How to invest in residential property

As well as being a solid, visible asset, an investment property can be a reasonably secure long-term investment.

However, as with any investment, it is important to weigh up the pros and cons to ensure investing in property is right for you.

Benefits

• Property can be a reasonably secure, long-term investment, and is a tangible and solid asset.
• Capital gains may be realised depending on the real estate market and property.
• You will receive rental income which may exceed your loan payments and expenses.
• There are tax advantages when expenses (including loan interest and rates) are offset against rental income.
• You can claim depreciation on assets like furniture, carpeting and white goods.  Speak to your accountant about the best way to calculate depreciation.

Drawbacks

• In addition to your investment loan, you may incur other costs such as legal fees, property inspection fees and loan establishment fees. There can also be significant holding costs, including maintenance, council and water rates, insurance, and body corporate (strata) fees for units or apartments.
• Your investment funds may not be available to be accessed quickly if you need to sell and it takes some time.
• The property market can fluctuate so capital gains may vary (or even be a loss).
• Interest rates will also change over time so your expenses may increase while your rent income remains static.
• Your property may not be tenanted for periods of time, and you may need to foot additional maintenance expenses depending on how well your property is cared for. 
• You may earn higher returns with a different type of investment.

Key considerations

Choose your property type. Which type of property should you invest in that suits your investment plans? Your options include residential houses, units or apartments and holiday homes.

Talk through your loan options. How do you want to structure your loan repayments? There are a whole range of options including interest only (up to five years), principal and interest, table or reducing, fixed versus floating, split loans (a combination of different loan types). We can help guide you through the different options and work out what is best for your circumstances. Find out more about investing in property.

Think like a tenant. Give some thought to what a prospective tenant might be looking for. For example: how close is the public transport? Where are the schools, parks and shops located?

Should you use a property manager? You’ll need to decide if you should manage the property yourself or use a property management company. Generally property managers will charge fees around 7-8 per cent of the rental income. Usually their services will include finding tenants and signing up rental agreements and bonds, property inspection and routine condition reports, attending to property maintenance issues, managing tenancies including rental collection and any disputes or evictions, and providing financial reporting market reports.

Insurance. Get the right type of insurance for your investment property; the good news is that it is tax deductible. Our Home insurance product provides cover for investment properties. Cover includes:

• Protection against insured events such as burglary, storm, fire and flood.
• A range of additional benefits, including cover for loss of rent  if the house is unliveable due to impact of an insured event.
• In the event of a total loss your house will be rebuilt up to the Total Sum Insured amount.

Handy tools and resources

If you are becoming a landlord for the first time, the Department of Building and Housing has more information on their website including draft tenancy contracts, how to avoid tenancy problems and more.

Find out about taxes, what you can claim and what happens when you sell your investment property on the IRD website or speak to your accountant.

Want to find out more? Call us on 0800 100 600 to speak to an ASB Mobile Lending Manager, or visit our website to contact one closest to you.

Disclaimer: This article is intended to provide general information. It is not based on the financial situation or needs of individuals and must not be relied upon as financial product advice. Tax considerations are general and based on present tax laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information