Property investor Riyaan Mohamed has a piece of advice for any homeowners worried about their cash flow as interest rates rise – consider adding shacks or small houses to the property.
With cabins typically costing around $25,000 and adding up to $120 in rent per week, he said it could be an affordable method to mark rentals more positively.
The advice may be useful to other investors who are considering increased interest rate costs and higher tax bills, as they lose their ability to deduct mortgage interest from rental income for tax purposes.
Mohamed will move into a three-bedroom house in the Christchurch suburb of Papanui in January and plans to do just that.
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He said that with a renovation that would turn one of the rooms into a fourth bedroom and an added cabana in the front and back garden, he expected the weekly rent to rise from its current $500 to around $1,200. $.
The hut in the front garden would probably be an independent bedroom, which would have a kitchen and a bathroom.
He expects the renovation to cost $50,000 and additional cabins to cost around $110,000.
Mohamed said he had developed two other properties in the same way, and although the cabins were mobile, the buyers had chosen to pay extra and keep them.
“The person buys the extra cash flow,” he said.
The 28-year-old bought his first home around five years ago and said he now has 10 properties, including three empty plots in Canterbury and Ashburton which he intends to turn into multiple income properties after finalizing purchases next year.
He says there are a growing number of facilities providing ready-made cabins, including Titanic Homes, Genius Homes and a number of smaller home builders.
He said all the cabins were built to healthy house standards and often offered the added service of getting the cabins approved by the councils, which might be easier as they knew the process.
“As long as there are setbacks because of limits and stuff like that, it’s a lot easier.”
Mohamed said a self-contained cabin, which has two bedrooms, a bathroom and a kitchen, usually costs around $90,000.
He said cabins and tiny houses were an additional way to increase rental supply during the current crisis, and also helped meet a need for homes that could accommodate larger families.
“The problem is that there aren’t many big houses left for big families, so that’s on top of that as well.”
Having extra cabins could also be good for families with teenagers.
“Most of the time these cabins can be a lot more private,” he said.