Thinking about buying an investment property? While the market recently hasn’t been the best place for investors, we are starting to see a few begin to come out of the woodwork now the prices are beginning to fall in most parts of the country. But for newbie investors, what should you be considering and looking for when it comes to an investment property?
Let’s talk profit first. There are two main ways to make money off investment property - rental yield and capital growth. Both go through phases of highs and lows depending on market conditions.
Rental yield is the amount left over from the rent amount, minus the mortgage and costs associated with running the property. Capital growth is the amount that the property value grows over time.
If you are looking for high rental yield, right now might not be the best time to buy with the high interest rates meaning generally a lower yield. It’s also not the best time if you are planning to try and flip a house, with higher renovation costs and fewer gains to be made.
If you are looking to play the long game and hold on to the property for a while, now is a great time to buy with the prices falling around most of New Zealand. This means there are plenty of bargains to be had, and buying in a low will certainly pay off when the prices begin to rise again, which is expected towards the start of 2024.
Another key thing to keep in mind for investors is the increased Brightline test, which now sits at 10 years. This basically means that investors who sell their property within a ten year period are subject to tax on any profit they make on the property. This can eat into any profit made and have an impact on capital gains, so something to consider especially if you aren’t planning to hold the property for long.
When it comes to investing, there are a lot of perks to buying or building a new property. A key one of these is around interest deductibility, with the power to deduct mortgage interest as an expense, therefore increasing the yield on investment. The Brightline test is also reduced from 10 years for an existing property to 5 years for a new build.
Is property investment still worthwhile in 2023? The answer is yes, you just need to be careful around what you are buying and clear on your intentions for the property. Investment properties are no longer a ‘get rich quick’ scheme like they have been in the past, however if you are happy to sit tight and play the long game you will reap the rewards.