Kiwis keen on ‘rentvesting’
Long-term renting may be the only option for an increasing number of people living in our less affordable cities – but increasingly it is also a chosen option.
As house prices soar, many people are thinking outside the square in terms of property ownership, and looking at other ways to secure a property for retirement.
Buying a property in another town or city, like the South Waikato, has become an increasingly popular option.
Renting out such a property means it could be fully freeholded by the time you retire –a move now commonly referred to as ‘‘rentvesting’’.
Mark Collins, chief executive, of Mike Pero Mortgages, says this is not about property investment for capital gain, which could be subject to a capital gains tax.
Rather, it’s about buying a property for retirement, or for use as a family holiday home.
‘‘Buying outside the big cities means you are vulnerable to regional changes. Up until about two years ago, when the halo effect started happening in towns outside of Auckland, some of the regions were going backwards when you adjusted for inflation – up to 13 per cent in some cases. The yields, around three to four per cent, are also not great. If you were simply looking for capital gain, you would need to assess such a property investment against all other types.
‘‘But this is not the best use of rentvesting. It’s more about planning for retirement 10 to 15 or more years out – securing a placeholder at today’s prices, rather than the price that house will be in 20 years’ time.’’
Collins himself provides the perfect example. ‘‘We moved to Auckland for work but there is no way we can afford to buy a house in the area where we want to live. So we are content to rent a property in the area and send the children to the schools we prefer, while keeping our home in Rotorua.’’
The Rotorua property is rented as a holiday home, which helps cover costs. Other owners of such properties often rent them out on a more permanent basis, with the rent covering all costs.
‘‘In our business we are seeing an increase in the number of people doing this, especially Aucklanders. People think they will never get a foot on the property ladder, but they can buy a home elsewhere that will cost them half the price of a similar house in the market they are living in.’’
Collins says people may need to think about retirement a little earlier than in previous years, to safeguard against huge price rises.
Rentvesting is probably not an option for first-home buyers looking to use Kiwisaver funds, however, as the house would not be their principal place of residence. Collins also cautions that lending institutions will want to see an income that could cover potential interest rate rises.
The concept has gained plenty of traction in Australia, where rentvesting statistics show around one third of such purchasers are first-home buyers, according to a Mortgage Choice survey.
Buying in cheaper South Waikato towns and renting them out could be a may for first home buyers to get on the property market.