Location, location, location

If you’re buying a rental property you might want to know where the best rents can be found. Or the suburbs where rents are rising fastest.

There are of course rental properties in every suburb, and some investors like to buy homes near where they live or that they would like to live in themselves. But if you’re buying on the numbers, the suburb you live in — or for that matter the city — may not be the answer.

Looking at the numbers, such as the percentage rent increase, can help make or break a case for a suburb. In the past year, for example, rents have increased by 15 to 20 per cent in four of Auckland’s suburbs according to QV’s rental analysis figures, but fallen by more than 9 per cent in two suburbs. The rest lie somewhere between.

The annual rent change doesn’t automatically mean the returns on a property investment are above average. It might simply be the suburb in question lagged behind previously. Past increases are no guarantee of future increases. It could be that same suburb that becomes the biggest loser next year.

What’s more, while Grey Lynn/ Arch Hill, for example, had the highest annual rent change over the past 12 months of 20.7 per cent, that figure is for all properties. Four bedroom homes in Grey Lynn/ Arch Hill dropped in rent by 2.7 per cent over the same period, two bedroom homes grew by 2.9 per cent and one bedroom flats by 10.8 per cent.

There can be many factors behind these changes, from supply and demand to new employment opportunities or a lack of employment in the area.

Another important figure to look at when choosing an investment property is the rental yield. That’s the median rent as a percentage of the median value. The higher the rental yield the better the return on investment.

The top five yielding suburbs in Auckland over the past year were Central West, Central East, Newton/ Grafton, Eden Terrace and Harbourside, which all contain many apartments. That can skew the figures. Factors such as leasehold tenure can affect capital gain, body corporate fees can make them expensive to run, or there can be huge bills for leaky building repairs.

Top yielding suburbs for houses rather than apartments are traditional rental areas: Otahuhu, Penrose/ Mt Wellington South, Glen Innes/ Pt England, Avondale and Panmure.

Gross rental yield is before costs such as insurance, rates and maintenance. With mortgage interest rates sitting in the high fives and gross yields topping only 5 per cent in two suburbs of Auckland, the numbers don’t add up for making a profit from rent alone.

The worst yields in four suburbs in Auckland now have rental yields of below 2 per cent. They are Herne Bay/ St Marys Bay Remuera, Mt Eden and Epsom.

Property investors aren’t restricted to Auckland and can find yields above 6 per cent in some other parts of the country.