How the numbers work: renting, flatting and landlords

Simple YTM Example

1. Face value: $1,000
2. Coupon rate: 4% (pays $40/year)
3. Current market price: $950
4. Years to maturity: 5
5. Simplified YTM calculation:
6. Annual coupon: $40
7. Capital gain over 5 years: $1,000 - $950 = $50
8. Annual capital gain: $50 / 5 = $10
9. Total annual return: $40 + $10 = $50
10. Average investment: ($950 + $1,000) / 2 = $975
11. YTM ≈ $50 / $975

YTM ≈ 5.13% per year

Why Bond Prices Change

1. Interest rates RISE → Bond prices FALL → YTM rises
2. Interest rates FALL → Bond prices RISE → YTM falls

YTM vs Other Yield Measures

1. Bond: $1,000 face, 5% coupon, trading at $950
2. Coupon Rate = 5% (fixed forever)
3. Current Yield = $50 / $950 = 5.26%
4. YTM = 5.8% (includes $50 capital gain over time)

Duration and Interest Rate Risk

1. Rule of Thumb: 1% interest rate change causes price change of Duration%
2. Example: Bond with 5-year duration
3. Interest rates rise 1% → Bond price falls ~5%
4. Interest rates fall 1% → Bond price rises ~5%

The YTM Formula

1. Price = C/(1+YTM)¹ + C/(1+YTM)² + ... + (C+FV)/(1+YTM)ⁿ
2. Where:
3. C = Annual coupon payment
4. FV = Face value
5. n = Years to maturity
6. YTM = Yield to maturity (solve for this)

Approximation Formula

1. YTM ≈ [C + (FV - P) / n] / [(FV + P) / 2]
2. Where:
3. C = Annual coupon payment
4. FV = Face value
5. P = Current market price
6. n = Years to maturity

Example 1: Bond Trading at Discount

1. Face value: $1,000
2. Coupon rate: 5.5% (pays $55/year)
3. Current price: $920
4. Years to maturity: 7

Example 1: Bond Trading at Discount

1. Annual coupon (C) = $55
2. Capital gain = $1,000 - $920 = $80
3. Annual capital gain = $80 / 7 = $11.43
4. Total annual return = $55 + $11.43 = $66.43
5. Average price = ($920 + $1,000) / 2 = $960
6. YTM ≈ $66.43 / $960

YTM ≈ 6.92%

Example 2: Bond Trading at Premium

1. Face value: $1,000
2. Coupon rate: 7.0% (pays $70/year)
3. Current price: $1,080
4. Years to maturity: 4

Example 2: Bond Trading at Premium

1. Annual coupon (C) = $70
2. Capital loss = $1,000 - $1,080 = -$80
3. Annual capital loss = -$80 / 4 = -$20
4. Net annual return = $70 - $20 = $50
5. Average price = ($1,080 + $1,000) / 2 = $1,040
6. YTM ≈ $50 / $1,040

YTM ≈ 4.81%

Example 3: Zero-Coupon Bond

1. Face value: $10,000
2. Current price: $8,500
3. Years to maturity: 3

Example 3: Zero-Coupon Bond

1. FV / (1 + YTM)ⁿ = Price
2. $10,000 / (1 + YTM)³ = $8,500
3. (1 + YTM)³ = $10,000 / $8,500
4. (1 + YTM)³ = 1.1765
5. 1 + YTM = 1.1765^(1/3)
6. 1 + YTM = 1.0557

YTM = 5.57%

Example 4: Comparing Two Bonds

1. $1,000 face, 6% coupon, $1,020 price, 5 years
2. YTM = [60 + (1,000-1,020)/5] / [(1,000+1,020)/2]
3. YTM = [60 - 4] / 1,010

YTM = 5.54%

Example 4: Comparing Two Bonds

1. $1,000 face, 5% coupon, $950 price, 5 years
2. YTM = [50 + (1,000-950)/5] / [(1,000+950)/2]
3. YTM = [50 + 10] / 975

YTM = 6.15%

Yield Curve

1. Normal curve: Longer maturity = Higher YTM
2. Flat curve: Similar YTM across maturities
3. Inverted curve: Shorter maturity = Higher YTM (recession signal)

