Rental Property Investors

Are you considering the idea of buying your first rental property?

  • Perhaps you are buying a new home, and would like to explore the possibility of keeping your current house as a rental property?
  • You could be a seasoned property investor with a number of properties, considering your next move?

Whether you are just starting out, or already have a number of rental properties, contact me now. I am a dedicated property investor myself, so I have personal experience as well as mortgage finance experience. I would be happy to have a discussion with you to identify how I can help you achieve your property investment goals.  I have access to 80% funding for rental properties.

Mortgage Calculator
Pre Approval
Make an Appointment

“Sonya has been an absolute guiding light to us during the process of securing a mortgage on rental properties. She has been far more than a mortgage broker, offering valued advice relating to rental property purchase and providing us with innovative strategies that we alone would never have thought of. She has been an inspiration and over the years, she has become a good friend who we have relied upon for valued judgement. She has gone the extra mile on many occasions, often phoning us with information outside normal working hours, and she has been the sole reason we have managed to work our way through the sometimes complex process of securing property in such a competitive market. I wholeheartedly recommend Sonya to anyone wanting to secure a mortgage – you will not find anyone more dedicated to their customers or more pleasant to deal with.”

Your Content Goes Here, Your Content Goes Here

“I just wanted to say how hugely appreciative I am of your work securing an excellent mortgage rate for me. For many years when my mortgages have been up for renewal I have played the banks off each other as I have been aware that because I have multiple properties I have some bargaining power. That tactic has always paid dividends so I have never used a mortgage broker before. But now that I have seen what you have negotiated for me without any effort on my part, I will definitely be coming back to you in future. I particularly appreciate that you could have got more money for yourself by convincing me to go to another bank, but instead got my existing bank to give me a much better deal than previously and therefore save me the inconvience of shifting banks.”

Your Content Goes Here, Your Content Goes Here

The Principles of Property Investing

The basic principle is that property values and rents increase over the years, while your debt stays the same (or, ideally, reduces). So you are building up an asset base that is worth considerably more than you originally paid.

If you are borrowing a large amount to buy a rental property, chances are that, in the early years, the rental income will not totally cover the outgoings, such as your mortgage payment, house insurance, council rates and maintenance costs. Therefore you will need to fund the shortfall from your personal cashflow.

However, the good news is that any losses plus the expenses incurred in managing the property may be able to be offset against your tax. So, in effect, you have the tenant and the tax department helping to pay off your capital-appreciating asset.  And that, in a nutshell, is why property investment is so popular in New Zealand.

If the value of your own home goes up and the mortgage on it stays constant (or reduces), your equity, – or ‘net worth’ – increases. The bank allows you to borrow against that equity to fund 100% of the purchase price of a rental property.

Then, if the value of your own home and the rental property goes up and the mortgages on them stay constant (or reduce), your equity has increased again, and you can use that equity to buy a second rental property…. and so on.

I acquired my first house in Sydney, Australia, having scraped together a 5% deposit, plus another 5% to cover the stamp duty and fees they charge you to buy a house in New South Wales. A few months after moving into my own home, I read a book on property investment by an Australian author called Jan Somers.

This book set out the basic principles of property investing for the long-term, and inspired me to take action. I arranged a meeting with a mortgage broker to enquire how much I could borrow for my first rental property (I was a recruitment consultant at the time). He gave me an honest appraisal of the situation and said that I could afford a rental property in the low price range, and it would need to return a relatively high rental. Rental yields weren’t very high in Sydney at the time, but I was undaunted. I knew exactly what type of property I needed to find to qualify for a mortgage, and it didn’t take long to find it. Three months later, I was the proud owner of a three bedroom townhouse in the western suburbs of Sydney. It had an ensuite and a garage with internal access – two features I still haven’t managed to acquire in my own home – such is the life of the property investor!

Twenty years later, my partner and I own rental properties in Wellington, Wairarapa and Queenstown. In between times I have moved countries, changed careers, and had children. The point is that property investment is a flexible pursuit. While it is important to start as soon as you can, take your time adding to your property portfolio – there is no race.

