It’s the age old question virtually every property owner would like the answer to – just how do we make our property dollars go further? Bayleys’ property reporter Katharina Charles finds out.
Long-considered the first stepping stone for budding investors looking to grow personal wealth, the rise of property investment has had an undisputable effect on the residential property landscape across the country, even prompting moves from the Reserve Bank of New Zealand (RBNZ) and the current Government to dampen the prolific growth of the sector.
Many of these property investors grapple with managing a portfolio of two, three, or even more properties, but there’s another avenue ‘Mum and Dad-type’ investors are exploring.
“We’re seeing a trend in Bayleys’ offices around the country where properties are being purchased as second homes that will be used for short-term letting. Many properties have similar characteristics which include proximity to beaches, lakes, amenities, privacy, or a sunny position with room to entertain outdoors,” says Bayleys residential and lifestyle salesperson Lea Jurkovich.
Based in Whitianga, Lea specialises in properties which do ‘double duty’ for her clients and she estimates that nearly 80 percent of her current business is a result of purchasers seeking a second home with short-term rental potential.
“Clients have been quick to realise there’s opportunity in the heightened level of tourism. The growing presence of visitors coupled with a shortage of viable accommodation options - especially in some of the smaller beachside communities has led to a definite rise in ‘amateur hosting’.
“Generally speaking, many people I speak with own a main property in one of the larger cities, say Auckland or Tauranga before purchasing a holiday home in the Coromandel.
“These buyers are looking to create income by renting a room (or the whole house) while the property is vacant, to then utilise the funds and supplement mortgage repayments,” she adds.
“It can be an obvious option when you see how many classic Kiwi baches have a sleepout, separate cottage or even cute little caravan which are detached from the main property and not often in use.
“These spaces provide a great option for income, and are then used for guests, the boat, additional parking or other storage once the owners return,” she adds.
It’s a theme echoed in the South Island tourist mecca of Blenheim, where the breath-taking scenery of the Marlborough Sounds continues to attract a growing number of day-trippers and international visitors, says Bayleys Marlborough director Glenn Dick.
“We’ve seen an appetite for ‘bed and breakfast-style’ accommodation across the region, and it’s interesting to note retirees who have disconnected from city life, choosing instead to try their hand at hospitality in Marlborough.
“While these aren’t large-scale hotel providers, we’re talking to people who are clued up with a head for business, going through the proper channels to become a commercially viable bed and breakfast operation,” he says.
“Not surprisingly, these types of buyers love meeting new people and have often made the choice for quality of lifestyle rather than solely focusing on profit.
“In some cases it may be as simple as purchasing a property with a detached sleepout and simply wanting to utilise the space, or perhaps they’ll buy a larger home with a view to rent two or three rooms at once, he says.
Jurkovich agrees saying that for those with more casual letting in mind, platforms such as Airbnb have made the option to rent a room or entire home short-term a much more accessible avenue for home-owners.
“Digital organisations such as Bookabach and Airbnb have really cemented their status as a one stop shop for accommodation management because hosts can control the marketing, communication and booking calendar from the website or smartphone application.
“The popularity of these channels has absolutely exploded over the last few years, with estimates seeing more than 30,000 New Zealand listings on Airbnb, with the average user making around $3,800 annually.
“The median sale price for a home in the Coromandel in December 2017 was $590,000 while the median room rental on Airbnb was $123 per night.
“Let’s say the average room is occupied a third of the year, returning a rent of around $15,000. Less 15 percent for GST and around $1,000 for maintenance and furnishings leaves a profit of around $11,750,” Jurkovich says.
“With a 20 percent deposit, this would contribute about 2.5 percent annually off the top of the mortgage – or make a real difference contributing to the family holiday, a new car or even upgrades to the property.
“That’s a great little incentive to utilise a space which may otherwise be left unused for much of the year,” says Jurkovich.
There are however some vital elements to consider before cashing in on the fervent demand for short-term rental accommodation, she warns.
“New Zealand’s laws are such that income earned is subject to tax, but what many don’t realise is that there can be wider implications for insurance coverage, resource consent, residential versus commercial rates, securing finance and even money owing at the time of sale.
“Properties with the potential to make supplementary income have become so desirable in the Coromandel that I commonly discuss rental estimations with buyers, however it’s also crystal clear that clients must consult a tax specialist before diving in.
“These added components have done little to deter purchasers, however the sector has come under fire recently in light of the widespread shortage of long-term rental options.
“As these online listings leave a digital footprint and technology progresses, it is becoming easier to match listing data with individuals and I expect that the next two years will see a framework of regulation implemented by local Government.
Despite an appetite for greater regulation around a sector which has enjoyed great popularity in a short space of time, Jurkovich maintains that the first few questions she continues to hear from buyers usually relate to a property’s income potential.
“It’s wonderful for property buyers to be able to really maximise the potential of a property they are purchasing, particularly for young families and equally for retirees who enjoy the company of short-term residents.
“The sector may be on the brink of regulation but given the mutually beneficial nature – that is easing short term rental shortages and providing incentive to hosts, this I think is a trend we can expect to continue into the long-term,” Jurkovich says.