🌍 Real-World YTM Examples

1. NZ Treasury 2-year bond
2. Face value: $10,000
3. Coupon: 3.5% ($350/year)
4. Price: $9,920
5. YTM = [350 + (10,000-9,920)/2] / [(10,000+9,920)/2]
6. YTM = [350 + 40] / 9,960

YTM = 3.92%

Who this happens to, and what it meant for them

🌍 Real-World YTM Examples

1. NZ Treasury 10-year bond
2. Face value: $10,000
3. Coupon: 4.5% ($450/year)
4. Price: $10,200
5. YTM = [450 + (10,000-10,200)/10] / [(10,000+10,200)/2]
6. YTM = [450 - 20] / 10,100

YTM = 4.26%

🌍 Real-World YTM Examples

1. $10,000 face, 4% coupon, $10,000 price, 5 years
2. YTM = 4.0% (at par)
3. Credit rating: AAA (virtually risk-free)

Who this happens to, and what it meant for them

1. $10,000 face, 5.5% coupon, $9,800 price, 5 years
2. YTM = [550 + (10,000-9,800)/5] / [(10,000+9,800)/2]
3. YTM = [550 + 40] / 9,900
4. Credit rating: BBB+ (investment grade)

YTM = 5.96%

1. Fonterra YTM: 5.96%
2. Government YTM: 4.00%
3. Credit spread: 1.96%
4. This compensates for default risk

1. Bought at par: $10,000
2. Coupon: 4.5%
3. Maturity: 10 years (now 9 years left)
4. YTM at purchase: 4.5%

Who this happens to, and what it meant for them

1. New similar bonds: 6% YTM
2. Your bond's price fell to: $8,750
3. Current YTM on your bond: ~6%

1. Sale price: $8,750
2. Received coupons (1 year): $450
3. Total: $9,200
4. Loss: -$800 (-8%)

1. Continue receiving $450/year for 9 years = $4,050
2. Receive face value at maturity: $10,000
3. Total: $14,050
4. Original investment: $10,000
5. Profit: $4,050 over 10 years (4.05% annualized)

1. $97,000 (5 bonds)

Who this happens to, and what it meant for them

1. Year 1: $700 + $800 + $900 + $1,000 + $1,100 + $20,000 (Bond A matures)
2. Year 2: $800 + $900 + $1,000 + $1,100 + $20,000 (Bond B matures)
3. Reinvest matured bonds in new 5-year bonds

Gross Yield vs Net Yield

1. Gross Yield = (Annual Rent ÷ Property Value) × 100
2. Example: $650/week rent × 52 = $33,800 annual
3. Property value: $600,000
4. Gross yield: ($33,800 ÷ $600,000) × 100 = 5.63%

Gross Yield vs Net Yield

1. Net Yield = [(Annual Rent - All Expenses) ÷ Property Value] × 100
2. Same property: $33,800 rent
3. Less expenses:
4. - Rates: $3,500
5. - Insurance: $1,800
6. - Maintenance (1%): $6,000
7. - Property management: $2,700
8. - Vacancy (2 weeks): $1,300
9. Total expenses: $15,300
10. Net income: $33,800 - $15,300 = $18,500
11. Net yield: ($18,500 ÷ $600,000) × 100 = 3.08%

Total Return on Investment (ROI)

1. Total ROI = (Net Annual Income + Annual Capital Gain) ÷ Total Investment × 100

Total Return on Investment (ROI)

1. Property value: $1,000,000
2. Deposit (20%): $200,000
3. Loan: $800,000
4. Net rental income: $15,000/year (1.5% net yield)
5. Capital growth (5%): $50,000/year
6. Total return: $15,000 + $50,000 = $65,000
7. ROI on deposit: $65,000 ÷ $200,000 × 100 = 32.5%

Total Return on Investment (ROI)

1. Net rental income: $15,000
2. Capital growth (2%): $20,000
3. Total: $35,000
4. ROI: 17.5% on deposit

Complete Calculation Example 1: Auckland Apartment

1. Weekly rent: $620
2. Annual gross rent: $620 × 52 = $32,240
3. Less vacancy (3 weeks): -$1,860
4. Effective gross income: $30,380

Complete Calculation Example 1: Auckland Apartment

1. Council rates: $3,200
2. Building insurance: $1,400
3. Landlord insurance: $600
4. Body corporate: $5,200
5. Property management (8%): $2,579
6. Maintenance (0.5% for apartment): $3,750
7. Total expenses: $16,729

