in your best interests
As you’ve no doubt spotted, buying your first home in Wellington is becoming harder and harder to achieve. So why not buy an investment property in the provinces instead?
They’re cheap (well, a lot cheaper than in Wellington) and you get a tenant who covers most of your mortgage payments. Couldn’t be more straightforward!
Well, maybe...However, there are a few things that need to be added into the mix before you leap into purchasing your first rental.
Let’s use Upper Hutt as an example. The average house price in July 2017 in Upper Hutt was $448,000 (or thereabouts). Across Wellington the average house price in the same period was $747,000.
1.Deposits - You Need 40% for an Investment Property
That’s the cold, hard truth at this point in time. If we look at the average property in Upper Hutt as our example you would need a deposit of $179,000 to meet the 40% deposit criteria. How many first home buyers have a deposit of $179k?!...Not many I can tell you. Realistically the deposit for a first homebuyer is more likely to be $40-80k, with a few stretching just over $100k. Achieving a whopping deposit of $179k when you are just starting out is not common at all.
If you had managed to save up $179k (which would be impressive!) this would potentially allow you to buy an owner-occupied property in Wellington (where you probably work, live, socialise etc) up to a value of $895,000.
So the question would be - would you prefer a rental property valued at $448k or your own home valued at $895k?...
If you are buying a rental property you also need to consider that any KiwiSaver funds you have saved can’t be accessed for this purpose. The vast majority of first home buyers we see have a significant portion of their deposit in KiwiSaver funds, so achieving a $179k deposit excluding this part is as rare as hens teeth.
3.The Next Step
Assuming you do decide to purchase a rental property (using your $179k cash deposit) the question is then “where to from here?”.
If you ultimately want to purchase your own home to live in you will need to save up another 20% deposit to achieve this and/or rely on capital growth to create some equity.
Building equity on a $448k rental property in Upper Hutt could be a long process. However, if you had opted for the $895k home in Wellington, achieving capital growth of $179k (which would be enough equity to purchase the UH rental) is far more realistic.
You would still need to see 20% growth, but it’s worth bearing in mind we’ve seen 14% growth in the last 12 months across the city. Sure, this won’t continue forever, but capital growth on a more expensive property, in a more desirable area will always outstrip cheaper properties in less desirable areas.
So, if you see articles suggesting a rental property outside the main centres is the way to go, just remember not all is as straightforward as it initially looks!
If you've got plans, questions or just want to say g'day then click the button below now!
p-Labs Are Only In 'bad' areas of town - aren't they?
I think that’s what the residents of the up-market Chews Lane apartments in central Wellington thought too...P-Labs are no longer limited to lower socio-economic areas – they are cropping up all over the region and across the country.
“P” (or meth/methamphetamine) is relatively simple to manufacture, which has resulted in ‘labs’ appearing all over town. They can be set up temporarily, and quite cheaply, which makes their discovery very tricky.
Should you care if the property was a P-Lab?
Exposure to meth vapours or direct contact to the skin can result in:
Burning skin; stinging eyes; headaches; nausea; fatigue; respiratory issues; hair loss; kidney failure – to name a few!
If a “P” lab has been in place even for a few weeks that can be sufficient time to damage your property.
The cost of cleanup (or in some cases demolition) of the house can be very high, although some insurance companies will cover this loss. The process can take weeks or months, which can be a disaster if it is a rental property or if you have just purchased the property as your new/first home.
Loss of income insurance for landlords is therefore a must. Property owners looking to sell a rental would be advised to test for meth contamination before they list the house on the market to avoid any unexpected news. You do not want to discover that your recently listed property is contaminated as that will greatly reduce the sale price.
Even the smoking of crystal meth or meth powder mixed with other drugs can contaminate a house over time to the point that a home is uninhabitable.e to edit.
What Should You Look For?
If you own a rental property then ensure you make sure you conduct regular property inspections or get your property manager to send you reports following their inspections.
Keep an eye out for the tell-tale signs such as empty chemical containers, stained floors/walls or soil/concrete. Dying trees and shrubs may also be a sign.
Labs are often hidden in the ceiling/shed/basement so be thorough when conducting a house inspection. Look for extra air vents or extractor fans, new security systems and investigate unusual chemical smells like ammonia.
What To Do Next
If you think your property may have been used as a lab, or you are just not sure then get in the professionals. Testing is the only way to know for sure, and this needs to be done by trained/qualified experts. Do not attempt to clean up a ‘P-lab’ yourself as you will expose yourself to harmful contaminants – plus you will be wasting your time as ‘cleaning’ only hides the issue very temporarily.
Cleaning up a meth lab begins with comprehensive testing by approved and certified site investigators. Primary areas are the meth “cooking” area and meth-by-product disposal areas where walls, floors, ceilings, all electrical appliances and fittings, sinks, baths, toilets, extractor fans and ventilation systems will be heavily affected and may require partial demolition or substantial deconstruction before chemical decontamination of the remaining structure. Less affected areas of contamination further away may require less invasive remediation programmes.
A properly equipped and trained hazardous material company must do the cleanup of a meth lab. Do not attempt this yourself. There are numerous horror stories from those whose health and safety has been seriously compromised. When completed, tests to ensure that the home is safe for future residents are performed. If the tests are not below Ministry of
Health guidelines, then further decontamination work is conducted until the tests all pass.
Only then should tradespersons be admitted into the newly “safe” house to begin the jobs of rebuilding, rewiring, refitting and redecorating and commercially cleaning the home.
What’s the Cost?
Testing may be around $300-400, but if it ensures you don’t purchase a contaminated property it is definitely money well spent. If you do have a contaminated house then the costs incurred will be dependent on the severity, which can vary considerably. If you need to replace walls, ceilings, wiring etc then clearly this can be a very expensive exercise.
Check with your insurance company if they will provide cover for the repairs. Ideally test first though before you buy.
Who To Contact
There are numerous companies that can assist should you have any concerns about your current/prospective property. For a Wellington based property you may want to contact:
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