Owning rental property has long been a popular form of investment for New Zealanders, however, over the last couple of years, it has not been so popular. This was largely due to the tax deductibility changes in 2021, along with interest rate increases and LVR requirements. However, with the recent change in government there has been an increase in property investor enquiries.
When purchasing a rental property, it is generally considered a long-term investment, as in the short-term, there may be little or no profit, as the expenses associated with a rental property (ie. mortgage repayments, property rates, maintenance etc) may outweigh the rental income received. However, over time, as the mortgage balance decreases, and the property value increases (ie. capital gain), there may be a profit.
Deposit requirements
Currently, the minimum deposit required for a rental property is 35% for an existing property and 20% for a brand-new property.
This deposit can either be cash that you have already have on hand, or you can leverage the equity in your own home to secure the deposit.
If you have built up equity in your own home, you can borrow up to 80% of its current value.
For example, if your home is worth $1,000,000 and your mortgage balance is $500,000, you could potentially borrow an additional $300,000 against your home to put towards purchasing a rental property (ie. 80% value of $1,000,000 is $800,000).
Income requirements
When assessing your income for a rental property purchase, the banks will use the following income streams…
- Income from your PAYE job or net profit from your self-employed income; AND
- Rental income that you’ll earn from the new property – it should be noted, that the banks will scale this rental income to account for costs associated with the rental property (ie. vacancy of the property, property rates, insurance etc)
Want to find out more?
The team at Wayne Henry Mortgages are available to chat anytime about buying your next home.
