Why buying a home and income makes sense in 2020

The option of renting out a legally permitted second home is a great financial buffer during this time period.

14 September 2020

For families with older children or aging parents, or for savvy homeowners who’d like the option of another income stream in these uncertain times, home and income properties are increasingly attractive at the moment.

Trade Me Property has seen April to August searches for home and income properties nationwide this year almost double those made in the same period last year as Kiwis recognise the extra value these dual homes can provide.

And they come in all shapes and sizes. They might be an older home on a large site with a more modern cottage, or they might be more contemporary homes built at the same time. So strong is the trend at the moment that a number of design and build companies are specialising in home and income properties.

The way Sentinel Homes designs its home and income properties, you wouldn’t know they have a separate wing from the outside, they just look like generously proportioned homes.

In some designs, there might be a garage in the middle, between the two homes, or there are those with a two storey main home and an adjacent 65 sq m one storey wing. Sentinel Homes’ North West sales consultant, Kathy Sullivan, says she must have 20 different plans of various shapes and sizes on her desk at the moment.

Ms Sullivan can’t stress the importance of a firewall between the two homes enough. An advertised home and income property can have a full kitchen and separate living space but they’re not a home and income if they haven’t got a firewall, she says. If they don’t have a firewall, you’ll only be able to rent it out to family, you won’t be able to take on a tenant, she says.

These flexible homes appeal to mature couples and young families who want help to pay the mortgage. She notes a bank will give lenders pre approval on a more expensive home if it is designed to bring in an income.

“If anything happens, then the owner can move into the minor dwelling, so you’re future proofing,” says Ms Sullivan.

The consultant finds this style of living appeals to many families new to New Zealand as well as Kiwis. South African, German, English families are all quite happy to have a smaller main house and a minor dwelling to give them options, says Ms Sullivan.

Younger families often need the rent to help pay the mortgage, whereas middle aged couples are thinking of family homes which accommodate their adult children, or a residence for elderly parents.

“It just appeals to everybody,” says the sales consultant.

Sentinel makes sure it designs the properties to have separate sections and outdoor living areas so if the tenant goes outdoors they’re not facing the owners. Built on subdivisions on the North Shore, Ms Sullivan says new incoming families to the area will often rent the flat of a newly completed home and income while they wait for their own home to be built.

“They move out and the next lot comes along, it’s a never ending cycle,” she says.

Home and income properties on lifestyle blocks

If the home and income is on a lifestyle block, the owners will have a lot of options on where to position the second dwelling.

210A Monowai Road, Wainui, Rodney, Auckland

In the case of this Wainui property currently up for sale, the owners brought a former office to the almost 2 ha site and converted it into a two bedroom minor dwelling, taking care to give it north facing sunny aspect and it’s own hedge to ensure privacy.

The occupants can’t see each other, the parking is separate, and they have their own water tanks, says Ray White Stillwater agent, Jake Morgan.

8 Wright Road, Redvale, Rodney, Auckland

Mr Morgan, who’s marketing a second home and income property in Redvale, says “We’re seeing more inquiries for home and income properties. People know if they’ve got some income coming in for the mortgage they’ve got a little bit of a buffer.”

These listings are attracting a mix of people who are interested in the extra income stream, from renting it out to using it for extended family. He’s also seeing families pooling resources to buy.

Top tip: find out how much rent the minor dwelling has provided in the past. The selling agent will get an appraisal done of the level of rent that can be expected at the property and they’ll put something in writing. “If it’s legal income, you should be able to take that to the bank,” says Mr Morgan.

Do your due diligence – is it really a legal home and income?

With this kind of property purchase, it’s very important to know that the current owners have done everything right and that it’s recognised by the local council as a legal rental. A call to the council should answer that question, says Acumen financial adviser and real estate expert, Lisa Dudson. Regulations can vary depending on the council, she says.

It’s possible that you can borrow more if you’re buying a home and income, confirms mortgage adviser, Geoff Bawden of Bawden Consulting. He says to speak to a mortgage adviser early on to see if you can borrow more because you’re acquiring an income-generating asset.

“Income generating assets in home and income do help with your qualification for servicing the mortgage, but each case is judged on its merits. Nothing is automatic these days, you need to run it by somebody,” he says.

It takes a degree of mental toughness to be a landlord, he warns, and you have to think about that if you’ve never had a rental property before.

It’s even tougher because the tenants are in close proximity, says Ms Dudson. Make sure that insurance will cover the home and income property, she adds.

Extra value add a home and income can provide

Harveys agent, Danella McCormick, is marketing an attractive home and income in Manukau on a generous 708 sq m site.

58 Hill Road, Hill Park, Manukau City, Auckland

The main property, which borders Nathan Homestead, was built in the 1960s while the one bedroom cottage with open plan living was added around 1990. The cottage has its own separate water and power metres, she stresses.

The Harveys agent says for the one bedroom cottage you’d probably be paying an extra $200,000 to $300,000 on the total price for the home and income. This is good value. You couldn't just go and buy a one bedroom cottage for that amount in Manukau, she says.

The front house has its own outdoor entertaining area and the cottage has its own courtyard and living space so both occupiers can be private from each other.


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