Hi there,
I’m a 25-year old New Zealander who is about to get married in March 2011. My fiancee currently owns an apartment that she purchased for around $300k around 3 years ago. This apartment has had very little capital gain, but is in a fantastic location to make the most of any gains when the market picks up. However, it is an apartment so these will never be much.
The property is currently tenanted for around $300/wk, but should be getting between $350 – $500/wk for the location and specifications (2-bed apartment, very close to city centre and bus routes, fridge, oven, washing machine).The current Mortgage repayments are at $385 per week, with Body Corporate being $185 per month. Rates are $1,524.13 per year.
The question I have at the moment is whether we are better off renting this property out and renting ourselves, or whether we should live in this property?
Based on my calculations (which includes annual outgoings of $1,500 for maintenance, $500 for insurance, and I’ve estimated 8.44% or $2,374.94 for Property Management), we’d be needing $562.78 a week to break even. I haven’t taken in any tax benefits/depreciation repayments, etc into this equation.Obviously if we lived in the apartment ourselves, we wouldn’t have the Property Management costs and Maintenance is likely to be lower.
We have big dreams for investing in property and so are wanting to maximise the money we do have. Is it wise for us to live in this apartment or should we rent this out?
I look forward to hearing back!
Tim Muller
MullerGroup PropertyHi if this is correct “The property is currently tenanted for around $300/wk, but should be getting between $350 – $500/wk” then why is the rent $300 a week? If you were getting the full rental income i.e. above $350 then its a reasonable yield and I would keep it rented. As an investor I prefer to rent all my properties out and don’t O/Oc. Depends on your particular investing rules.
Thanks for the message Tony.
The property is currently being looked after by my fiancee's family trust. Her parents used a property manager who they use on another apartment of theirs. This property manager has been terrible and listed the property at $300/wk. I was really unhappy with this, but as it is currently looked after by my fiancee's parents (they are paying the negative cashflow), I am not yet in a position to comment. Utilising data from the New Zealand Department of Housing on Market Rents, it shows that we should be getting a minimum of $350 (based on real rents in the area).
What are the benefits of not owner occupying? If we had the apartment rented out at $350 per week, we would still need to pay a difference of say $210. Based on our requirements, I can't see us finding a place to rent for less than $350, so I can't see how renting would help us. However, we're really looking for the best way forward so we're very open to renting if that will get us ahead.
If we could find a place to rent at $300/wk and rented the apartment out at $350/wk, then I take it that would be a good option?
Appreciate any further advice.
>>as it is currently looked after by my fiancee’s parents (they are paying the negative cashflow), I am not yet in a position to comment<<
I guess if your fiance’s family is paying the difference then your doing ok. If you are not living in the property then you get tax benefits. perhaps speak with your accountant who can advise you on this.
>>If we could find a place to rent at $300/wk and rented the apartment out at $350/wk, then I take it that would be a good option?<<
You mentioned your fiances parents were paying the difference, that seems like a pretty good deal to me and I wouldn’t think of any reason to change this unless your worried about the possibility of the favour backfiring later on down the track.
My fiancee's parents will only be paying for the property until we get married. Once we get married, we'll be transferring the property from THEIR family trust into OUR company. We will then be paying any negative cashflow, but will also benefit from any eventual positive cashflow and capital gains.
If we lived in the apartment, we'd be up for approximately $560/wk (as outlined in my first message). Is this wasted money? What benefits are there to owner occupying vs. renting? While I don't LIKE the idea of paying someone else rent, if it's going to get us ahead, then we'll do it.
Living IN the apartment would allow us to renovate the apartment which could result in an increase in rent so there is definitely a bonus here (as well as the security of living in our own place and not having to pay someone else rent). However, if renting would get us ahead quicker, then we are open to this.
As a note – we're in a great position of being young and willing to sacrifice anything we need to to get ahead. While we'd love to live in our own apartment, if we need to rent in order to get ahead, then we will.
Are you aware that duty will be payable when you transfer the property? Personally if I was getting full rental income I would rent out. I would be happy to discuss further if you shoot me an email., also other Forum members might have some useful insight as well.
I’m not entirely sure whether duty is paid in New Zealand. I’m not sure what implications there would be in transferring the property. This is something I’ll have to have a chat to my accountant about. If any NZ forum members have any comments, that’d be helpful.
Thanks for your help Tony.
If anyone else has any thoughts or suggestions about our situation, we’d love to hear.
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