A Second Home? Property Investment Explained
Purchasing an investment property is the second biggest property related decision you can make after purchasing your owner occupied home — the home you live in. Don’t get me wrong, there are many options out there to give a gift to your future financial self but today I want to explain how an investment property or properties can generate wealth!
MULTIPLE INCOME STREAMS
A main driver for many is that investment property provides cash flow — rental income and asset appreciation — known as capital gain. With the likes of Airbnb, investors are able to have increased cashflow at a lower cost compared with long term rentals, although there’s more work this way, especially if you’re managing the Airbnb yourself! Property managers can always do this for you — Nothing’s free though!
BANKS LOVE IT
Banks in NZ have been a long time lover of residential investment. Recently however times have become a little tougher due to the new LVR rules set by the Reserve Bank (your loan value (amount) divided by home value (worth)). In saying that, there are still ways in which banks are prepared to fund upto 100% of the purchase price depending on the investor and their overall position — sounds easy right.
To keep it simple, leverage is the ability to make returns (money) on someone elses’ money — In most cases the banks. As mentioned above, sometime we can borrow 100% of the purchase price, and keep 100% of the gains.
IT’S AN ASSET
Property, you can touch it, feel it and show it off! Having direct ownership gives you greater control of your newly acclaimed asset.
Set your goals and standards before you make your purchase. Purchasing property as a long term investment has very consistent and predictable returns. Recent stats from REINZ show that on average investment property can achieve 6% of capital growth per year.
TAX BENEFITS & NEGATIVE GEARING
In NZ there are for now, several tax benefits for investing in residential property. Once you own an investment property, they way you file your tax return changes — you are now able to claim the expenses you incur to generate your rental income. Usually this means you have negative gearing — your expenses (mortgage interest, rates and insurance) are higher than the income you receive for the property. Therefore making a loss on your investment. If you do have an investment property, I would suggest getting in touch with an accountant for professional advice — Stay tuned though as I will be sharing some tips when it comes to filing your tax return as a investor,
Giving a gift to our future financial selves, is what we are all about here at Paper and Sweat. The tips I’ve touched on are to get you thinking about the idea of property investment and generating wealth by growing and maintaining your property portfolio — the best investment was the one that happened yesterday.