If you’re someone who loves property, loves investment and loves to be in the know, now might be a good time to get a little more educated on the importance of the median rental prices. The median rental rates can give you a really good understanding of the price of property in a certain area and how it has changed over a significant period of time.
It’s effectively the midway point on the spectrum of rental prices. So, it’s calculated by finding the halfway point between the highest rental price and the lowest rental price and then you end up with the median, or middle, amount. For example, if there were 101 rental properties in the country that were looked at over a month you would find the rental price that has 50 rental prices above the middle number and 50 rental prices below the middle number.
In Auckland where there’s a lot of housing demand, median rental prices are much higher than the rest of New Zealand. Median rental prices around Christchurch are slowly dropping now the housing shortage caused by the 2011 Canterbury earthquakes are being replenished.
Now you understand that it’s also important to understand rental yields and how much you can get back from your property. In simple terms, it’s the measure of the amount of money your rental property produces each year. Essentially what’s left over after mortgage repayments, rates, and maintenance so, you can see how much money you’ll make off the property as rental income.
Your yield is likely to be higher in cheaper areas, but this must be balanced against the cost of maintenance and tenant quality. So, if you have the time and money to be hands on with your investment, you might benefit. But, if you are retiring or still working, you need to think about whether you have the time and energy to take care of your investment yourself. It is especially important if you own several properties as it can be a lot of work to keep them all maintained at once.
When it comes to buying an investment property, you also need to consider the risks of borrowing money to buy investment rental properties. It is generally harder to borrow money for a rental property as some lenders may have lower lending limits. What lenders will look at is whether or not you can afford to repay what you borrow.Read more: How to Maximise the Rental Return on Your Property
So how do median rental prices affect you? If they increase, you benefit because you still owe the same amount of money on your mortgage but you have more cash left over from rent to pay off your debt and reduce the interest. If median rental prices drop you still have to pay back what you owe but you might not get as much in rent as you normally would, which could leave you out of pocket.
It’s important to note the median rental price is a guide for any area and may not affect your property specifically. It gives both you and prospective tenants an idea of what can be charged, and what the market is doing.
Download our A-Z guide is a handy guide to help you navigate the property investment world, and make buying, leasing, and selling homes that much easier:
