What’s on the market?
And how do the numbers stack up?
The market ran hot through 2021 with the ‘average’ price for a New Zealand property creeping up towards $1m. While many of us would like to explore investment property options, a lot of us don’t know where to start. Here we explore an advertised ‘live’ property so you can see how the numbers could stack up for you.
We are seeing a number of Aucklanders move out of the city, seeking more affordable housing and enhanced lifestyle. So to, a number of savvy investors chasing higher rental yields in places like Christchurch, Tauranga and Palmerston North.
The below property is a new build which provides some advantages like tax deductibility of the mortgage interest, discounted new build interest rates, Reserve Bank LVR exemption, reduced home maintenance costs and healthy home compliance benefits.
Note, equity can be used from an existing home to get around lending deposit requirements for some clients.
Example Property
Lot 3 Kennedys Green, Halswell, Christchurch City, Canterbury (trademe.co.nz)
Purchase Price $855,000 (possibly some haggle room there…)
Rental Income appraised $590 - $630pw (midpoint $610pw)
Assuming you apply a 10% deposit towards the purchase price of $855,000, and borrow the remaining 90%* ($769,500) on currently available new build interest rates (e.g. the ‘Back my Build’ Package currently at 2.29% - rate discounted for a 36m period), you would be looking at interest costs initially of $339 per week vs $610 per week rent (a $271+ surplus per week).
If you wished you could book in some longer-term certainty, perhaps a 24m fixed at 4.10% or a 36m fixed rate of 4.55%, where weekly interest cost would increase to $607 pw or $673 per week respectively.
*Pricing assumes ‘blended LVR’ less than 80% across owner occupied and rental.
Annual Income: $31,720
Annual Expenses (estimated):
Rates $2,500
Insurance $1,000
Maintenance $1,000
Interest $31,550 (based on 24m fixed rate)
Total Expenses: $36,050Annual surplus /deficit -$4,330
Weekly surplus/ deficit -$83.30
So in this example you would likely need to top up the investment by around $84 per week assuming the 24m fixed rate. Alternatively, the ‘Back my Build’ discount could be used to give you a head start with discounted interest cost – allowing you to pay the mortgage down during the discount period.
Note the above is for illustrative purposes – we are not recommending the above property as right for your situation (and indeed higher yielding properties are available) If you would like to review your investment options, you can try our Advice Knight Investment Calculator or sit down with us for a no obligation and no charge discussion.
Calculating a property’s yeild (how much return your rental property generates) is a common way to evaulate its return.
HOW DO I WORK OUT A RENTAL PROPERTY’S GROSS YEILD? ( ANNUAL RENT / PROPERTY PRICE ) X 100
If we take this Christchurch property as an example, the yeild would be: ($31,720 / $855,000) X 100 = 3.71%
Net yeild deducts the operating expenses such as tax, rates and insurance and will give a clearer picture of return.