Many young Kiwis are searching for the best ways to invest their money for a better and brighter future across New Zealand. For some people, investing in property provides a great way to earn additional income. However, the cost of real estate within high demand areas is often far too high for these young investors to afford. Cue the rise of what’s known as “rentvesting.”
Read on to learn what rentvesting is all about, how it works, and whether or not this option may be right for your New Zealand property investment strategy.
The basics on rentvesting
A post from the NZ Herald tells the story of Shane Richards, who lives in the upscale Mount Maunganui area. While he can’t afford to buy property here, he owns homes in other regions where the cost is much lower. He rents his Mount Maunganui home so he can enjoy all the amenities of the area while still benefiting from his income property elsewhere.
Global Property Guide’s 2015 housing data from the New Zealand real estate market sheds some light on the differences in pricing:
- 2015 Median Housing Price in New Zealand: $459,500 (NZ$)
- 2015 Median Housing Price in Auckland: $765,000
- 2015 Median Housing Price in Wellington: $435,000
- 2015 Median Housing Price in Manawatu/Wanganui: $228,000
Obviously, a lower-income investor living in Auckland would not be able to afford the steeper property prices the area demands. However, in many cases, an area just a few kilometres away opens up the market to much more affordable rental property opportunities. This is the exact “sweet spot” where many rentvesters have situated themselves.
The phenomenon of rentvesting has continued to rise in popularity in the New Zealand property market. By choosing to rent in one place while owning in another, prospective investors now have a real method to getting the best of both worlds.
Is rentvesting a smart choice?
Rentvesting may seem like a smart move for many younger people looking to get into the market. While there are many obvious advantages to this approach, does that mean it’s the right choice for you?
To determine the answer to this question, follow these tips:
- Make sure you can actually afford an investment property
A home or rental property in a less expensive area will obviously cost less to buy, but that does not necessarily mean you can afford it! Take some time to really break down your budget. Get an understanding of what you can expect for a mortgage payment and whether or not your rental income will cover it. You should only opt to buy an investment property if you have the funds to cover this added expense (and the rental stability to offset it).
- Do your due diligence
Your “due diligence” in this circumstance refers directly to research. Take the necessary time to do sufficient research on the area where you may buy your rental property. What do real estate trends look like? Will the investment give you the growth and returns you need to make it worthwhile? Learn as much as you can before you sign on any dotted lines.
- Consult with the pros.
Finally, you need to speak with professionals who can provide you with honest information and feedback about your decision. Even just one consultation with a financial advisor can give you some perspective on the feasibility of your decision. Additionally, you’ll likely want to work with a property management company to handle your rental if you’re living in another city. Get the professional help you need from start-to-finish to ensure this is a good idea for you.
Welcome to the New Zealand real estate market
Rentvesting in New Zealand bridges the gap between the dream to own your own property and the desire to live in more in-demand cities and neighbourhoods. As long as you take the time to understand all the pros and cons of rentvesting, this could provide you with a wonderful method to get started within the property investing market.
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