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Yield figures show that buy to let property investment looks good in New Zealand

As property prices and interest rates drop for the first time in five years there are places where you can easily buy a house or apartment, rent it out and cover all your mortgage and property management costs with some money left over, according to figures from national real estate company Quotable Value.

It estimates that there are 46 suburbs across New Zealand where buy to let is viable including apartment dominated inner city areas such as Grafton, Eden Terrace and Central Auckland, and the Lambton precinct in Wellington.

But there are also lower income housing suburbs on the fringes of the big cities, such as Mangere, Otara and Albany near Auckland, or Stokes Valley, Wainuiomata and Waitangirua near Wellington were the prospect is viable.

It names neighbourhoods in smaller North Island centres such as Pleasant Heights and Koutu in Rotorua, Flaxmere in Hastings, and Nawton in Hamilton as sound options.

QV bases its estimates on 6.7% mortgage interest rates and the investor putting up a 20% deposit. When working out if a property has positive cash flow, QV's Jonno Ingerson says the most important thing is calculating how much income is required to offset the expenses of owning the property and this will vary from buyer to buyer, depending on their own financial situation.

In all cases, the positive cash flow is to be obtained on cheaper properties mostly houses, apartments and units that cost between $110,000 and $300,000.

An example is paying $175,000 for a unit and renting it out for $450 a week – or $23,400 a year. After paying a little under $11,000 in mortgage payments, management fees, rates and other expenses, the owner can still make more than $12,000 in a year.

From 2004 to early 2007, rental yields were eroded and positive cash flow property investments disappeared as house values climbed faster than rents. Now that trend has reversed and yields have improved.