Knowing what you want to achieve will help you decide which investment strategy is for you, and what to buy where. Property investment is a hot topic here in New Zealand. The sector has seen phenomenal growth in recent years. Savvy investors who build a sound portfolio can expect to enjoy the benefits of being their own boss, regular rental income, fantastic capital gains and a enviable nest egg for retirement. These are seven reasons to continue investing in property in New Zealand. If your family home is valued at $750,000 and you have $250,000 in a mortgage, you have $500,000 equity. Your bank won’t let you withdraw all this equity, but some of it could be used to create the 40% deposit you need for a rental property investment.
If you buy a house at $100,000, it will be worth $200,000. You could use the extra equity to recycle the deposit and buy another house or perhaps you simply want to enjoy the rental returns. Either way, you’ve just created a lot more wealth than you’d get in interest from the bank. Before you commit to buying a rental property, you need to look hard at the numbers. It’s smart to sit down with an accountant or mortgage broker to see the reality of what you’re getting into. If your expenses exceed your income, you are in what’s called a ‘negative gearing” situation.
This is a great investment that can provide both income and capital gains. Before buying your next property or starting your portfolio, it pays to do your homework first to make sure it will be worth your while and provide a good return. This site is a great resource for those who are just starting to invest in property or those who have been investing for some time. The most popular strategy for property investors in New Zealand is ‘Buy and hold’.
Rules about how much deposit you need for a property investment have changed. Reserve Bank restrictions limit high-LVR loans to 5% for each lender. Your deposit money could come from savings, but more likely you will be leveraging equity in your own home.
You will want maximum rent for your minimum investment if you are looking to invest in an investment property to generate an income stream. This will require you to do some research in New Zealand to find locations where rental properties are not only affordable but also highly sought-after. The minimum deposit required to purchase an investment property in 2021 will be 40%, with an exception for new-build properties. In the last 10 years, the amount needed to purchase an investment property was as high as 40% and as low at 20%.
If you’ve been a home owner for a few years, you could use some of your equity as a deposit for an investment property. Talk about property investing is often about buying residential rental properties. There’s always the option of investing in commercial real estate, but we’re saving that topic for another guide. These tips and information are primarily focused on residential property investments in New Zealand.
This is why most investors who focus on renovations will choose a standalone house. While that sounds obvious, it means you don’t get any of the benefits from holding the property over the long term. There is no enjoyment from long-term capital gains from the house increasing in value, or receiving cashflow through rent from future tenants.
For example, if your house is worth $500,000 and you owe $200,000 on your mortgage, you have $300,000 in equity. You build up equity as you pay down your mortgage or if your house rises in value. Your family home, if purchased strategically can provide excellent capital growth, which again is untaxed in New Zealand. If you use property investment principles when buying your home, you get even higher gains. It is usually harder to borrow money for a rental property than for our own home. Some lenders may offer lower lending limits for investment properties.
- Make sure you take these costs into account when deciding to purchase an investment property.
- Unless you get capital gain, you’re losing money rather than making it.
- So if you buy a house for $100,000, in 10 years time it will be worth $200,000.
- Over the past 10 years, the amount required to purchase an investment property has been as much as 40% of the purchase price and as low as 20%.
The government responded by moving the bright line on capital gains tax and gradually ending the ability of property investors to claim interest on loans. Some property investors have decided to sell their portfolios and put everything into Tom Mc Cartney agent Manukau a family home. This is because capital gains tax doesn’t apply to the house you live. However, the lure of long-term gains hasn’t really dampened the glow of property investment.