Better money use?
Question from Shelley updated on 4th April 2014:
Hi, I want to make better use of my money and I thought property might be a good investment. I have a house in Christchurch, which is tenanted, that I am about to sell. I live and rent in Wellington. I have a fair amount of disposable income as my mortgage on the Christchurch property is pretty much paid off (just $25,000 to go) and my salary is over $100,000. More money goes on tax each year. I'm not sure where to start looking though for an investment property and what constitutes a good buy. My aim eventually is to reduce my working week hours, get to retirement without a mortgage and have a nice home to live in with some money coming in from rental property to fund travel etc. Ideas on good investment returns would be appreciated or any good tips. I am new to this and I am wondering whether it is best to buy a house to live in and one to rent or to just buy two rental properties? Thanks.
Our expert Kris Pedersen responded:
Hi Shelley, start by considering what amount of income you want at retirement age and from there you should be able to work back to what asset base you need to provide this. In regards to what is a good investment return this very much depends on exactly where you are buying. Better areas generally tend to have lower returns, lower socio economic areas tend to have high returns however you may experience more stress from other factors like higher tenant turnover etc. Note also when calculating returns you are better to work off a net yield than a gross yield calculation. Net yield is annual rent minus rates, insurance, property management and maintenance divided by the purchase price whereas gross yield is just the annual rental divided by the purchase price.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz
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