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I guess you could call me a cautious investor. As a woman, I’ve always worried about my finances and – with the words of my parents ringing heavily in my ears – having enough for a comfortable retirement and not having to greatly rely on Government superannuation.
Several years ago, I started working with a financial advisor to help me become more money-savvy and plan for my future, but one day whilst on holiday in central Otago I saw a house advertised for sale and just a few days later, the owners had agreed to sell me their two-bedroom cottage.
It sounds impulsive but actually I’d done quite a lot of groundwork prior. Realising that on a single income I couldn’t just save my way to a comfortable future lifestyle – especially with interest rates on savings being dire - I’d done quite a lot of research into investment options, including reading books and columns, and attending seminars on buying commercial and residential property. In the end, I decided on a residential property strategy as part of my overall mix of investments, and just like my Kiwisaver, I’m in it for the long haul. I’m like most “mum-and-dad investors” or would-be first home buyers that make up 75% of the rental market; I’ve worked and saved over the years to own one rental property – an asset I can sell later or continue to rent to give me some additional income in later years.
Let me be clear: I’m no speculator. I’ve gone into this as responsibly as I can. I’ve spent money making sure that the home is warm and dry and comfortable for my tenants and doing regular proactive maintenance. The weekly rental rate of $480 has stayed the same since I purchased the property, despite costs such as rates and insurance increasing, in line with market demand in that area. Last year I cut the rent in half for the tenants over the lockdowns, due to their difficult circumstances.
So, is it turning a profit? Not currently. At the moment, I’m topping up the mortgage as the rent doesn’t quite cover the expenses. Yes, the expectation is that the home will eventually increase in value but being a small town in an area affected by the loss of tourists, it’s somewhat immune to the house price increases of much larger centres at the moment. It’s also worth pointing out that expected gain over time and low interest rates does not equal more dollars in my bank account right now. But I consider myself fortunate as I have fantastic tenants who love the property as much as I do and really look after it.
When the government housing package was announced last week, it did take me by surprise. Personally, I think the measures will do little to alleviate housing supply and will have a negligible effect on investors like me whose strategy is to buy and hold for a lengthy period. The Brightline change won’t really affect me. The removal of interest deductions is more perplexing because it’s a legitimate cost of running a business – it’s not clear why other businesses will be able to claim this but not landlords. And it will have an impact: I’ve crunched the numbers and estimate once fully phased in, it’ll cost me around $5000 per year, not an insignificant amount for someone on a single income.
Politics aside though, I’m refusing to panic. As a business, I need to have the right strategy in place and enough cashflow to see me through the changes. Where that cashflow comes from, I’m not entirely sure as yet, but right off the bat, I’m not planning on putting the rent up. Firstly, the rental market in this area is still suffering as a result of COVID-19 and it doesn’t seem feasible to raise prices, and certainly not to the level required to recoup lost income. Secondly, my tenants are not to blame for Government policy and it simply doesn’t sit well with me to expect them to pay the price for these changes.
In any case, I’ve got four years to work this out. Co-incidentally, I’m planning to put the rent up by $10 per week soon, but it’s not because of the proposed changes. It’s because I’ve held the rent at the same price for a number of years, while running costs have increased across the board.
Given all the ups and downs over the last few years, has my enthusiasm for property investment been dented? I’d have to say no but it does make residential property look a lot riskier, and no doubt my financial adviser will be hearing from me! In the meantime, I’ve gratefully signed the same tenants to another term.