If you are not interested in rental investments then you may choose to skip this newsletter as it is all about rentals and is quite long for a newsletter.
Recently Debbie and Mike, the owners of Harcourt’s Whangarei, purchased “Just Rentals” and combined it with Harcourt’s existing rental division. They are now the owners of the largest rental management company in Whangarei with a specialist staff of 11. This has created a huge opportunity for people like myself to obtain first-hand information about where the hot areas are in Whangarei, together with some dos and don’ts in terms of where to buy. The team at” Harcourt’s Just Rentals” met and discussed a series of questions I had put to them and produced information that has to be gold for any investor. Thanks Harcourts Just Rentals !!
The Key points are:-
• The hottest demand is based around Primary school zones. This makes perfect sense as the most likely people to be renting are young couples with children who haven’t climbed on the property ladder yet. The “ in” school zones are :- Kamo West , Maunu Primary , Hurupaki Primary , and Kamo Primary
• Proximity to town. Specifically Kensington which has a better reputation than the Avenues area which is closer to town. Based on this snippet I would predict that the Avenues has to be a hot buying area. The prices are not as high as Kensington. It seems to be held back by a reputation as a bit of a rough area. This will change as the majority of the properties are privately owned and it is only a matter of time before it is discovered. It’s a bit like the “Ponsonby” of the north
• Tikipunga remains a good rental investment area. Prices are low compared to the rest of town and there is a lot of infrastructure in the area now with a supermarket and two reasonably large shopping centres. Tikipunga is a bit patchy with a few streets to avoid and it isn’t on the best “schools” list. However you can still buy around the $250,000 -$300,000 with rental returns around $280-320 pw , so the return is good.
• Bus routes help. Many renters are on lower incomes so rely on buses to get around.
• Think about allowing pets. Many good tenants have or want pets. Admittedly this can cause more wear and tear on the house but equally the family is more likely to stay in the property longer. People with pets find it very hard to find rental properties so there are opportunities for landlords to fit into this niche market. I would suggest asking for a higher rent as you have a captive clientele. The rental managers are very good at monitoring these tenants and their pets to make sure big dogs etc. are outside and not causing problems to neighbours.
• The highest demand is for 3-4 bedroom, 2 bathroom homes with garaging and fencing. These properties are renting for $380-$450 which is in the highest level for Whangarei properties.
• The number of people wanting to rent is increasing with a large number of people relocating to Whangarei from other centre’s.
What not to buy
On the reverse side the team have identified some common problems that any prudent investor should consider
People are staying away from:–
• Low socio-economic areas such as Otangarei, The sunken village in Onerahi based around Hodgson Street. Parts of Raumanga based around Tauroa Street, Parts of Tikipunga based around Vinegar Hill and Meadowpark, Kamo around Charles Street. Basically if you buy in these areas you are going to have a high turnover in tenants as your good tenant will move out of the area into a better area as soon as they can. Consequently homes in these areas are cheap and have a good return. Some investors will buy a property in areas such as these purely for the cash flow. Sometimes to prop up the mortgage on another property in a better area. ( I suspect this is what some of the Auckland investors are doing with Whangarei . Buying a cheap Whangarei property with good rental return to prop up a high value Auckland investment with a low return.) This is a sound strategy but the cheap areas are cheap for a reason. Be ready for an increased level of tenant turnover, maintenance, arrears, vacancies and damage! These costs can offset any better return. Having owned my share of these properties I have since given up on them as they caused me more stress and anxiety than they were worth, however having said that I sold all of them for around twice what I purchased them for.
• Distance to town. 20 km from the CBD seems to be the limit. Further out and you will be struggling for tenants and your rent will go down.
• Cell- phone coverage. It’s not something I would have considered but in hindsight is very obvious. Cell Phones are such an integral part of today’s world that many people, including myself, would implode if they didn’t have 24 hour coverage. Being the neglected North we do have areas that don’t have good coverage so it’s something to look out for. Take your cell phone with you when you go house shopping especially if you are outside the city boundaries.
• Main roads. This has always been a show stopper. People generally don’t like to live on a main road for a lot of obvious reasons such as safety and road noise. These are the properties that become vacant when people have a choice of property.
• Homes that are poorly maintained.If you don’t have pride in your property it’s unrealistic to expect to find tenants who are going to.
• Insulation is becoming a bigger issue.With rising electricity costs and rising standards the better tenants are expecting the house to be insulated. This seems fair as it’s something I personally would expect, but probably wouldn’t think to ask about.
With this information where are the best buying areas.
When I first started selling Real Estate in Hamilton in 1983 there was a suburb that screamed “develop me!”.It was the Wellington Street Beach area in Hamilton East and close to shops, but better still, it had a huge Waikato river esplanade reserve along its entire length and Hamilton’s most popular sand beach alongside the river. Back then it was predominantly a state housing area with low cost 1950’s weatherboard and tile homes. I sold a lot of people into this area believing in its future. When I left Hamilton for Whangarei in 1991 very little had changed. Over a period of 8 years it still looked the same. However I was back in Hamilton about 5 years ago and walked the track along the river. It was hard to recognise the area. Huge great mansions had sprung up where the state houses had once been. So while the suggestions I make below are based on common sense and Real Estate logic, the time frames will all differ. If you are trying to pick growth areas then you have to look long term. These types of area changes take 10-20 years.