Complete Calculation Example 1: Auckland Apartment

1. Gross Yield: ($32,240 ÷ $750,000) × 100 = 4.30%
2. Net Income: $30,380 - $16,729 = $13,651
3. Net Yield: ($13,651 ÷ $750,000) × 100 = 1.82%

Complete Calculation Example 1: Auckland Apartment

1. Loan: $600,000 (80% LVR)
2. Annual mortgage (P&I): $45,312
3. Net rental income: $13,651
4. Annual cashflow: $13,651 - $45,312 = -$31,661
5. Weekly top-up required: $609/week

Complete Calculation Example 2: Palmerston North House

1. Weekly rent: $560
2. Annual gross: $29,120
3. Less vacancy (2 weeks): -$1,120
4. Effective: $28,000
5. Expenses:
6. Rates $2,800 + Insurance $1,500 + PM $2,330 + Maintenance $5,800 = $12,430
7. Net income: $28,000 - $12,430 = $15,570

Complete Calculation Example 2: Palmerston North House

1. Gross Yield: 5.02%
2. Net Yield: 2.68%

Complete Calculation Example 2: Palmerston North House

1. Loan: $406,000 (70% LVR)
2. Annual mortgage: $30,686
3. Net rental: $15,570
4. Annual cashflow: -$15,116
5. Weekly top-up: $291/week

Stress Testing Your Investment

1. Original mortgage (6.5%): $30,686/year
2. New mortgage (8.5%): $39,341/year
3. Increase: $8,655/year ($166/week)
4. New cashflow: -$23,771/year (-$457/week)

Stress Testing Your Investment

1. Current rent: $560/week
2. Market softens, new rent: $510/week (-9%)
3. Annual rent loss: $2,600
4. New cashflow: -$17,716/year (-$341/week)

Stress Testing Your Investment

1. Tenant leaves, takes 8 weeks to re-rent
2. Lost rent: 8 × $560 = $4,480
3. Plus cleaning/minor repairs: $1,200
4. One-off hit: $5,680

Stress Testing Your Investment

1. Hot water cylinder fails: $2,500
2. Roof repair needed: $4,000
3. Heat pump replacement: $3,500
4. Bad year total: $10,000

🌍 Real-World Investment Scenarios

1. Gross rent: $30,160
2. Vacancy (6 weeks - slow market): -$3,480
3. Rates: $2,400
4. Insurance: $1,600
5. Maintenance (older house): $6,500
6. PM fees: $2,413
7. Net income: $13,767
8. Mortgage (80% LVR, 6.5%): $28,997

Annual loss: -$15,230 ($293/week)

Who this happens to, and what it meant for them

🌍 Real-World Investment Scenarios

1. Property: $620,000 Hamilton house
2. Deposit: 35% ($217,000)
3. Rent: $630/week = $32,760/year
4. Expenses: $13,200
5. Net income: $19,560
6. Mortgage: $30,451
7. Annual top-up: -$10,891 ($209/week)

Who this happens to, and what it meant for them

1. Property: $800,000 Wellington house
2. Deposit: 25% ($200,000)
3. Loan: $600,000 at 2.5%
4. Annual mortgage: $28,809
5. Net rental: $24,000
6. Top-up: -$4,809/year ($92/week)
7. Thought: "Easy, we can handle $100/week"

Who this happens to, and what it meant for them

1. Same property, same rent
2. New mortgage: $45,312
3. Net rental: $24,000 (unchanged)
4. New top-up: -$21,312/year ($410/week!)

1. Property: $550,000 Christchurch house
2. Deposit: 50% ($275,000)
3. Loan: $275,000
4. Rent: $600/week = $31,200/year
5. Expenses: $12,800
6. Net income: $18,400
7. Mortgage (6.5%): $20,790
8. Annual cashflow: -$2,390 ($46/week)

Who this happens to, and what it meant for them

Bond: a maximum of 4 weeks rent

1. Weekly rent: $550
2. Maximum bond: 4 × $550 = $2,200

A bond above $2,200 for this tenancy would be unlawful.

