Most of us kiwis think that a decent retirement is miles off and only possible with a bunch of spreadsheets and ten houses. What if all you needed was two investment properties to get a $2m boost in retirement. Lets take an example that would be possible for a NZ family, lets look at the fruits along with the pain and the assumptions.
The starting point
We will use some inflation on rent and expenses, plus a long term capital gain of 6.10% pa (long term average in NZ used widely). We will assume this couple already have a home with enough equity to borrow 100% of the first investment purchase. Assuming the first property is bought today for $800k and the second property is bought $600k, five years from now.
It is possible that the value increase in the next five years between the home and the first investment enables enough equity to buy the second investment without a deposit(100% geared).
The fruits
Surprisingly in this example after 23 years of average capital gains, the increase in equity just across two investment houses would be approx $2.4 m.
Obviously the property market does not deliver consistent growth over the short term. Although over the long term the average growth looks impressive with the power of compounding. The actual gain can be different based on where you buy and what you buy. Not all properties are the same. Apartments for example might deliver subdued gains when compared to a house and land.
The costs
Lets use some approximations of costs such as rates($3k-$3.5), insurance($2k) and maintenance($3k) for each property and assume that the couple took interest only for the first five years. Rent return we will use is $680 pw for the 1st investment ($800k purchase price) and $600 pw for the 2nd one ($600k purchase price). We are assuming the purchases would be outside of Auckland.
The pain point would be after the initial ten years where the holding cost would be $38,000 for the year. There are some things mortgage advisers can look at to soften this blow. One would be to look at stretching the home loan term for the main home or taking further interest only periods.
Safe path forward
We have some tools to give you some transparency around the future track for your own family. Feel free to book in a free no obligation chat. For add on forecasting tool we have some packages here https://mortgagesonline.co.nz/financial-mapping/ (be one of the first 100 and get this add on for free, when taking a home loan through our service)
