For a typical couple approaching there 50s, getting into an investment property could mean another $800,000 in retirement(in this example). That is considering a property of around $700k with around $650 per week rent. Long term capital gain in NZ has been 6.1% across all properties. However this can be different with different towns and types of houses.
A typical investment property can cost around $350 – $500 per week to hold, this includes costs such as
- Maintenance $2k-$4k pa
- Rates $3k pa
- Insurance $2k-$3k pa
- Interest or repayments
How do I make it more affordable?
Interest only might feel like kicking the can down the road, however consider that rents are subject to inflation. If this helps you hold a property for longer, it is worth considering. Typically banks will give you a 5 year interest only period, this can be extending with a full application. We have clients that refinance and get another five years, this is a good strategy if you have other debt to pay off first, like the debt on your home.
Spending some money on a cosmetic do up or adding another room can make the gross yield look better from the get go. This is a great strategy as well to kick start the investment as it may attract a greater choice in tenants. Important not to overcapitalize here though, remember its an investment and some things might see heavy use and may need to replaced.
Extending the term on your own home loan can mean additional interest costs in the long run. But can still prove worth it if it enables more comfort in cashflow. As the longer hold you property the more likely you have done well with it.
