NZ IP

I have found that most NZ citizens are taking the plunge into investment property to reap the rewards of tax benefits and capital growth.

As a mortgage broker I have no involvement in the sale of such properties but do have a lot of contacts in this market and regularly see clients looking to finance such investments.

Average clients are all ages, usually have a home and at least 20% asset in that property (would recommend max 60% gearing myself just for the tough times.) I had an old mentor who told me this, " when times get tough its not how much you own that matters but what you owe", if you have enough asset value you can usually weather the tough times and wait for a better part of the ever repeating cycle of life – the growth stage.

My clients normally have at least one party that is in the high 39% tax bracket.

They purchase an IP and take advantage of the loss elements to reduce the tax take, they form an LAQC and attribute the loss to the higher income. then they take advantage of the capital gain.

Depending on the level of income, the depreciation and tax savings etc I have seen clients actually pay as little as $100 per week to own an asset worth $300K, an asset that is looking good to double in value in 10 years. (Where both income earners are on high tax broackets I have actually seen a positive cash flow just from the tax benefits.)

Despite the doom and gloom merchants I truly belive that it is hard to go wrong with property. 

The most amazing thing has been the number of clients who are living with parents and raising 100% finance to buy an investment property just to get on the ladder.  These people are convinced that property is great. I often feel that as property owners we forget what is it like to look from the outside and see the price rising.  We become immune to the effects of capital growth as we campare area to area.

THis all looks good and rosey but I do insist that the clients always look at the worse case scenario, the last thing you want to do is buy an IP then lose your house because the rents failed to materialise as expected.  It is important that you consider the debt alongside the net income, you never know when tax advantages may change, when rents fail, you need to make sure that with a little belt tightening you can stuill meet those mortgage payaments etc and buy food, pay the bills.

When everything is right then you can relax with your IP purchase and watch your future assets grow but remember to keep the property under contract review and look for better property options, do not fall in love with the monopoly board, remember it is an asset that has a purpose and if the area dgrades, the rents become harder to get or the maintenance costs start to climb you should consider selling and buying a better situated IP.

Need help with finding the right property or looking at your finance then feel free to call me, I love to help if I can.

Graham
Christchurch 377 0382