The Cons or Risks
You may find you have to pay unexpected expenses such as the costs of maintenance, rent to pay on an untenanted property or higher rates or insurance premiums.
We find property managers are well worth their fee and save you losing tenancy battles and lost rents. But you must choose them wisely. Read more on this at the end of this article.
An unexpected rise in interest rates could increase your costs and reduce the profit you are making from the property. You may find initially little or no profit, property investment should be for long term profit and not short term gain. The value of your investment property may not increase as you had hoped due to a drop in the market prices. If you sell your property it could take some time and the gains you make from the sale are subject to tax.
Setting out to Invest in Residential Property
Types of Ownership
There are a number of ways in which you can structure property ownership. You could be an individual owner or you could own it jointly with another person. You could also be a trustee of a trust, a company or partnership. Whichever of these options best suit your needs you should seek the advice of your financial advisor, lawyer or accountant for the best advice. A good source of information for different ownership types can be found at the Inland Revenue Department website.
Tax and Record Keeping
You should be able to claim some tax benefits from owning an investment property. To fully understand what you may be entitled to you should seek the advice of your accountant, tax advisor or lawyer. You should also keep accurate clear records of any transactions you make with regards to your investment property. This should include legal records of ownership, records of any renovation work carried out and anything to do with the management of your tenants. You should keep all proof of your expenditure and income for tax purposes.
Managing Your Home Loan
You should keep a close eye on your home loan and adapt it as you make changes in your home life. If you are starting a family you may want to reduce your repayments. Another reason for making changes to your home loan is if you have some renovations completed in your investment property or if you just want to pay your loan off faster. If you keep on top of your payments you can also reduce what you owe in interest.