Mega-landlord Ron Goodwin could get a higher income by investing his money in a portfolio of shares and fixed interest investments and he wouldn't have to put up with difficult tenants, an Auckland financial adviser claims.
Goodwin who owns 37 rental properties with an estimated value of $18 million, last month sparked controversy by telling other landlords not to be "too kind" to tenants because they will take advantage from it.
But Alan King, an authorised financial adviser on Auckland's North Shore, said calculations based on the rental income received by Goodwin minus costs meant Goodwin was getting a poor income from his property investment.
"We don't know how much Mr Goodwin paid for his properties or when, so we are unable to calculate his capital gains but we do know he has $4.8 million in debt.
"At a cheap option, say interest only loans of 5.5 per cent per annum interest would be $5077 per week alone.
"Rates should take out at least another $1300 per week and we haven't even started on maintenance, insurance property management, legal fees and the rest.
"My guess is that Mr Goodwin's income is around $7500 per week at best after all costs - probably much less.
"On an $18 million portfolio that's a cash return of 2.17 per cent per annum assuming costs offset tax to zero."
While that still equated to around $390,000 per year, a return of just over 2 per cent would not be worth it for most retirees, he said.
King said Goodwin could get "considerably more" income by putting his money into a portfolio of investments while saving himself the hassle of dealing with the tenants.
A conservative income portfolio for one of his clients had seen asset growth of 7 to 8 per cent per annum over the last four years after fees and tax of which 5 to 6 per cent was income.
While a more aggressive portfolio growth portfolio had grown at 12 to 13 per cent of which around 4 per cent was in the form of income.
"I know people who put money into rental properties over the last few years, they have made money out of capital gains but it's costing them a fortune to keep the property through maintenance and legal fees."
For most of us in later life that beats chasing miscreant renters, building repairs, legal wrangles and mortgage worries.
King said while it was difficult to convince many people to choose a portfolio of investments over rental property he urged those considering buying more rentals to think about buying shares instead as a way to augment their retirement income.
"A personalised investment portfolio does offer a real alternative or at the least a worthwhile addition to rental housing as a source of income in retirement."
King said investing outside of rental property also freed up time spent on having to chase tenants and fix maintenance issues.
"...you do get to spend more time in the camper van, with grandchildren, at the gun club, tramping, dancing, skiing, another OE...you name it.
"For most of us in later life that beats chasing miscreant renters, building repairs, legal wrangles and mortgage worries."