Buying an Investment Property in NZ
Ins and outs of Buying an Investment Property in New Zealand
It does not matter if you are investing in property for the first time or are looking to do it for the third or fourth time. When investing in property you have to do your research correctly, read on to learn all you need to know about buying investment property in New Zealand.
What is a Property Investor?
A property investor is anyone that has bought a house with the sole intention of then renting that property to gain an income. Second homes such as a holiday home can be treated the same as owner occupied, unless they are rented out for longer than six weeks every year are also classed as being investment properties.
Are you interested, but not sure where or how to begin?
Maybe you need to crunch some numbers, understand what your equity is or what your potential returns might be. You will also have to take into consideration additional expenses you might not have thought about. To get started you should talk to an investment property lending specialist. You can call Stephen on 09 377 4433.
Investment in a Residential Property could be the right choice for you if:
You are excited about the idea of investing your money into bricks and mortar. You would like to leave a sizeable nest egg for your family, or to help your family get the first step onto the property ladder. You are thinking about your own retirement. The property you currently own has a good rate of equity.
The Pros and Cons of Investing in Residential Property
These will be different for everyone. Here are some of the main advantages and risks that you could potentially find while you are investing in residential property.
The Pros or Advantages
You get a regular rental income. Some of your expenses may be deductable against the total of your taxable income. This can include the interest paid on your loan. You will make gains as your property increases in value. You can use your available equity in your existing property to buy your investment property. The ‘bricks and mortar’ are something tangible, so no matter what it costs you will always have something to show for your money.
The right structure can save you many thousands so it is best to discuss the plan with your adviser before approaching a bank who may tie up all your assets in the wrong way and stop you claiming tax deductions.
The Cons or Risks
You may find you have to pay unexpected expenses such as the costs of maintenance, rent to pay on an untenanted property or higher rates or insurance premiums.
We find property managers are well worth their fee and save you losing tenancy battles and lost rents. But you must choose them wisely. Read more on this at the end of this article.
An unexpected rise in interest rates could increase your costs and reduce the profit you are making from the property. You may find initially little or no profit, property investment should be for long term profit and not short term gain. The value of your investment property may not increase as you had hoped due to a drop in the market prices. If you sell your property it could take some time and the gains you make from the sale are subject to tax.
Setting out to Invest in Residential Property
Types of Ownership
There are a number of ways in which you can structure property ownership. You could be an individual owner or you could own it jointly with another person. You could also be a trustee of a trust, a company or partnership. Whichever of these options best suit your needs you should seek the advice of your financial advisor, lawyer or accountant for the best advice. A good source of information for different ownership types can be found at the Inland Revenue Department website.
Tax and Record Keeping
You should be able to claim some tax benefits from owning an investment property. To fully understand what you may be entitled to you should seek the advice of your accountant, tax advisor or lawyer. You should also keep accurate clear records of any transactions you make with regards to your investment property. This should include legal records of ownership, records of any renovation work carried out and anything to do with the management of your tenants. You should keep all proof of your expenditure and income for tax purposes.
Managing Your Home Loan
You should keep a close eye on your home loan and adapt it as you make changes in your home life. If you are starting a family you may want to reduce your repayments. Another reason for making changes to your home loan is if you have some renovations completed in your investment property or if you just want to pay your loan off faster. If you keep on top of your payments you can also reduce what you owe in interest.
Redrawing on your ‘Buffer’ or Loan Surplus
If you have been regularly paying in excess of the minimum payment on your home loan you will have built up a buffer, you can in effect draw on this money if you need renovation work to be conducted or even if you have no tenants for a few weeks. If you have built up a buffer you could also take a repayment holiday for as long as your buffer remains in credit.
Assistance for Landlords
You will have to decide if you will manage your property or will you get a professional to do this for you. If you don’t have the time or skill required to be a landlord you could hire a property manager to do this for you. Here are some of the tasks undertaken by a property manager.
Property management can be a stressful task, made more difficult if your tenants do not comply with the rules of the tenancy. There are benefits to managing your own property, but only if you have the time to take care of the property and the day to day management. It can also cost you a lot of money hiring a property manager as they will usually take around 7 to 8.5% of the rental income. We have excellent managers who give our clients preferential treatment so contact us for good connections.
One advantage of hiring a property manager is they will screen potential tenants, do credit checks and check references. They are also aware of the ins and outs of the legal requirements regarding bond payments and managing tenants.
Conclusion
Once you have mastered your first steps in investing in property it is very much a case of doing the same over and again for your second and third investment properties. The first one is always the hardest as you become more experienced the easier it gets and if you have enough properties you can retire and live off the income.
Contact My Money
Address: 50 Remuera Road, Remuera
Email: stephen@mymoney.net.nz
Phone: 09 377 4433
