Property Investment

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Private property issue #75 - What has cashflow been like in the past?

I’ve dug through my archives to show you how property investment has changed over the last 5 years.


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There's no sugarcoating it. The cashflow on investment properties is painful right now.

The rent from most properties doesn’t cover all the expenses. So you may have to ‘top-up’ your property by $350 - $500 a week.

Last week, an investor asked about this –

“The cashflow isn’t great right now. But what’s it been like in the past?”

So, I’ve dug through my archives to show you how property investment has changed over the last 5 years.

September 2018 – 5 years ago

5 years ago, the average 1-year interest rate was about 4.2%.

And the average house price was $675k. About 25% lower than it is today.

You could buy a 4-bed house in Rolleston for $500,000.

The rent was around $500 a week. A 5.2% gross yield.

That meant the top-up was around $57 a week, assuming you borrowed all the money.

What happened over the next year?

September 2019 – 4 years ago

12 months later, the average 1-year interest rate dropped to 3.6%. The average house price, that was up $16k.

That Rolleston house then cost around $535k (up $35k), and it rented for $520.

The top-up was still the same. Around $49 a week. While interest rates fell, the government changed the tax rules.

You could no longer get a tax refund by buying a negatively geared property.

You know what happened next.

September 2020 – 3 years ago

A year later, interest rates hit 2.6%. The average house price was up $52k, and property investors had it good.

We were coming out of Covid lockdowns. The LVR restrictions were gone. Interest rates were low, and property prices were up.

An investor could buy a 2-bed townhouse in Christchurch for $449k.

It’d rent for about $450 a week. A 5.2% yield.

At that point, the top-up was $0. You were cashflow positive: $60 a week.

September 2021 – 2 years ago

12 months on, interest rates were stable. Around 2.5%. 

Property prices were up $207k. Mindblowing. So people who bought a few years back made good money.

Those 2-bed townhouses you could buy last year for $450k … developers are now selling them for $670k.

Rents hadn’t moved much. This property would still rent for around $450 a week. That gives a 3.5% gross yield.

The top-up was now around $110 a week.

Interest rates were low. But property prices were high.

September 2022 – 1 year ago

A year ago, the average 1-year interest rate was 5%. Those were the good old days!

The 4-bed Rolleston house you could get for $500k in 2018 now costs $820k.

The rent is up around $675. A 4.3% gross yield.

The top-up is now $340 a week.

Interest rates are high. But so are house prices.

September 2023 – Tomorrow

Today, interest rates are a touch over 7%.

The average house price is down $64k year on year.

Last week, one of my financial advisers recommended a 2-bed townhouse in Auckland for $659k.

It’ll rent for $625, giving a 4.95% gross yield.

That’s a good price and yield for Auckland.

But interest rates are alarming. So, the top-up on this property is $512 a week.

Will top-ups be high forever?

Probably not. Interest rates are either at or near their peak (depending on how long you fix for).

Over the next 1-3 years, they will likely come down.

If interest rates were 4.5% tomorrow, the top-up on that 2-bed Auckland townhouse would be $331 lower. Less than $200 a week.

But it’s important to remember that you can’t control interest rates.

The only thing you can control is the purchase price.

Remember the investor who bought the $500k Rolleston house 5 years ago?

They face the same interest rate as you and I today.

Same with people who got in when interest rates were below 3%.

Most of these guys are paying 7% today, like the rest of us.

The difference is that their mortgage is lower. And the rent they’re charging has gone up.

In some cases, rents are up $140 a week.

While the interest rates are still painful:

  • The higher rent makes it easier to manage
  • The capital growth makes these investors feel better about their properties

That’s what long-term investors should keep in mind today.

If you buy a house today, what will happen to the rent over the next 30? It’ll be way higher.

But your mortgage will be about the same (if you’re interest-only). So, your cashflow improves over time.

That’s why there is an opportunity for investors to get into the market while property prices are low. If you can handle the cashflow.

You’ve got to stomach high interest rates today. But you get the benefit of low prices.

And when rates come down, you get those too. But you don’t have to pay (what will likely be) a higher price.

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Andrew Nicol

Managing Director, 20+ Years' Experience Investing In Property, Author & Host

Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.

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