Property Management

Rental Gains not all they Seem

Rental property is sometimes an excellent investment. There, I've said it, for all those who reckon I'm anti-rentals!

Sunday, March 20th 2005

Rental property is sometimes an excellent investment. There, I've said it, for all those who reckon I'm anti-rentals!

Often, though, rentals are not quite as good as people think - and not just because the tax breaks are over-rated, as I said in my last column.

Following that column, a reader wrote: "there are other reasons which I believe are largely positive in running a rental property or two."

He gave the following example: "I purchased a two-unit rental house in 1980, borrowing the entire purchase price of $35,000, using my family home as collateral.

"Yes, during the first few years I did have to put in cash out of my salary to pay interest and running expenses, but the tenants paid most of the mortgage. And although I had to pay some tax, when I sold in 1999, the capital gain of $125,000 (selling price) made it worthwhile."

But how good was that? Over the 19 years, the gain was about 7 per cent a year.

That doesn't sound too bad, until we realise that for most of that period you could earn more on 6-month term deposits. Indeed, in the high-inflation early 1980s to early 90s, term deposits usually earned more than 10 per cent, and sometimes close to 18 per cent.

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Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

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