Property Investment
3 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
My podcast co-host (Ed) just got married last week.
Now if you care about that kind of stuff, there’s a photo below.
If don’t know (or care) who Ed is … keep reading anyway.
Because what comes after marriage? Kids.
And one of the main questions property investors ask me is:
“If I have a kid, will that stop me getting a mortgage?”
Let’s find out.
Kids cost money. And the banks know that.
So let’s say there are two couples. Both earn the same amount of money.
But couple #1 has 5 kids. Couple #2 has 1.
If everything else stays the same, the couple with 1 kid will be able to take out a bigger mortgage than the couple with 5 kids.
Because they’ll have more money available to go towards the mortgage.
Depending on the bank you’re with, each child costs about $300 a month in the bank’s eyes. So that’s about $78,000 less of a mortgage if you’re buying an investment property.
That’s not to take the shine off having kids! Or to say “don’t have them.”
It’s just to give you the numbers around how it impacts your mortgage. And this is one of the reasons I’m seeing more people decide to invest in property before they start a family.
But that’s just the start. Kids will impact your life in other ways too.
Often couples take a drop in income when they go on maternity leave. That’s because one partner stops working for a while.
And only the first 6 months are paid. The most you get from the government is $789 a week. And that’s before tax! So:
So that often means that you take an income hit. And the bank will look at that when you apply for a mortgage.
It’s not impossible to get a mortgage while one partner is on parental leave.
For instance, if you have enough savings to cover a temporary drop in income, you can still get your mortgage approved.
But, it is harder. As there is less income available to pass the stress tests your bank puts your mortgage application through.
Childcare in NZ is expensive. So if you head back to work full-time it can easily cost $300 - $500 a week.
The bank will count this as an expense when seeing if you can afford a mortgage.
That’s because for under 3’s daycare can cost $60–$100 per day depending on the centre and location
What about after your child turns 3?
You’ve probably heard people say that you can get 20 hours of childcare for free.
But while “20 Hours Free” sounds great … in practice, it’s a partial subsidy.
For one Lollipop’s daycare centre I looked at, it costs $318 per week for under 3s.
For over 3s it’s $226 per week. ($92 less). But that includes the subsidy.
Even if you’re spending $200 a week on daycare, that could mean you borrow up to $225k less for an investment property.
That’s if income is the main thing holding your mortgage application back.
This isn’t to put you off either having kids (or investing).
It’s that if you get married (or have kids) it has a real impact on your household budget.
And if you know the costs, you can make the right plan for you. So you aren’t surprised if
And if you’re thinking about having kids, check out this calculator I built for you.
Answer a few questions, and it will give you a sense of how much your kid might cost over the first few years:
Here’s the link to use the ‘how much does a kid cost?’ calculator.
Andrew
PS – Here's that wedding photo I promised.
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.
