Investment Property Mortgages

Typical borrowers make the same repayment each month. At the start of the loan, the payment covers mostly interest and a little principal. As you near loan maturity, though, you begin to pay more principal than interest. You can see this in our loan amortisation calculator.

Some borrowers opt for an interest-only loan, but use this with caution. If you only pay interest, you never knock the principal balance down. This could leave you exposed if you can't remortgage. Also, house prices don't always go up to capital appreciation should not be relied on despite what articles in Stuff or the NZ Herald suggest.

Nonetheless, interest-only mortgages remain most popular with investors that 'buy and flip' properties quickly rather than buying, renting, and holding the property. Before deciding on the mortgage, calculate the expected repayments of each.

If you own an investment property that you rent out to tenants, you can claim certain expenses on your tax returns:

• The insurance costs for the property (our landlord insurance guide explains more)
• The rates for the property
  
• The interest charges you pay as long as they are strictly for the purchase of the rental property
• Fees paid to services you pay to collect the rent (such as real estate agent's rentals team)
• Fees paid to an accountant
• The costs of repair and maintenance, but if you do the repairs or maintenance yourself, you may only claim the cost of the materials
• Vehicle expenses that relate to your transportation to and from the rental property
• Many more - the IRD sets out what you can claim in detail. 

Be aware that any expenses you pay that benefit you personally are not deductible. Namely, any costs incurred to increase the property’s value cannot be deducted. This includes the cost of buying the property itself as well as any improvements you make to it. If you end up living in the property because you can’t find tenants, you can’t deduct any of the above expenses.

Payments you get from people renting your home or a room are taxable. This includes payments from people renting through websites such as Airbnb or Bookabach or one-off or irregular rentals. The IRD details your obligations in detail here.

Before you jump in headfirst and spend time visiting open homes, make sure you qualify. Getting a conditional approval or pre-approval lets you know how much you can borrow, or how much you can afford to spend. This helps narrow down the search process, helping you find a suitable home faster. It also helps speed along the final approval process since a majority of the work is done already. Working with a mortgage broker can make this process a lot easier.

Anyone who owns a rental property will probably admit that it's a lot more work than they thought it would be. Unless you let a rental agency handle the tenants (and lose around 10% of the rental income), DIY rentals are hard work. You'll have tenant issues, ranging from 2am calls to fix things, late rent, non-payment of rent, repairs and maintenance that can become expensive, short-notice repairs (and coordinating the work), problems between neighbours and tenants and increasing insurance costs.

​There are countless more issues - all taking time and money to solve. If you're prepared to invest, then rental property can be an enjoyable investment, but ultimately it requires a lot of ongoing work.

​Property markets do move up and down in the short and medium-term. Investing in property is, for many reasons, a long-term investment option. There are hidden costs many homeowners don't consider, such as insurance, rates, real estate agency rental commission and selling fees if you decide to put your property on the market. Newspapers have focused a lot of attention on soaring house prices in most parts of New Zealand, but the reality is something different for most New Zealand property investors. Before rushing in, think carefully about what you're trying to achieve with the investment; it isn't, and never has been, a road to riches.