• The School Zones. (Kamo West , Maunu Primary , Hurupaki Primary , and Kamo Primary)
These four areas have been the hot areas for some time now and will remain so as long as people have children and the Reserve bank continues to make it hard for first home buyers to get on the property ladder. Good rental properties come up in these areas but you have to expect to pay $330,000- $430,000 with rents in the $320-$400 bracket so your income return will not be as good as other areas.
• Raumanga. This area has been largely overlooked because of a few bad streets and the occasional riot! However much of Raumanga consists of quality homes, the terrain is hilly so lots of properties have great views including many with harbour views. The Poly Tech is in the middle and you are an easy five minute drive from the centre of town or the Hospital. It’s on the South side of town so its easy access if you are travelling south to Marsden Point or Auckland. There has been a big increase in warehouse style retail shops in the area with Bunnings and Harvey Norman being just two. Property prices are low with many good buys for around $250,000-$280,000 returning around $300 per week, but be selective and pick your streets. ( avoid Tauroa street and any street coming off it, Smeatons Drive , Otaika Road , Warwick place )
• Morningside. This area has been largely picked over as it is so close to town. But there are still a few good buys around $250,000. It’s close to town and Pacific Homes have just completed a new housing development off Jellicoe Drive. It is very close to the big name Car yards (Toyota, Ford, Mazda etc.) and Mitre 10. The ugly undeveloped part of Morningside has almost gone. It’s a suburb that has climbed and will continue to climb over time. You need to look a bit but if you can find a home on a section with a flat or moderate slope then grab it.
• Avenues. The proximity to town has to see this area move in price. There is no major impediment to it improving as an area, apart from the odd murder every now and then. It’s the poorer cousin to Regent /Kensington with a similar mix of flats, units and older character homes, yet is closer to town. You can still buy around the $250,000- $350,000 range. Generally homes in this area are only a 5 minute walk from the centre of town. As Whangarei grows this area will get better and better.
• Onerahi. Onerahi gets some flak from locals but most outsiders think this is misplaced. It’s a quick 10 minute drive to town and the new Bridge means access south and to the Hospital is a lot quicker. . There has been huge building activity in the area with Workman Way sold out and North Crest nearly sold out. It is the only part of Whangarei to have a harbour coast line and some stunning walks around the shore including the Waimahunga track which follows an old railway line. It’s got the airport and being surrounded by water, frosts are rare. Its closer to the Whangarei Heads beaches and boating facilities than any other part of the city. The only thing holding it back is a lack of shops, however there is plenty of commercial space available for this to happen, and rumour has it that the empty commercial lot surrounding the police station has been purchased for this exact purpose. It’s a long stretch, but for the sake of drawing an analogy with Auckland, Onerahi is the equivalent of Auckland’s North Shore and over time has to become the prime place to live in the city. Rental properties are available from $280,000-$350,000. (Avoid the “Sunken Village” and Friendship place. )
• Riverside. This area has a lot of cheaper rental homes combined with some expensive private ones. The terrain is not ideal for rentals as its pretty steep. However it is very close to town and is now sitting opposite Whangarei‘s premier leisure park, including the increasingly popular river/ bridge loop walking track. The new bridge means access south is easy and most of these properties have views of the river and port to the South. Properties are surprisingly cheap for the amenities, with rentals being available at $230,000- $320,000. Range. This area may have a relatively quick rise in popularity so you will need to move soon. Remember this suburb used to be beside an open rubbish dump or “Seagull Farm” as it was known as. It is now a suburb with views of anything from a dog park to a BMX track to fit looking people taking their daily power walk.
• Consider buying new! There are some established building companies who have a number of new 160-180m2 homes with 3-4 bedrooms 2 bathrooms ,double garage , well fenced , brick and tile homes in sought after areas. Priced finished, for around $400,000-$450,000. At a rent of $450 pw this is a 5.8% gross return (about 4.8 net). With interest rates looking like they will hit the 5% mark soon these have to be good buying. You will get great tenants; have a low maintenance home for years to come, with good capital gain potential.
I listened to Martin Dawes on the TV the other morning talking about the European system of long term residential leases. (Up to 50 years) I imagine that if properties like these were offered on 10-40 year leases you would get tenants who would improve the properties as if they were their own. In the European system the tenant can sell the balance of their lease to another tenant thus getting the value for their improvements. I imagine a house with a long term lease in place would be easier to sell to another investor and you would get a premium more akin to a commercial lease. New build areas worth considering are Totora Grove on the north side of Corks road and the last sections in Denby Heights.
For the sake of brevity ( Ha! You scoff) I will say cheers and good luck, but if you want to discuss these views further please give me a call. 09 4302125 .
Also a quick plug for Harcourts Just Rentals . This team are determined to be the best Rental management company in Whangarei and with the team they have in place they are and will only get better. For further information Call Mel Lindsay on 021347355