With mortgage interest rates taking a dive again this week, following a 1.5% drop in the cash rate by Allan Bollard, and further OCR cuts and therefore more mortgage cuts coming, the attractiveness of residential housing as an investment for Kiwis is becoming a more realistic and financially viable proposition.
With 5 year mortgages at major banks at 5.95% and falling house prices, realistic yields from rental income, without relying on capital gain could motivate some of us who didn't plunge into rental housing when every man woman and dog was doing not long ago.
Back then of course there was a rush to buy as many houses as ones dopey bank manager would let you have as loans were assessed according on inflated house prices as collateral and little focus was put on real returns.
Strangely enough when the investment case to buy a rental house makes much more financial sense the brakes have been put on by some banks.
The ASB Bank for example (my bank) has raised the amount you must have for a deposit and introduced a curious addition to every term of interest rates-a premium will be paid on mortgages taken out for a rental property.
Anyway, if you can still wangle some money off your bank manager, friend, Dad or sugar daddy you could make the investment purchase that will put you in good stead for a lifetime.
When an investor looks around at the current investment landscape for a good yield one will have to go past term deposits , New Zealand's most preferred investment outside housing, and at a 4% or less yield, after inflation and tax you would be at least 2% in the hole.
The two current most attractive investments for yield are shares, depending on the current profitability of the company and of course rental housing.
Of the two I would at present favour shares but rental housing is starting to look like a good move for all the above reasons and more.
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Related Links
Interest.co.nz - Mortgage Rates
Interest.co.nz - Term Deposit rates
Residential Property Resources
Related Amazon Reading
How to Succeed and Make Money with Your First Rental House by Douglas A. Keipper
Buy new: $18.00 / Used from: $4.25
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5 Ways to Save More Money on Your Mortgage by Martin Hawes
Buy used from: $26.91
A History of Interest Rates, Fourth Edition (Wiley Finance) by Sidney Homer
Buy new: $50.40 / Used from: $43.62
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c Share Investor 2009
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