You can invest directly in property – this may be a property to sell later for profit (called capital gain), or a rental property. Some people buy and sell, or build and sell, the home they live in for profit. You can also invest through managed funds, property syndicates or listed property funds. These types of property investment give you the advantages of property ownership without having to purchase and manage the property investment yourself.
It’s your 'intention' when buying a property that differentiates your family home from a property investment. If your intention is to sell for profit, then that property is considered an investment – even if you live in it.
The FMA doesn’t regulate direct property investment but we do regulate the providers of managed funds and property syndicates. You can find out more about these types of investments in our ways to invest section.
You can learn about residential property investment tax obligations on Inland Revenue’s website.
Investing in property can be less volatile than shares and other investment types. It’s also a concept most New Zealanders are familiar with, which is what makes it so popular. However, it’s not easy to sell property in a hurry when you need the cash.
Property values are tied to interest rates, how many buyers there are for your property and how many others are also selling their properties at the same time.
You may risk losing capital on your initial investment when you sell. Here are some things you should think about before you enter the property market:
Buying a property can tie up your savings. If you invest most or all of your cash in property and then need access to cash, you’ll either need to sell, tenant your property or increase your mortgage. This isn’t always easy and there are usually fees involved.
There are lots of costs involved with managing a property.
Some of these include legal fees, property manager fees, insurance, taxes, utility bills, maintenance and interest rate increases. Besides costs such as commissions, fees, and council rates, there might be unexpected costs associated with repairs to a property.
Most people pay a deposit and borrow money to invest in property. Ask yourself how much debt you can afford to take on. Use your bank’s mortgage repayment calculator to find out how much you need to repay per month, and how much of your income is left to pay other household bills.
Your mortgage repayment will rise when interest rates go up, affecting your disposable income. A 0.5% rise in interest rate to 6% for a loan of $300,000, fixed for 30 years, would add about $110 more to your mortgage each month, or a repayment of around $1,800 per year.
If interest rates fall, and you choose to refinance a mortgage rate that has been fixed for a number of years, you might need to pay a penalty fee for breaking the terms. This may make your total loan repayment more expensive. It’s also possible to end up owing more than your property’s worth if its value drops. This is known as negative equity.
If you have a rental property and cannot find tenants, you’ll have to dip into your savings to pay your mortgage. Make sure you have enough savings to cover these unexpected costs.
There are two main ways you can reduce your risk:
Sorted for further information about investing in property.
Inland Revenue for property and tax information.
The Real Estate Agents Authority has a great buyers and sellers guide with information on key things you should know before you buy or sell a property.
Speak to a financial adviser if you need help with your personal situation. See our Getting financial advice pages for details.