Houses can be cheaper outside the main centres – does that mean you should buy there?
Susan Edmunds is Stuff’s money editor. Send your questions to email@example.com
While I was away on holiday, I noticed how much cheaper house prices are in other parts of the country. Would it make sense for me to make my first home purchase an investment property in another town?
This something that pops up every so often because, you’re right, things can be a lot cheaper outside the main centres. But there are a few things to consider.
If you’re borrowing as an investor, you’ll usually need more of a deposit. At the moment, banks are only allowed to lend 5% of new lending to investors with a deposit of less than 35% unless they are buying a new build. You also won’t be able to access your KiwiSaver to purchase a property unless you plan to live in it for at least six months.
You’ll also need to think about how well you know the area you are thinking about buying in. If you don’t have a lot of local knowledge, it can sometimes be harder to pick up any potential pitfalls with a property. Investment properties generally need to be bought with a more objective eye – you’re looking for a house that will rent well and be relatively easy to look after, rather than one that you really love as a purchase.
You need to have the capacity to manage the property, which can be harder if you’re not nearby. A property manager can do this for you, but it comes at a cost.
Buying a house
You’ll also need to be prepared to manage the repairs and maintenance. Rental properties have to meet healthy home standards while owner-occupied properties do not. Tenants usually need repairs done quickly if a problem arises.
What are your goals for the property purchase? If your plan is to eventually sell the property and buy something closer to where you live, you may need to plan for the capital gains not being as high in a smaller area as they might be in a main centre. That depends on the areas involved, though.
But on the flipside, if you’re deciding to continue to rent yourself, it may mean that you can afford to live in an area that you might not be able to buy in. Rents in pricier suburbs tend to be a lower percentage of the purchase price of a house there. If you live somewhere rent-free, such as with family, it could also make sense.
A mortgage adviser could be a good first stop to help you work out what might be possible and how much it could cost you.