Step by step: how to challenge

1. Step 1: Gather evidence. Use the Market Rent tool and current listings for similar properties in your suburb, matched on bedrooms, condition and features.
2. Step 2: Raise it in writing with your landlord. Set out the comparable rents and ask them to reduce the increase to a fair level.
3. Step 3: If the landlord will not agree, apply to the Tenancy Tribunal. The Tribunal can order the rent reduced if it is satisfied the rent substantially exceeds market rent.

The Tribunal decides based on evidence of comparable rents, so build the strongest evidence you can before applying.

🔢 Worked New Zealand examples

1. Tenancy start: 1 March 2025
2. Earliest a first increase can take effect: 1 March 2026 (12 months after start)
3. Notice required: at least 60 days written notice
4. Latest the landlord can serve notice for a 1 March 2026 start: about 31 December 2025

The $40 increase is valid from 1 March 2026, provided written notice stating $640 and the start date is served by around 31 December 2025.

Who this happens to, and what it meant for them

🔢 Worked New Zealand examples

1. Maximum bond: 4 × $550 = $2,200
2. Maximum rent in advance: 2 × $550 = $1,100
3. Lawful total up front: $2,200 + $1,100 = $3,300

The extra 4 weeks "security deposit" of $2,200 is not allowed. A landlord cannot hold more than 4 weeks as bond, and there is no separate lawful "security deposit" on top.

Who this happens to, and what it meant for them

🔢 Worked New Zealand examples

1. Tenancy type: fixed term, 12 months
2. Rent-review clause in the agreement: none
3. Result: rent cannot be increased during the fixed term

Tomas keeps paying $500 for the full fixed term. The landlord can only propose an increase once the term ends or the tenancy becomes periodic, and then only with 60 days notice and the 12-month limit.

Who this happens to, and what it meant for them

1. Proposed rent: $760
2. Market range for similar homes: about $650 to $680
3. Gap above the top of the market range: $760 - $680 = $80 a week

The proposed rent sits clearly above the market range, so there is a reasonable case that it substantially exceeds market rent.

Who this happens to, and what it meant for them

How much and on top of what

1. Weekly rent: $600
2. Standard bond: up to 4 × $600 = $2,400
3. Pet bond: up to 2 × $600 = $1,200

Maximum total bond held: $2,400 + $1,200 = $3,600 (6 weeks rent)

Who pays for pet damage

1. Pet-related damage beyond fair wear and tear: $1,500
2. Pet bond held: $1,200
3. Applied from the pet bond: $1,200

Balance the tenant still owes: $1,500 - $1,200 = $300

🔢 Worked New Zealand examples

1. Standard bond: up to 4 × $600 = $2,400
2. Pet bond: up to 2 × $600 = $1,200

Maximum total bond: $2,400 + $1,200 = $3,600, all lodged with Tenancy Services

Who this happens to, and what it meant for them

🔢 Worked New Zealand examples

1. Request made: 1 February 2026
2. Landlord must decide and respond within: 21 days
3. Deadline to respond: about 22 February 2026

If the landlord does not respond in time, they can face a penalty of up to $1,500.

Who this happens to, and what it meant for them

🔢 Worked New Zealand examples

1. Cat request: body corporate rules prohibit pets
2. Result for the cat: the landlord has a reasonable ground to decline
3. Guide dog: a disability assist dog is not a pet

The cat can be declined on reasonable grounds, but the certified guide dog needs no consent and no pet bond, and cannot be refused as a pet.

Who this happens to, and what it meant for them

1. Pet-related damage beyond fair wear and tear: $1,500
2. Pet bond available: $1,200
3. Applied from the pet bond: $1,200

Balance Mia still owes: $1,500 - $1,200 = $300

Who this happens to, and what it meant for them

The current weekly standard cost

1. Weekly standard cost per boarder (2025-2026 income year): $245
2. Two boarders: $245 × 2 = $490 a week of standard cost
3. If total board received is at or below the standard cost: no taxable income

You only pay tax on board received above the standard cost

🔢 Worked Examples

1. Board received: 2 boarders × $220 × 52 weeks = $22,880 a year
2. Standard cost: 2 boarders × $245 × 52 weeks = $25,480 a year
3. Board received ($22,880) is below the standard cost ($25,480)

