NZ Property Investor magazine of March 2018 brings us the story of an Upper Hutt couple who worked towards buying three rental properties (interestingly, all three are within 200 metres of their home). They were runners-up in the 2017 Landlord of the Year Award. Geoff Walsh takes care of maintenance; wife Dana does accounts and finance.
It was 2010 when they looked at investing in rental property. Geoff had a superannuation payout after giving 20 years of military service. The lump sum allowed them to pay off their home mortgage. The couple said they chose their rental properties by putting themselves in the shoes of a renter and asking ‘What would I look for?’
Their first house was bought during a lull in the market in 2010 for $300,000. Each property was given three essential upgrades: heat pumps, painting, and improved insulation. The result: appreciative, cooperative, long-term tenants.
The couple have worked towards having $600,000 of equity available, partly through changing banks, getting better lending rates and in their words, “knocking ten years off the mortgage.”
The couple gain expertise by being active members of their local property investors federation. By benefiting from revolving credit to maximise their investment property income and minimise bank fees, Geoff is hoping to retire at 60.
What the numbers look like
One of their properties in Totara Park, Upper Hutt was bought in 2014 for $320,000, rented at first for $380 per week. The couple then maximised value in the property by bumping rent up to $455 per week, which is a few dollars above the current Totara Park area median of $447. The market value recently moved up to $450,000. Their net yield is nearly 7.4%.
How to work out your rental yield
As investors, we’re all looking for large capital gains, a strong rental return and low management and maintenance costs.
Rental yield means a measure of how much cash an asset produces each year as a percentage of that asset’s value. For property, the yield calculation is the percentage of rental income for the purchase price.
Gross rental yield is most commonly cited because it is simple to calculate and lets investors compare properties with different values and rental returns easily.
Gross rental yield = Annual rental income / property value x 100
For example, a Whangarei home producing $20,000 of rental income across 52 weeks, divided by a property value of say $400,000 equals a 5% annual return on investment.
Gross rental yield doesn’t take expenses into account, so those using this equation may wish to subtract expenses from the annual rental income.
Rentals.co works with landlords to help ensure the money spent on a property results in being able to command a higher rent from long-term tenants, due to reinvesting value in a property.
Get in touch with us today to look at a solid, reliable investment which will grow in value year on year, giving you excellent equity when you need another mortgage for that second rental property.