Despite current housing issues in New Zealand, residential property investment remains a popular option for people looking to secure their financial futures.
The most important calculation in Property investment is what return your property will give you, in other words its “yield”, which measures the future income stream of an investment.
An investment Property’s “yield” measures the property’s income earning potential on an annual basis and does not relate to the capital gain of a property. Yield is usually calculated by multiplying the annual weekly rent by 52 (weeks of the year) and then dividing this number by the purchase price.
For example, if a property cost $300,000 and was expected to be rented for $350 a week:
$350 x 52 = $18,200 / 300,000 = .0606 or 6.1%.
6.1 % is the yield for this property.
Of course this number does not take into consideration insurance, maintenance, property management fees, rates etc. However, it is a useful measure to compare the different investment properties you may be considering.
Once you have an acceptable “yield”, you can then take a closer look at the cash flow forecast and any potential risks. Some investors like to buy houses with a low yield but which are capable of improving. This can increase the property’s capital gain and allow them to increase rents and therefore increase the yield.
If you are considering investing in housing in the Tauranga, Mount Maunganui and Papamoa area, you would be wise to read the ANZ Monthly Property focus for housing trends and data. This monthly publication provides an independent appraisal of property market developments such as housing trends, interest rates, and the demand Vs supply of housing in New Zealand.
Housing affordability figures are also released in The Regional Economic Activity Report 2014, published by the Ministry of Business, Innovation and Employment.
Other interesting sites to check before buying your property are the Real Estate NZ website, which publishes a monthly Property Report, and the Real Estate Institute of New Zealand (REINZ), which also releases a monthly Residential Market Report.
Current data suggests that if you are in a financial position to purchase an investment property in the Bay of Plenty – you will have an easy job of finding suitable tenants for your property. This is due to a housing supply shortage and the fact that most renters are currently unable to afford to buy a home.
Once you purchase an investment property, call Connect Realty Property Managers for your free rent appraisal and Property Management service. We have many tenants looking for quality homes to rent in the Tauranga, Mount Maunganui and Papamoa areas.