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Home / Waikato News / Property

Finance: Kiwis rekindle love with property

By Jeremy Tauri
Hamilton News·
17 Jun, 2012 06:00 PM3 mins to read

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Politicians have been telling us for years that they want us to stop investing in property and start looking at other investment vehicles.

But it seems that they are fighting a losing battle - New Zealanders are rekindling their long-running love affair with property.

In a survey of New Zealand investors at the end of last month, rental property was named the investment that offers the best returns.

It's the first time property has taken the top spot over term deposits since 2010.

Nineteen per cent of investors now say that rental property offers the best returns, up from 14 per cent last quarter.

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I can understand this.

Rental investment is tangible - you can see where your money is - and relatively easy to understand. And if the bottom falls out of the market, you'll still have your bricks and mortar. That's not always true of shares.

But you do need to be careful and not just jump into property investment. The recent drop in property prices has made it possible to buy positively-geared properties. That means the rent more than covers mortgage payments.

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Factor in other costs, though, such as maintenance and repair. No matter how cheap the house is to buy, these costs are generally the same right across the board.

Lending is cheap at the moment, in some cases cheaper than it's been in decades. But that won't continue forever. When you are doing your budget, consider how you would cope with a loan at 7 per cent.

That is not outside the realms of possibility in the medium-term future. If a property is cheap to purchase, you may have to spend a lot on improvements.

But a big capital spend that is improving the value of a property won't result in any tax deductions.

Find out from the council about plans that may affect any property you are looking at and compare it to similar houses to give you an idea of what vacancy rate you could expect.

You'll need to look at how you structure your investment, too. Law changes mean a sole-trader or a partnership might be the simplest way to do it. However, if you are expecting big losses, and are restructuring borrowing, you may want to consider a company structure.

I would caution away from any property that is going to net you large losses, though. While property prices are likely to pick up in future, a rental investment should stack up as just that - an investment. Properties are available at 8 per cent or 9 per cent gross return. Look for those - then any capital gains are just the icing on the cake.

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