Rental property has two types of potential returns. One is from rent paid by tenants and the other is from the property increasing in value – called capital gain. People buy rental properties to make profit from the long term capital gain as property prices rise. 

In the short term, there may be little or no profit from rental income after expenses (mortgage, insurance, rates and maintenance) are taken into account. But in the long term, when your mortgage is eventually paid off, you will have a long-term income stream as well as capital gain. Property markets in New Zealand have historically enjoyed solid long term growth. Should this continue, your investment will grow in value.

Establishing the correct ownership and borrowing structure is extremely important, as this ensures that both flexibility and tax benefits can be maximized. The most common ownership structures include Look Through Company (LTC), Qualifying Company (QC), Family Trust, or individual ownership. I can refer you to legal and tax professionals to determine the most effective ownership structure for your personal circumstances.

Revenue Costs

Revenue costs can be directly deducted against rental income. Examples of revenue costs include:-

  • Rates
  • Insurance
  • Interest on borrowings
  • Borrowing costs (loan application fees, valuation fees, lenders mortgage insurance, search fees etc)
  • Property Manager’s commission
  • Repairs (check the distinction between repairs and improvements with your accountant if unsure in a specific situation)
  • Cleaning
  • Gardening and Lawn Mowing
  • Advertising
  • Telephone
  • Stationery/postage
  • Accounting fees and bank charges
  • Body Corporate fees
  • Car (If you travel to inspect your property or to under-take rental property activities (e.g. obtain quotes or purchase property-associated items), you may claim mileage. Rates are set by Inland Revenue –refer to www.ird.govt.nz).

Only the interest portion of your investment loan is tax deductible, not the principal portion.

Originally, I set up all our investment loans on an interest-only basis to preserve cash-flow. Any spare cash we had went onto our own personal mortgage, as there is no tax advantage in personal debt. Once we paid off our own home and our rents increased over time, I gradually changed the investment loans over to a principal and interest basis.

Personally, I subscribe to the view that land appreciates and buildings depreciate. With that in mind, I try to stick to houses or townhouses that have a reasonable land component as I believe capital gain is stronger for these properties. However, I have plenty of clients who invest in units and apartments who are happy with the results of their property investments. The advantage of property investment is that you can employ a strategy that suits you.

I tend to buy in the lower price range. For example, I would prefer to buy two rental properties for $450,000 each rather than one property for $900,000. This is because I believe there is a much bigger pool of tenants and prospective buyers in the lower price range. Having said that, I have friends and clients who only buy in the higher price range because they believe a superior property attracts superior tenants and that’s fine too.

These days we use a property manager but, in the early years we managed our properties ourselves. I realise that prospect is off-putting for many new property investors! Actually, we had very little trouble over the years – tenants are generally well-mannered and pay their rent on time. It is important to monitor the rent going into your bank account. Be aware of the date rent is due, and check your bank account online on the day it is due. If the rent is not there, don’t hesitate to contact the tenant immediately. Tenants respect the fact that you are paying attention to the situation, and will be less likely to get into arrears if they know it isn’t going to take you six weeks to notice they are behind in their rent!

If managing tenants is not for you, hire a reputable property manager to manage your rental property for you. It is advisable to ask around among other property investors for a referral. A lot of people complain about the weekly cost of having their properties managed. Remember to keep the big picture in mind – it is a small amount of money which is a deductible expense. And, if it saves you from selling a property simply because you are sick of dealing with tenants and/or tradespeople, it will be money well spent!

Download Calculator

Enter your expected rental income and estimated property expenses into this handy calculator to forecast your cash inflow/outflow after tax.

Please note the tax rate of 33% is used for all calculations. Check back later, as we plan to upgrade the calculator to handle all tax rates in future.

All Services

First Home
Buyers

Trading up to Your Next Home

Rental Property Investors

Overseas Kiwis Buying in NZ

Refinancing

Building
a Home

Renovating
Your Home

Relationship
Break-Up

Self Employed

Insurance