Wellington rental property management experts

To Rent Out, Or Not To Rent Out, Is That The Question?

The media has been full of property issues in NZ lately – high buyer demand, escalating prices & values, the crazy Auckland market, landlords vs tenant issues, record low interest rates… Perhaps you’ve been toying with the idea of investing in rental property and you’re a little confused?  Is this the way to go?                                 

rental confusion sign

Let’s look at some facts:

Property has relatively consistent value.  People will always need somewhere to live.  Whilst how they live may change, e.g. apartment living vs houses or units, housing is a basic necessity and therefore a stable demand. Immigration to NZ is continually increasing, therefore an increase in the demand for housing is a natural consequence – according to Statistics NZ the annual net gain of migrants was a record-high of 56,800 in the April 2015 year, well up from 34,400 in the April 2014 year.

Other benefits of property investment are:

  1. Making money on your property when you rent it out, with the result of enjoying a regular cash flow.
  2. You have a higher level of control than most other types of investment  because you can make physical adaptations to your property that will increase the value, contrasted with shares where it is likely you will have little, or no control, over the value of your investment.
  3. This form of investment is somewhat unique because there is no set maturity date like with term deposits, bonds and even shares since companies will seldom remain publicly listed for the length of time property will last for.
  4. There is a benefit in that it provides a sense of pride.  It’s something physical you can enjoy owning.
  5. Real estate is an ‘inefficient market’ which means not every potential buyer has the same knowledge, e.g. you may know drawbacks and benefits of an area better than others, having spent time there. In comparison, other investments such as shares, have a far more level playing-field where all relevant information is publicly released, with many rules and regulations around that.

Trade Me Property shows that, excluding Auckland, property prices have increased 25.1% in the past five years. 

FreeDigitalPhotos.net – Stuart Miles

FreeDigitalPhotos.net – Stuart Miles

According to the Head of Trade Me Property; Nigel Jeffries, the property market continues to strengthen across the country.  "Wellington’s average asking price is rising year-on-year to a new record high of $468,300, and adding value of $23,850 over the past 12 months."

At present Wellington houses are selling well over ratable value and in some cases almost doubling their worth.  Real estate agents are saying there is no sign the market will slow in the near future, meaning house prices are headed to rise even more.  With new property laws taking effect in Auckland, investors are inevitably heading to other regions, including Wellington.  When there’s an increase in demand, prices can only go one way…up. 

Trade Me’s records show increasing value and that the property market has been robust over the last 5 years. 

“The Wellington housing market is witnessing solid growth with new records for each house size. Large houses saw more than $100,000 added to their average asking prices over the past year, breaking through $800,000 for the first time,” Mr Jeffries said.

The percentage increase by area in Wellington in the past year, as reported in QV House Price Index are:

AREAAVERAGE VALUE
FEB 2016
AVERAGE VALUE
FEB 2015
CHANGE IN VALUE
- Wellington City$584,306$545,8307.0% ⬆
- Wellington - West$675,068$617,6829.3% ⬆
- Wellington - North$515,747$480,1247.4% ⬆
- Wellington - East$637,872$591,8787.8% ⬆
- Wellington - Central & South $586,012 $555,523 5.5% ⬆
- Lower Hutt city$390,967 $374,157 4.5% ⬆
- Upper Hutt city$348,819 $335,9183.8% ⬆
- Porirua city$403,647$378,330 6.7% ⬆

Something you may not have considered is downsizing for yourself and turning your larger home into a rental.  Once the children have left home it can be a good time to reduce the clutter as well as all the required cleaning/maintenance and acknowledge that some parts of the house are never even visited! Your house may have become too large for your budget and it could be a good time to consider moving to an area that better suits your desired lifestyle.

Free Vector Graphics by Vecteezy

Free Vector Graphics by Vecteezy

Or it’s a good idea to buy a simple house in the outer suburbs of Wellington where there is good transport and infrastructure already in place, without paying an arm and a leg. The house may be something you can do minor improvements to, so as to ready it for rental, without investing too much in alterations, or maintenance. There are relatively inexpensive ways you can increase the right house’s value.  You don’t want to overspend on improving a property, but rather aim for a result that allows you to maximise your income, whilst attracting the right kind of tenants.

Just remember it’s recommended that if you have bought a property as an investment after 1 October 2015, or are yet to buy, that you rent it out for at least two years so as to avoid having to pay Capital Gains Tax.

For people looking to rent, prices are moving up faster than inflation.  For some, city living is no longer affordable, especially where wages are not growing at the same rate as rents.  This means renters are having to move out of the city, or else move into housing with multiple flatmates.  Rental properties are increasingly hard to get into, especially for students, so providing Rent-By-The-Room housing is a great option for some people!  There are ways you can alter a house to provide extra bedrooms with shared living areas, thus providing up to 30% greater rental return to the landlord.  Admittedly this calls for more expertise and time in finding and managing compatible tenants etc., but that is where a reliable property manager with Rent-By-The-Room experience like Dominion Property Management is invaluable!

In my opinion Rent-By-The-Room living is a much superior option to living beyond your means, or as Peter Berkowitz does – in his apartment squatting wooden box pod (8 feet long by 4.5 feet high)!                                                                                                

If you want to hear Rent-By-The-Room success stories, or find out how it’s done, you could contact Steven Goodey of Property Tutors Wellington.  

You can apply here to win a FREE pass to attend a full day Property Masters property investment seminar, to be held in Wellington on 15 May 2016.                        

Investing in property just might be the right way to go.  Happy house hunting.

And remember, if you don’t want to manage your rental but want the return, the team at Dominion Property Management can take care of that for you!