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 of owning one or more investment properties has been part of the Kiwi dream for decades. According to Statistics New Zealand, residential real estate now makes up for 32 percent of all New Zealand investments (figures from March 2017). This is the highest it has been in the last 50 years.
As an investment property accountant based in Auckland we can give you some generic advice:
A few important factors to consider when investigating investment properties are:
1. Structuring for tax minimalisation and asset protection
When you invest in property, using the correct structures can make a huge difference. There are several things to consider when deciding on structures including:
● Tax
● Ownership and risk
● Lending capacity
● Investment goals and timing
● Cashflow
● Capital growth
2. Starting Small and Building Up
Once you have your foot in the door of the property investment world, it becomes a lot easier to continue. Starting small and buying a flat or apartment and then working your way up to buying a house is a good way to invest in assets without having millions of dollars to spare in the first place. Beginning the journey is always the hardest bit, and you will learn along the way how to invest and save for bigger properties.
3. Extra Expenses
The banks regard rates and insurance as extra expenses of the investment property in the context of their lending criteria. We have clients who have purchased an investment property and still live separately in another rental property themselves as that was a faster way to grow for them! Some consider purchasing another house for their profession and rent out their existing home.
4. Paying The Deposit/Lending From Where You Can
Receiving a financial ‘gift’ from a family member is another way to help with a deposit. Banks must apply their own processes and calculations when assessing affordability. If you are using a skilled mortgage broker, they will help identify and select the most suitable lender. This will give you the best chance of having a well matching loan. Mortgage brokers are less restricted than banks as they generally have access to a smorgasbord of lenders and can choose the most favourable one for your financial situation.
Loan capital payments will contribute to a reduction in the principle of home loans. In combination with possible increases in value, this will increase the available equity to qualify for more loans for an investment property.
5. Using your experienced and qualified property related support network.
Before going on this adventure, you should seek expert advice. Your team may consist of:
● A specialised property accountant
● A mortgage broker specialising in investments
● A good lawyer
● A good insurance broker
● A financial planner
Your lawyer and accountant need to work as a team to meet your needs. Your independent bank lending mortgage advisor should then have the correct information to then look at your needs as well as the bank’s criteria and interest rates. As industry specialists, they have a deeper understanding of the rules and regulations regarding real estate investments and can help you find the best loans and mortgages. Best of all, this service is usually free for you.
Pre-purchase due diligence must be thorough and must include the expertise of a structural inspection inspector.
6. Using multiple banks for multiple investment properties
This is a classic case of ‘don’t put all your eggs in one basket’. If you use 2-3 banks, you are able to spread the lending risk across all of them, and possibly have them compete against one another to keep your interest rates low.
7. Commercial Real Estate Investing
For some people, Commercial real estate might be a good option. Generally, it has a higher cash flow, and higher returns (or yield) although also usually represents higher risk. The LVR criteria for lending commercial property may be higher than those for a home, but banks view this on a case-by-case basis. Commercial properties tend to yield higher returns over time, and investors can have more stability due to the generally longer rental periods.
We are specialized investment property accountants who invest in property ourselves. We know the details, call us on 09 299 1000
Gerard Boerlage from CityWide Accountants, your specialised Property Accountant in Auckland, New Zealand.
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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 Gurpreet before investing in property on 09 299 1000
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.