Best Places To Buy Rental Properties In New Zealand

Summary of Rental Property in New Zealand

• Where to buy rental properties in NZ

• What to consider before buying a rental property in NZ

• What is Rental Yield?

• New Changes in the Tenancy Law 2020

If you’re looking to improve your financial situation this year, it might be time to consider investing in a rental property that can provide you with income and capital gains in the long run.

Despite the increase in house prices in NZ, more Kiwis are keen on buying investment properties because of low-interest rates that are offered by lenders and mortgages in the country. Given that buyers have been tenants themselves, they already have an idea of how much profit rentals can yield. So, if you have a few hundred thousand dollars in your savings and would like to take a few steps further into increasing your income, purchasing a rental property might give you the financial security that you need. 

Where to buy rental properties in NZ 

Properties across New Zealand cost from $350,000 to over a million depending on where the house is located. Auckland, being a world class city, has the most expensive residential properties with a median house price of $1,040,000 as of January 2021. Ideally, buying rental properties in Auckland could bring great profit down the road, but it’s quite an expense for a rental especially when you can also check out other properties in nearby cities. 

1. Tauranga

Tauranga is known to be the retirement capital of NZ because of its laid-back lifestyle and breathtaking scenery. It is made up of 20 suburbs, with Parkvale being the cheapest, at a median house price of $582,200.

Mount Maunganui earned a 7% increase in housing a year, and has an average house cost of over $1 million. Over the years, Tauranga City has improved their commercial and retail establishments in order to accommodate more residents. These brought an increase in population and have resulted in a surge of demand for rental properties in Tauranga, with an average rental yield of 4.4% for a three-bedroom rental costing $470 to $520 a week.

2. Hamilton 

There are various industries in Hamilton that attract investors into buying investment properties that will cater to workers in farmlands, freight and agricultural businesses, and which can yield promising rental profits through the years.

An average rent yield in all rental properties in Hamilton is 4.6%, with an average rent of $409 a week or around $21,000 per year. You can choose among property types like apartments, houses and townhouses, the latter being the most popular and profitable option, given that it’s the easiest one to maintain. 

3. Rotorua 

Rotorua is among the most sought-after places where you can buy a property simply because it’s a major tourist destination not just by travelers from abroad but also travelers from Auckland and neighbouring cities. According to REINZ, rental properties in Rotorua gained yields between 5% to 7% at the end of last year.

Interested buyers, mostly from Auckland, can expect around $360,000 for a three-bedroom house with a median rent of $485 to $489 a week. 

4. Greater Wellington

The Wellington region offers beautiful locations individuals can enjoy while staying at rental houses which cost around $500 to $600 per week depending on your chosen type of property. Residential houses have an average price of $685,000 which remains to be fairly cheaper than in some parts of the country.

Rental yield in the last two years ranges between 3.8% and 5% based on the location of rental properties in Wellington. 

5. Christchurch 

Choosing rental properties in Christchurch can yield a 5% to 6% in the Selwyn and Waimakariri areas. Improvements here are much more apparent, plus the job opportunities drive a significant number of people to move into the region.

In the recent price index by CoreLogic, Christchurch properties have increased to $539,000 in 2020 with the median rent for a three or four-bedroom house of $450 per week. It’s still considered one of the cheapest rentals compared to Auckland. 

6. Invercargill

Invercargill is known for its wide city streets where you can freely walk to your destination and celebrate in the open space with your family and friends. It offers a one of a kind ambiance that exhibits Victorian and Edwardian art, and a vibrant nightlife to end the day.

In November 2020, REINZ recorded a median house price of $399,000 in rental properties in Invercargill. Rental cost can go from $372 to $480 weekly. 

7. Manawatu/Wanganui

House prices in this region are considerably lower than the rest of the places in the country with only $500,000-worth of residential property that can yield a good amount of profit upon leasing it out. Average rent for rental properties in and around Wanganui costs around $480 a week in Palmerston North; and $265 weekly in Ruapehu District. 

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What to consider before buying a rental property in NZ

Of course, you'll first need to weight the pros and cons before purchasing a property, especially when you’re buying with the intention of making a profit. Do your research and take note of these aspects first prior to getting the property. 

Location

Take a look at several areas in NZ that offer a strong demand for rental accommodation and properties that have potential for growth based on whether you’re getting for yield or capital gain. 

Price

Try to compare prices online and opt to buy a property that’s below market value. You can make improvements once you start renovating, which can yield a greater rate than others over time. 

Rental yield

Also consider the potential yield you can get in your rental. Rental or gross yield is a percentage of the potential income that you can get from you renting out the property sans the expenses you paid for repair and maintenance. Calculate your yearly income and divide it by purchase price of the property. 

Ex.

$650 a week ($33,800 of income per year), purchase price is $640,000 would have a yield of 5.3 percent (33,800/640,000).

Condition of the property

To save on your investment, remember to check for plumbing, electricity, and the condition of its roofing so you won’t encounter major problems along the way. Being a homeowner has its responsibilities, and so is becoming a landlord. When you plan to lease out your property, whether it’s to accommodate two or three individuals, refer to the Health and Safety at Work Act and the Asbestos Regulation. 

Asbestos in rental properties in NZ was quite common in the 80s. This was since banned as it was proven to cause serious health risks when inhaled. Check with your contractor to identify if there is asbestos content in your building, so it can be removed safely and start carrying on repairs if any.

Target tenant 

Find a location that have a few rental vacancies. Take advantage of the place and improve on features that can appeal to tenants like having a balcony, checking for an off-street parking, or maybe a double garage they can use for cars and storage. You should also decide on what kind of tenants you’re willing to rent. Are you open to accommodating families, students, or young professionals? This way, you will know how you can properly maintain the property and calculate your profit later on. 

New Changes in the Tenancy Law 2020

Starting August 2020, the new Tenancy Law shall govern tenants and landlords that provide significant changes to improve both living conditions in all parts of New Zealand. 

1. Rent can only be increased every 12 months.
2. Security to rental tenure where landlord’s are prohibited from evicting tenants without the prerequisite 90 days’ notice. 
3. Making minor changes to the rental property as requested by tenants to which landlords can’t refuse. Definition of minor changes are still up for debate.
4. No rental bidding. Rental prices are required to be listed first before landlords can invite potential tenants. 
5. Tenants are now allowed to install fibre broadband landlords should agree upon request. 
6. Assignment of tenancy agreement where landlords can’t refuse without just reason.

Read: Know Your Rental Rights With The New NZ Tenancy Law

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