Investment property mortgage rates in New Zealand are typically higher, requiring a larger deposit. Rental income is taxed, but deductions are allowed. Check mortgage terms for any residency requirements. Property management, insurance, and legal compliance are vital. Consult professionals for informed investment decisions.
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“I’ve never purchased a house….my partner and I are going around in circles about this issue. Scenario – I have seen a townhouse out west which would be ideal to rent out. I want to rent it out and continue to live elsewhere, at least for a few years. If we buy a property and don’t live in it: Will we have a higher mortgage rate? Will we be taxed on any rental income? Are we allowed to rent the property out immediately? I understand that we will miss out on any first-home buyer benefits, etc – but is there anything else I need to know in this scenario?”
(Original question on Reddit)
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Mortgage Rate: Mortgage rates for investment properties can differ from those for owner-occupied properties. Typically, interest rates for investment properties are slightly higher due to the perceived higher risk. Lenders may require a larger deposit (e.g., 20% or more) and offer a higher interest rate for investment loans. It’s crucial to shop around with different lenders and mortgage brokers to find the best deal.
Tax on Rental Income: In New Zealand, rental income is subject to taxation. You are required to declare this income on your tax return. However, you can also claim deductions for certain expenses related to the property, such as property management fees, maintenance costs, and mortgage interest. To navigate the tax implications properly, consider consulting with a tax professional who can help you understand the specific rules and maximise your deductions.
Renting the property Immediately: Typically, there are no restrictions on renting out a property immediately after purchase in New Zealand. However, it’s essential to carefully review the terms and conditions of your mortgage agreement, as some lenders may have clauses that require you to live in the property for a specific duration. Make sure you understand your mortgage terms and, if necessary, discuss your plans with the lender.
Considerations: Besides potentially missing out on first-home buyer benefits, you should consider several other factors. Property management is crucial, especially if you plan to live elsewhere. Consider hiring a property management company to handle tenant issues and property maintenance. Additionally, you need to secure the right insurance for your rental property, which may have different requirements compared to owner-occupied properties. Furthermore, it’s essential to familiarise yourself with the legal and regulatory aspects of renting out property in New Zealand, including compliance with the Residential Tenancies Act and ensuring the property is safe and habitable for tenants.
Before making any decisions, it’s highly recommended that you consult with professionals, including mortgage brokers, tax advisors, and legal experts who are knowledgeable about New Zealand’s property and tax laws. This will help ensure that you make informed choices when buying a property for investment purposes.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
