Rent to Rent - Is it a thing???

[JAYDNZ]

Hi Guys,

I’m originally from the UK and have been living in Christchurch for about 8 years, really love New Zealand and recently got my kiwi citizenship!!

I’ve got 1 investment property, which I manage myself… plus a mortgage on my occupied home… I really enjoy property and I’m keen to build a portfolio. I’m hoping to be able to buy a 2^nd investment property later this year. However after that it could be quite some time before I have the capital to buy another and so I have been researching different strategies that require less up front capital.

A strategy that’s popular in the UK is rent to rent… However I can’t find much (if anything) about this strategy in New Zealand and wondered why this might be. There are a number of different rent to rent approaches, but by way of example…

1) Find a 4 bedroom, 2 reception room rental property that’s currently being marketed as a single-let.
2) Agree a period of exclusivity with the landlord including a guaranteed rent amount for the period (usually between 3 – 5 years).
3) Do a light refurb if needed (eg. new carpets and paint etc)
4) Convert one of the reception rooms to a bedroom
5) Rent out each room individually to achieve a higher rental return

Clearly this is a cash flow strategy as the landlord continues to own the property and benefit from any capital gain (unless there is option to buy)…. I’m looking at it more as a way to create new income.

Interested to know if anyone on here does anything similar… If this isn’t a popular strategy in NZ why is that? Is it a cultural thing or is there a legislative barrier? Or perhaps people just struggle to get the numbers to work.

Would appreciate any feedback… as open an honest as you like

Cheers

Jay

[Bobsyouruncle]

Agree a period of exclusivity with the landlord including a guaranteed rent amount for the period (usually between 3 – 5 years).

Closest thing in NZ is a lease option. The GST changes and new Real estate legislation in 2010 or so made them problematic.

[JAYDNZ]

So because it's more of a commercial arrangement it attracts GST?.. I can see how that would bugger things up.

[Bobsyouruncle]

Not the fact it's commercial but IRD deem the option agreement to be a contract for sale so it triggers GST :-(.

[Bobsyouruncle]

A straight option with no lease is OK but that doesn't help you get any income....

[andyp2010]

As a room rental person in Christchurch - You would never get people into a house here without a lounge, so I'd drop that idea. I lived in a place like that when I was back in Leeds - It might be normal for places with restrictive green belts but not here. You'll rarely see a house without a dedicated laundry area even.

Also, it's not that hard to get into anyway. I've bought all mine for sub $300k and get 14-20%. Why mess about just getting the income when you can have the capital gains too?

If you are wanting to start in Christchurch now, well, I'd rather you didn't haha but it's also getting tougher. Jan-Mar is easy pickings but for the rest of the year I'm pulling my hair out playing musical chairs trying to fill rooms. I keep a very high occupancy but it's to the detriment of my health and sanity at times. These are good quality rooms in nice houses too. A small percentage seem to be staying for longer than usual (12 months plus) but these are vastly outnumbered by the short termers doing 2-3 months at a time. at 4-6 changeovers per room per year and having 20 rooms, that's 4-6x20 = 80-120 changeovers per year, or about one every 3-4 days. It's a lot of work, it's my full time job.