No taxable income. Nothing to declare, no records needed, no tax to pay

Who this happens to, and what it meant for them

🔢 Worked Examples

1. Board received: $340 × 52 = $17,680 a year
2. Standard cost: 1 boarder × $245 × 52 = $12,740 a year
3. Taxable excess: $17,680 - $12,740 = $4,940
4. Weekly view: $340 - $245 = $95 a week taxable

Tax at 30%: $4,940 × 0.30 = $1,482

Who this happens to, and what it meant for them

🔢 Worked Examples

1. Total rent: $780 a week, split three ways = $260 each
2. Josh collects from the other two: $260 × 2 = $520 a week
3. Josh pays the landlord the full $780 a week

The $520 collected and passed on is not taxable income

Who this happens to, and what it meant for them

1. Rental income: $520 × 52 = $27,040 a year
2. Deductible interest (100% for 2026/27): $18,000
3. Rates: $2,600
4. Insurance: $1,600
5. Repairs and maintenance: $1,000
6. Total expenses: $18,000 + $2,600 + $1,600 + $1,000 = $23,200

Taxable rental profit: $27,040 - $23,200 = $3,840

Who this happens to, and what it meant for them

What Is Prorated Rent?

1. Monthly Rent = Weekly Rent × 52 weeks ÷ 12 months

Basic Daily Rent Formula

1. Daily Rent = Monthly Rent ÷ Days in That Month

Basic Daily Rent Formula

1. Daily Rent = Weekly Rent ÷ 7 days

Basic Daily Rent Formula

1. Daily Rent = Fortnightly Rent ÷ 14 days

Calculating Prorated Amount

1. Prorated Rent = Daily Rent × Number of Days Occupied

How ring-fencing works

1. Rental income minus rental deductions = rental result
2. If a profit: taxed at your marginal rate
3. If a loss: ring-fenced, carried forward to a future rental-profit year

A rental loss cannot reduce the tax on your salary or wages

🔢 Worked Examples

1. Rental income: $650 × 52 = $33,800
2. Deductible interest: $350,000 × 6.5% = $22,750
3. Rates: $3,000
4. Insurance: $1,800
5. Management fee (8% of rent): $33,800 × 8% = $2,704
6. Repairs and maintenance: $1,200
7. Other deductions total: $3,000 + $1,800 + $2,704 + $1,200 = $8,704
8. Total deductions: $22,750 + $8,704 = $31,454

Taxable rental profit: $33,800 - $31,454 = $2,346

Who this happens to, and what it meant for them

🔢 Worked Examples

1. Rental income: $480 × 52 = $24,960
2. Deductible interest: $520,000 × 6.5% = $33,800
3. Rates: $2,800
4. Insurance: $2,000
5. Management fee (8% of rent): $24,960 × 8% = $1,996.80
6. Repairs and maintenance: $2,500
7. Total deductions: $33,800 + $2,800 + $2,000 + $1,996.80 + $2,500 = $43,096.80

Rental result: $24,960 - $43,096.80 = a $18,136.80 loss

Who this happens to, and what it meant for them

1. Interest on the $300,000 rental portion: $300,000 × 6.5% = $19,500
2. Interest on the $40,000 car portion: $40,000 × 6.5% = $2,600
3. Total interest charged: $22,100

Deductible interest: $19,500 only

Who this happens to, and what it meant for them

1. 2023/24: $6,000 other + $12,000 interest = $18,000 deductions; $31,200 - $18,000 = $13,200 profit
2. 2024/25: $6,000 other + $19,200 interest = $25,200 deductions; $31,200 - $25,200 = $6,000 profit
3. 2026/27: $6,000 other + $24,000 interest = $30,000 deductions; $31,200 - $30,000 = $1,200 profit

Margaret's rental tax falls from $4,356 to $396 as full deductibility returns

Who this happens to, and what it meant for them

🔢 Worked examples

1. Was it careless? Yes, so the cap applies
2. Four weeks' rent: $600 × 4 = $2,400
3. Landlord's insurance excess: $1,000
4. Cap is the lesser of $2,400 and $1,000

Sam is liable for $1,000, not the full $12,000

Who this happens to, and what it meant for them

🔢 Worked examples

1. Was it intentional? Yes, so no cap applies
2. Four weeks' rent ($2,000) and the excess ($1,500) do not limit intentional damage
3. Dan is liable for the full repair cost

