Buying in a small town
Question from Jason updated on 10th December 2014:
Hi, we live in a small town and know someone who is looking for rental accommodation. We are considering using this as an opportunity to start our property portfolio. What would be the potential pitfalls of buying in a small town? A rental should be well looked after and consistent rent etc. Does this balance the equation?
Our expert Kris Pedersen responded:
Make sure you do figures off net yields rather than gross yields. I find many investors work off gross yields and in small towns these can look attractive until you actually take the rates, insurance etc into consideration. Often the net yields aren’t actually that great when considering the increased risk associated with potentially higher vacancy levels. Carefully assess the short, mid and long-term employment opportunities for the area. All fine to have a property showing great paper returns but you are unlikely to achieve them if the area is going backwards.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz