When renting makes sense - living central Auckland life on south Auckland prices

Wednesday, 5 September 2018

OPINION: This coming week the ballot opens for the Government's first set of KiwiBuild homes, which have been built in South Auckland.

Priced between $579,000 and $649,000 their unveiling prompted one TV reporter to respond, 'I don't want to live in Papakura, I'd rather rent in Remuera'.

While that might prompt an eyeroll – she had a point. Sometimes, buying a home to live in isn't the best option.

I'm not saying you shouldn't own property - when you buy right, owning a property makes good financial sense – but it doesn't mean you have to live in it.

* Hannah McQueen: Financial independence is something to aspire to

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The flasher the suburb you live in, the more properties cost. The rent is also higher but the key is the rent doesn't usually increase at the same rate as property values escalate.

If you're used to living in the central city, the idea of moving out south might not appeal.

You could rent a Papakura property valued at $600,000 paying $500 a week while a similar house in Remuera might rent for $800 a week and be valued at $1.6 million. The rent is 60 per cent higher, but the house is worth 166 per cent more and the mortgage repayments could be almost 250 per cent higher.

While it's often said a tenant is just paying the landlord's mortgage so would be better off paying their own – in cases like this, the rent wouldn't cover the mortgage – which is your gain as the tenant.

But if you are going to clock that gain, you need to accompany it with a strategy to still be on the ladder – with an investment property. Provided you don't buy a lemon (easier said than done) you could benefit from the growth in the property market without the inflated mortgage payments associated with owning a property in a more expensive neighbourhood.

The first KiwiBuild houses have been completed in South Auckland.

While renting could be considered dead money, paying a large mortgage off over a long period of time can result in lots of dead money being spent on interest.

Hannah McQueen: 'While renting could be considered dead money, paying a large mortgage off over a long period of time can result in lots of dead money being spent on interest.'

Plus, when you're renting you don't pay rates, maintenance, home insurance or overspend on renovations.

I'm not against owning property, but I am against borrowing more than you can afford to buy a property you could rent for less. The caveat is you still need to own an investment property.

I've run the numbers for some clients who wanted to get their kids into a particular school zone and found it was cheaper for them to rent in zone and buy two investment properties in another area, with lower values and higher yields. They still wanted to own properties in a capital growth area, so they needed to top up the rental shortfall each week by around $100 per property (per week). But this top-up combined with the rent they were paying was still $500 per week less than the mortgage they would have had to pay to own in the desired suburb.

Property is a valid way to grow your wealth using leverage but being fixated with owning a place that's too expensive in is one of the fastest ways to grind any financial progress to a halt.

Hannah McQueen is an author, accountant, authorised financial advisor and founder of enableMe.