Property investing no ‘free ride’
This Nelson property investor is set for retirement but he tells Carly Gooch there is a lot of work and money involved in being a landlord.
Riding the sharemarket was Harry Pearson’s investment scheme the moment he began working in his teens but continuous recessions motivated him to diversify his investments, adding property to his repertoire.
The self-employed Nelson man has built up a portfolio of five properties in the Nelson region over the past 12 years, including his own home. But property investment was ‘‘not a free-ride’’, short-term moneymaker, he said. His cashflow ‘‘flatlines or negatives’’, he said, having to top up the mortgages.
‘‘I have generally found that the only real upside of property investment is the capital gain, if it was not for that it would not be worth doing.’’
He said, to break it down, spending $600,000 on a threebedroom house with a 3 per cent interest rate would cost about $350 a week in interest only. ‘‘Add rates, insurance, maintenance, legal fees and property management; the total cost per week to own it is about $580. If you have got tenants paying less than $600, you are not going anywhere.’’
To keep costs down, Pearson looks after most of the rentals himself. He said calling a tradesman every time something was leaking or not working could get ‘‘pretty expensive’’; the key was being ‘‘hands on and practical’’.
Pearson, in his late 50s, fits the bill when it comes to the demographic of property investors. The properties were his retirement plan, a ‘‘backup option’’ if he needed to support himself, he said.
Bayleys Nelson Tasman managing director Graeme Vining said that primarily retirees or laterin-life investors wanting a superannuation plan were ‘‘coming out of super funds and directly investing’’. And he said that with residential investments yielding 4-5 per cent in Nelson, coupled with long-term capital gain, buying property was a ‘‘no-brainer’’.
But in recent years, regulations around rentals have made investing a little more costly for landlords.
In July 2019, it became compulsory for all rental homes to have ceiling and floor insulation. In March 2018, the final step of the bright line test was established, seeing any property investors buying after this date and selling within five years, possibly slammed with income tax on any gains.
Vining said the regulations around healthy homes and insulation were pushing investors to buy new homes, avoiding pouring money into a home to make it rentready. ‘‘That is putting more demand on newer, modern homes and new builds and recent builds.’’
The most recent change to tenancy law will put a stop to 90-day no-cause evictions and renters will be allowed three separate incidents before landlords can take them to the Tenancy Tribunal. Pearson said the new rule would mean property owners would need to be ‘‘extremely careful’’ with whom they got as tenants. ‘‘I have only ever sold one rental property and that was because it was really hard to get suitable tenants – tenants kept changing, problems with police and neighbours. It was too hard, so I just sold it.’’ He said while there were always opportunities to invest in property that would make money long term, he had not seriously looked for the past few years.
CoreLogic research analyst Kelvin Davidson said the current trend for Nelson was towards first home buyers, with the town being ‘‘more of an owner-occupier market’’. Nelson bucked the trend.
‘‘In the last quarter, in the three months to June, mortgaged investors had a 24 per cent market share in Nelson which has not really changed from the past two or three years.
‘‘First home buyers also had a 24 per cent share but if you go back five years, that figure was only 15 per cent,’’ Davidson said.
And this is supported by Vining who said first home buyers were having an effect on investors, pushing them into the next level price bracket.
‘‘The KiwiSaver scheme of supporting investment up to $500,000 has moved that lower end market, so ... the first home buyer has moved the market up to a $500,000 limit max. Investors now have to invest over that level to get value.’’
And while the record-low interest rates may make it easier to maintain a mortgage, Vining said that had contributed to pushing property values up by 10 per cent in the past 12 months. ‘‘If you are a first home buyer, it is a negative effect because it puts the price up. If you are selling your home to get out and move on, then you know there are buyers there, so really it is just supply and demand at the moment.’’
There was ‘‘no supply and plenty of demand from both occupiers and investors’’, he said.
Meanwhile Pearson is happy to sit on his rentals which he did up to make them comfortable for tenants.
‘‘It is a lot easier to buy a new house – less maintenance – but your upfront costs are so high ... you will never get enough rent to cover the cost of a brand new home.’’
His advice to potential property investors was to join a property investors association, do your research and ‘‘create a home’’ for tenants so they were more likely to stay.