New Zealanders have an obsession with property.
After thinking about it, these are the reasons why:
This article deals with investment properties, which specifies that the intent when the property was purchased was to own it long term or more than a couple years.
Rental properties are a sound investment. The rental market in New Zealand is strong and there are no signs of it weakening. Since the cost of living continually rises, it is reasonable to believe that you will be able to increase the rent for your investment property over the years. At the same time, the mortgage on that property remains a fixed amount. This means that your net income on the investment property will almost surely increase over the years.
Expenses that are incurred in order to produce income are tax deductible. This means that the expenses incurred for your investment properties, are tax deductible. This would include any maintenance (such as paint and carpeting) and any repairs (such as new siding or roof repairs) needed for your investment property.
Increases in property values are tax free. What a nice benefit. If the value of your income property increases due to a favorable housing market or economy, improvements made on the property, or for any other reason, the increased value is not taxable.
Depreciation of investment property is also tax deductible. Whilst there have been some changes recently to the rules around depreciation (depreciation on building is now at 0%), depreciation on some chattels is still allowed. Depreciation is defined as the lessening in value of something due to normal wear and tear. Either straight-line or diminished value depreciation can be written off on your taxes.
In summary the best advice for property investors is:
1) Make sure you structure your investment right to maximise the tax benefits
2) Make sure claim all deductible expenses. Restructure your borrowing to ensure that deductible interest is charged against rental income. For example if you owned a personal house, and a rental property it would be advantageous to have all of your borrowings against the rental property and none against your personal house. Consult your tax professional to ensure that any restructure is done legally.
3) Reduce your expenses. Right now banks are offering special rates if you ask for them. Mortgage brokers help buyers find the best mortgage for their needs. There are mortgage brokers who work specifically with property investors. These brokers know this segment of the industry. They understand the loans available and the tax implications of owning investment properties. They work for the investor and not the lender, but the lender pays their fee. Since mortgage brokers work with multiple lenders, they will be able to negotiate a good deal with the banks they work with. A mortgage broker can be an invaluable piece of mind-of-mind for the property investor, whether this is your first time investing in income property or if you are a seasoned investor.