Why “high yield” properties often cost more than people expect
Higher yield properties often come with higher costs, like:
#1 – Higher ongoing maintenance
Older properties are more run-down, and so often don’t get premium prices. That’s why they often have higher gross yields. But then they also cost more to maintain.
A brand-new property might only need $500 a year spent on maintenance. Why? Because well, everything is new (e.g. hot water cylinder, heat pump, etc.).
An older one? That can easily be $3,000 a year, driven by things like old plumbing, tired appliances, and more frequent callouts for repairs.
#2 – Deferred maintenance (the cost most investors forget)
Properties need to be maintained over time. And older high-yield properties often need more maintenance. But often investors keep putting it off for as long as possible (deferred maintenance).
Let’s say you buy a property where the roof needs replacing in 10 years. That roof could cost $30,000. A financially responsible investor, in this situation, would set aside $3,000 a year for that future expense.
When you combine that with higher ongoing maintenance, you can quickly be looking at $5,000 a year (roughly $100 a week) just to be sensible and prepared.
Most investors don’t do this. And that’s why cashflow becomes lumpy.
I recently worked with a client in Auckland who tried to refinance an older property. The deferred maintenance was so severe that the bank wouldn’t lend against it.
That’s a consequence people don’t think about when they’re chasing yield.
#3 – Body corporate and specialist management costs
Some high-yield properties look great until you realise that they come with higher costs.
Often, higher-yield properties are multi-income or dual-key. That means there are two units on the same property. These can come with:
- Body corporate fees of $4,000–$7,000 a year
- Higher insurance, often $500–$1,000 more than a standard standalone property
- Specialist property management (for instance, if it’s a boarding house), which can add another $1,000–$2,000 a year
- Higher tenant turnover, meaning more letting fees and advertising costs
Again, none of this shows up in the gross yield number. Which is why you need to look at the net yield.