Dan owes the whole $6,500

Who this happens to, and what it meant for them

🔢 Worked examples

1. Is worn carpet after six years wear and tear? Yes
2. Are sun-faded curtains wear and tear? Yes
3. Tenant liability for fair wear and tear: none

Mere is charged $0 and her bond must be refunded

Who this happens to, and what it meant for them

1. Four weeks' rent: $550 × 4 = $2,200
2. Landlord's insurance excess: $2,500
3. Her capped liability is the lesser: $2,200
4. Priya claims the $2,200 on her tenant liability cover
5. She pays only her own policy excess: $250

Priya is out of pocket $250 instead of $2,200

Who this happens to, and what it meant for them

The Real Costs of Owning

1. Deposit (typically minimum 20% to avoid LVR restrictions)
2. Legal fees for purchase
3. Building inspection and LIM report
4. Moving costs

Comparing True Costs

1. Renting cost: Weekly rent × 52
2. Buying cost: Mortgage INTEREST + rates + insurance + maintenance
3. Note: Mortgage principal is not a cost - it's equity building (forced savings)
4. Compare the true consumption costs, not principal repayment

The "Throwing Money Away" Fallacy

1. Rent pays for housing service - you need somewhere to live
2. Mortgage interest also "thrown away" - doesn't build equity
3. Rates, insurance, maintenance also "thrown away" for owners
4. Both renting and owning involve consumption costs for housing
5. Only mortgage principal builds equity - everything else is cost

Boarding house tenancies

1. Notice to end it is short. A boarding house tenant can give 48 hours notice, and the landlord's notice obligations are also compressed compared with a standard tenancy.
2. House rules are permitted , but they must be reasonable and given to you.
3. Entry rules differ. Repairs and maintenance in a boarding house run between 8am and 6pm rather than the usual 8am to 7pm, and meth testing needs 24 hours notice rather than 48.

Faster in, faster out, with the same underlying protections.

The tax side: standard costs

1. Two boarders paying $250.00 a week each: income of $500.00 a week.
2. Weekly standard cost: 2 x $245.00 = $490.00 .
3. Excess: $500.00 − $490.00 = $10.00 a week.

Over a full year: $10.00 x 52 = $520.00 of taxable income, before any housing or transport standard costs are added, which would usually remove even that.

What quiet enjoyment actually means

1. Entering without proper notice is a breach, even if nothing was disturbed and the landlord meant well.
2. Using force or threatening force to enter while someone is inside is specifically prohibited.
3. A pattern of interference can amount to a breach even where each individual incident looks minor.

The Tenancy Tribunal can award damages for a breach of quiet enjoyment.

If your landlord enters improperly

1. Write it down immediately. Date, time, who entered, what notice was or was not given. Contemporaneous notes carry weight later.
2. Raise it in writing. A calm message setting out what happened and what the rule is resolves most cases, because a good number of breaches are genuine ignorance.
3. Use the 14 day notice. Tenancy Services publishes a template notifying a breach and giving the landlord 14 days to remedy it.
4. Then the Tenancy Tribunal. Applications are inexpensive, and unlawful entry is a straightforward claim where the facts are documented.

Escalate in that order. Skipping straight to the Tribunal without raising it first rarely helps you.

How Much of Your Income Should Go to Rent?

1. Maximum Safe Rent = 30% of Gross Household Income

How Much of Your Income Should Go to Rent?

1. Monthly rent limit = (Annual salary × 0.30) ÷ 12

How the Refund Works

1. Leave the property clean and undamaged beyond fair wear and tear
2. Settle any rent owing
3. Agree the refund, or apply through Tenancy Services
4. The bond is paid back, less any agreed or ordered deductions

A Simple Approach

1. 1. Read the agreement and confirm the bond is lodged
2. 2. Photograph the property at move-in
3. 3. Pay rent on time and report repairs
4. 4. Know your notice rules and your rights
5. 5. Use Tenancy Services and the Tribunal for disputes

Example 1: First Flat Upfront Costs

1. Bond (4 weeks): $880
2. Rent in advance (2 weeks): $440
3. Contents insurance (first month): $22
4. Power connection deposit (no credit history): $200
5. Internet share (router + first month, split 3 ways): $40
6. Basic kitchenware and bedding: $300
7. Total before sleeping one night: $1,882