An Auckland real estate agent is launching a new group home-owning scheme, offering to sell brick and tile units for around $600,000 then manage those places to investors who would earn the rent.
Martin Dunn, managing director of Karangahape Rd-headquartered apartment specialist City Sales, is launching Real Estate Together on Thursday, saying some people faced the prospect of "retiring in penury".
Around four people could buy the property from him for a one-off fee of about $24,000, rent it out to tenants via his business then get the income, he said.
Andrew King, NZ Property Investors Federation executive officer, expressed reservations.
"Essentially it's not a bad idea. I would not buy into something like this myself but there will be people who will," said King who has for many years owned a residential portfolio.
King worried about the potential for issues, specifically disputes among the owners and perhaps one party's inability to pay: "You'd want to get a lawyer to look over the fine detail."
Joanna Pidgeon, former Auckland District Law Society president and a partner with Pidgeon Law, expects more schemes like Dunn's.
"Provided people have a robust property sharing agreement, increasingly this will be a route which some people will need to take to get onto the property ladder," she said.
"You would want to ensure that you did financial due diligence on your co-purchasers, and ensured you covered off what happens if you want to sell, who can live in the house, how decisions are made for expenditure on maintenance and improvements etc. It can work well," Pidgeon said.
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The sooner people buy property, the better, she said "and this is a route for some to take. Your average brick and tile is low-maintenance so could well be less risky than some other types of construction. People often wait to find a partner before buying a property, but there is no guarantee as to when that will happen and in the meantime, prices are rising," she said.
Pidgeon disclosed she had provided City Sales with some legal advice in the past.
Dunn envisages parents with grown children as one client base.
The business will act as a buyers' agent, charging a 4 per cent plus GST commission on property purchases and 8.5 per cent + GST on property management income as well as outgoings.
He expects people to borrow about half the purchase price and pay around 6 per cent mortgage interest, "providing a small monthly positive surplus which will be distributed annually subject to bank permission."
He will offer clients Auckland suburban units built mainly during the 1960s and in groups of four to eight on average.
"I have viewed 1300 of these units in 23 suburbs of Auckland and tracked their growth back 10 years. That showed a compound annual growth rate of 10.22 per cent per annum," he said.
He will target areas where infrastructure change is underway, citing new motorway works, ferry connections and transport changes.
"The purchasers will share the buy fee of $24,000 plus a co-investor contract fee of $2000 each plus GST," he said.
"I believe I can buy better than any layman as all the agents know me and know that when I get paid, they get paid. I have a waiting network. I hope to initially reach 10 purchases a month within six months and to grow from there."
Dunn has no offer document, saying that he was acting under the Real Estate Agents Act, not the Financial Markets Conduct Act or the Financial Advisers Act which meant no offer document was needed.
Dan Jones, a Russell McVeagh partner, had met the authority which Dunn said had set up a special committee to oversee the proposal and decided Dunn was acting under the Real Estate Agents Act.
The new scheme was not a syndicate, partnership or a fund, "simply people getting together, often family members, to jointly get on the property ladder", Dunn said.
Bindi Norwell, Real Estate Institute chief executive, said: "People should undertake appropriate due diligence which at a minimum should include legal and financial advice. It is important that potential investors understand all of the current and future costs involved. Additionally, they should also seek to understand the level of risk they are taking on and ensure they are comfortable with that risk."
Others in the sector were concerned about the joining fee and how people would go about selling such properties.