Spring 2020

I’m not that different to most Kiwis – I want to retire well. And I bet you do, too.

When I give up work, I don’t want to be that person who won’t go to a café for a coffee. I don’t want to have stay at home and boil the jug for an instant coffee.

I don’t want to recycle tea bags.

I want to be able to afford to put my heat pump on, and not have to sit in bed all day because it’s too cold to stay in my house.

We forget, you know, those of us who work in an office, that when we come to work, it’s all nice and warm.

But when you’re retired, you’re mainly staying at home and you might have an old, cold house.

Your power bills are probably going to be higher because you’re home all day, and you might feel you have to economise.

I’m fortunate that I was raised in a family of experts in property investment, and I’ve invested in property myself.

For many Kiwis, property can be a way to create a financial buffer, and we’ve just seen that sometimes you urgently need one.

Owning a rental property as you start to approach retirement gives you options.

The share market does give you a good return, but you could also lose – it could go down. I find that property doesn’t tend to go down as dramatically, and it doesn’t matter that it dips, until you sell it.

When is right to buy?

I wouldn’t suggest buying an investment if you’re only a couple of years into your first mortgage. I’d wait until you’d knocked off a bit off the mortgage, but not all of it.

If you wait till you’ve paid it off, it will have taken another 10 years, and house prices will have gone up again.

I think you have to look at your personal circumstances. Ask yourself, ‘If I’m earning a good income, where am I going to put my money?

‘Yes, I might put it into KiwiSaver, but I can’t get that until I’m 65, and there are some restrictions around that.

‘What if I get to 55 and think, I want to retire? What if I get made redundant?’

If you’re in a pandemic and you lose your job, at least you have something to sell.

In a crisis, people who have a rental property don’t have to sell their family home, but they could sell their rental, use the balance to pay off their mortgage and still have some change.

Using leverage

The good thing about rental property is that you can use leverage (borrowings) to buy. You don’t even have to have a deposit if you’ve got enough equity and meet the bank’s criteria.

You might have to top it up a little bit initially, and spend some money bringing the house up to Healthy Homes standards, but over time the rents will keep going up – and since 2010, interest rates have been going down.

And the price of your house is likely to have gone up, so if you bought something 10 years ago for half a million, you’ll likely find it’s now worth a million.

Your mortgage might be $300,000, so if you sell it, you’re going to do okay.

In fact, you don’t even have to sell it. You could just earn an income from it.

You could be getting $700 a week in rent and only paying 2.5 per cent in interest, so you’re actually making money from it.

When is too late?

People wonder when it’s too late to buy a property. Remember, people now live to 80 or 85. My generation could live to 100, so in your fifties you’re only halfway through your life.

I think it’s good for people to have investments in different baskets, but with property I’d say you only need to own your own and one other house.

I know from the people we work with in property management that you don’t need multiple properties – unless that’s your goal.

If you can recycle the equity in your current property and borrow some money from the bank, you may not even have to pay a deposit.

And you can always do up properties. There’s always something you can add value to if you have time, and you’re good with your hands.

If you want to own a rental property in New Zealand, and you already own a house, have a good deposit or a good income (and the bank likes you), I’d say it’s possible.

The barriers

Finance. The property market is a function of the finance capacity; if people can’t get loans it goes down, if they can get loans, it goes up.

Being risk-averse. If you couldn’t sleep at night with an interest-only loans, rental property is probably not for you.

If you can’t handle the tenants. Some people worry about the tenants, because they’ve heard only the bad stories and if the tenant didn’t pay rent, they couldn’t confront them. That’s the reason lots of people use property managers.

It’s a business. Effectively, owning a property is a business and it’s a risk. Not everyone has the appetite to do it.

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