard to rental yields, which are going around 2-3% for the more desirable suburbs. A new city wide plan is to come into force in 2017 and this will make development much easier for many properties ( but mine cannot be easily developed under the new plan). Once the supply starts coming, and if interest rates rise at all (currently at historical lows) then I could see prices might start to fall given the meteoric rise.
With the price I paid, my house would rent at about a 4% yield. I have now moved in and it is costing me about $800 per week in mortgage repayments, taxes and insurance. So has pretty much wiped out my ability to save, it is also very far from the city and so my transport costs to work are also increased substantially.
Obviously this is not a great position to be in and I wish I had been a little smarter. But what is done is done. Live and learn I guess. If I had done my research, there were a number of other properties that I would have bought instead of the one I ended up with. In fact, if I had known about mustachianism I probably just would have continued to rent and save 75% of my income. So I have been pondering a number of options and would be very appreciative of any advice from those who are more experienced.
1) Sell the property as is. If I went through a private sale then I am hopeful I would be able to get $535 for the place. Since I bought two months ago, the market has continued to rise sharply. If I was lucky I may be able to get back what I paid but I doubt this. I will know more when the houses just around the corner sell.
2) Start doing some improvements to the house, there is plenty to do on the place which will not cost much such as painting and wallpapering. However there is plenty to do on this front and given I have no experience in this stuff, it will take me around 3 months to get it all done. Barring any market collapse, or unless I have really overpaid badly - then I hope I would be able to get out via a private sale for what I paid for the place. However I would need to hold it at a cost of $800 per week over that time.
3) Borrow another $150-200k and build a minor dwelling (below 65 Sqm) on the back section. It is fairly steep so this may not be possible with the council rules - I will have to investigate. If I did this, then I think I would be able to get the yield up by at least 1% point. I would not be cash flow positive, but unless the build cost way more than the estimate of $150-200k - then I would only need to tip in about $100 per week to own it.
4) Rent it out as is and tip in about $300 per week.
Any advice appreciated.