Worthwhile investment?

Question from J updated on 11th January 2016:

We have used the equity of our Auckland property to buy one rental in Hamilton East which is 4.98% net per year income. I think we are paying extra $2000 per year to cover rates. It is on an interest only mortgage with a bank.

The bank have given us another equity of around $200/250k for rental property number two. We are looking in Hamilton area again as we can't afford any Auckland property at all.

We have one child and we are both working full time. Our combined income is $115k gross.

Our questions are:

1. Is it worth buying rental property number two (price $200/250k)?

2. What are the pros/cons of buying rental number two?


Our expert Kris Pedersen responded:

In response to your questions:

1. This comes down to what you are trying to achieve. Also, you need to assess what, if any, cash flow burden this will put on the family.

2. The pros are that you should still get some growth in the Hamilton market with more investors getting locked out of Auckland due to the introduction of the 30% deposit requirements. A negative is that in the price range you are looking I expect your options will be reasonably limited. Probably mainly to two bedroom units. So you need to make sure that if you go down that path that you expect the property to meet your goals. 

Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz

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