Investment Property Accountant Auckland, New Zealand
Starting or growing your investment property portfolio
Tips from an experienced property accountant in Auckland.
Whether it is a beach resort, a suburban home or a small city apartment, the idea to own one or more investment properties has been part of the Kiwi dream for decades. According to Statistics New Zealand, residential real estate now accounts for 32 percent of all New Zealand investments (figures from March 2017). This is the highest investment towards wealth that New Zealanders have gone for in the last 50 years. This is despite concerns about the level of primary home ownership. Is it the attraction of owning a material, touchable and visible asset that preferences real estate investing to other investment vehicles? .
Before putting your well-earned money to work for you, lets consider a few important factors to consider when investigating investment properties! Knowledge and understanding and the right support and advice are major contributing factors in creating a property portfolio that will work for you! Just know that, from an investment point of view you are looking at the long term, it you are looking at a short-term income strategy (property flipping or trading) you would consider yourself as being in the business of real estate.
Invest time in considering your financing structure for your investment property portfolio
When you invest in property, using the correct structures can make a huge difference. When looking at it from all angels there are a number of consideration deciding on structures:
- Ownership and risk
- Lending capacities
- Investment goals and timing
- Capital growth.
Let us look for example at the banks or lenders: the lending structure is crucial to maximise your interest savings and tax benefits and to minimise the time required to repay your loan. How well you plan your loan structure can determine the reward level that you get from your investment. The financing structure will have a major impact on the feasibility of your rental home purchase by the bank, taking into account the impact of loan repayments and the extent to which this will cover rental income. The banks regard rates and insurance as extra expenses of the investment property in the context of their feasibility study.
We have clients who have purchased investment property and still live in rental properties themselves as that was a faster way to grow for them!
Call us Now for an appointment, for your peace of mind: 09 266 8379
Investment property accountant Auckland Tip2:
Raising the deposit
Banks have been pressured by the reserve bank to lower the amounts they are lending for investment properties and verify if you can afford then. For first home buyers a different set of rules applies. If you already occupy a home and are looking for a second home for rental investment purposes, the maximum loan that you are offered against that leased property under the current reserve bank limit is around 70 percent of the total home price. This means that you need at least 30 percent of the asking price to get a home loan – which is considerably higher than the down payment required for a loan from an owner-occupied home. In some cases, the banks may consider a higher credit level when considering a new-build property. I see that many customers use a large number of options to make a deposit. Early attention to the existing lending structure and maximizing loan repayments will contribute to a more rapid reduction in the principle of home ownership loans, and in combination with possible increases in value, this will increase the available equity to qualify for more loans for an investment property. Receiving a financial ‘gift’ from a family member is another way to help with a deposit. This has other consequences for the family, and the banks demand that the gift is non-refundable. Some consider purchasing another house for their own profession and rent out the existing house. The current loan-to-value ratio (LVR) restrictions will determine the availability of the financing and borrowing structure, and any existing loans will be included in this calculation.
Investment property accountant Auckland Tip3:
Take an unbiased look at affordability
Borrowing with an LVR of 70 percent for an investment property will also be assessed on affordability by the lender. To do this, the lending institution must consider a combination of your personal income, expenses, existing debts and the potential rental income that your investment property could generate, verified by the existing lease or a rental assessment. from an approved rental management agent.. Banks must apply their own processes and calculations when assessing affordability. If you are using a qualified mortgage advisor or mortgage broker, they will help identify and select the most suitable lender wit the best chance of getting the best and most suitable loan. Mortgage brokers are less restricted as they generally have access to a smorgasbord of lenders and can choose the most favourable one for you financials situation. The current credit climate means that non-permanent residents of New Zealand and Kiwis who work offshore will find it increasingly difficult to get a home loan.
Investment property accountant Auckland Tip4:
Use your experienced and qualified support network.
Before going on this adventure, It is vital that you seek expert advice. You’re a-team should at least consist of:
- A specialised property accountant
- A mortgage broker specialising in investments
- A good Lawyer
- A good insurance broker
- A financial planner
Your lawyer, accountant need to be aware of the right structures to get the risk/reward/tax balance right. Your mortgage broker must know preferred structure and can give you the impact the above has on your lending capacity. So all three have to know your goals and dependencies to make the best choice.
First, talk to your specialist property accountant to see how an investment property can help you with your financial freedom and let him help guide you to maximise your financials to work with and create the right structures to maximise your investment and consider the tax implications.
Your non-bank-related mortgage advisor has then the best information, looking at mortgage constructions and interest rates. As industry specialists, they have a deeper understanding of the rules and regulations regarding real estate investments and can help them find the best loans and mortgages. Best of all, this service is free for you.
Your lawyer must also be consulted and can advise you on the consequences of the Brightline test, which may have an effect if a purchase for a short period is considered.
All properties must also offer acceptable security for borrowing from a bank. Pre-purchase due diligence must be thorough and must include the expertise of a structural inspection inspector.
Call Gerard before investing in property on 09 266 8379
Investment property accountant Auckland Tip5:
Can I use my own bank?
Yes sometimes you can. This depends on the assessment your mortgage broker makes. By staying with the same bank, the ability to use the power of existing objects makes it so much easier and cheaper, and because you already have products with this bank, they may be inclined to take an extra step to retain you as a customer . Ultimately, it is still important to achieve good results and ensure the right loan structure, and that may not always be the case with an existing bank.
If you have multiple properties, a divide and conquer technique might be applicable. Having all your eggs in one basket can be risky. This is again an assessment your property tax accountant and mortgage broker should consider.
Investment property accountant Auckland Tip6:
What about commercial real estate investing?
For some people, Commercial real estate might be a good option. It in general has a higher cashflow, but higher returns (or yield) in general represent higher risks. The LVR criteria for lending commercial property may be lower than those for a home, but banks view this on a case-by-case basis. Company properties tend to yield a higher return over time, and investors can offer more stability due to the generally longer rental periods. But it is not without risk, and here too it is important to discuss with your adviser and accountant in your home loan what the best option is for you.
Because if a tenant leaves, it can – depending on the property = take a longer time to find a new tenant…. A risk less prone in residential investment.
One more tip regarding your risk: there are more people that can afford 500$/week that there are at 1000$ per week.