New Zealand is a spectacular country with many micro-climates and diverse settings, ranging from sunny beaches to rocky mountains. As such, it attracts a lot of interest from property investors. Read on to learn everything you need to know before deciding if making money as a landlord in New Zealand is for you!
Buying rental properties in New Zealand: a good investment?
Buying rental property in New Zealand can be a very good investment. Historically, the country’s property market has been displaying moderate growth and it is suggested that it will continue to do so, making the purchase of a rental property a wise financial decision.
Rental returns in New Zealand are particularly attractive, with yields of rental property in Auckland ranging from 5.48% to 5.53%, according to Global Property Guide research.
1. How much does a house cost in New Zealand?
House prices depend on the location and price of the property. The median cost of buying a house in New Zealand is NZ$550,000. Prices are higher in big cities, like Auckland (NZ$862,000) and Wellington (NZ$675,000), while buying a house in a rural area will set you back approximately NZ$425,000.
2. Is it better to buy an apartment or a house for rent?
Different types of properties can be attractive to investors for different reasons.
An apartment is cheaper to buy and maintain, with utility bills often covered by the body corporate. Apartments close to amenities are very desirable and usually cash-flow positive, giving significant rental yields.
On the other hand, apartments’ values tend to grow at a slower rate than houses’, estimated at 3% vs. 5% annually. Houses are also easier to sell, while also guaranteeing more space and privacy for the tenants than apartments.
3. What do you need to know before buying an apartment/house for rent?
If you want to buy a house in New Zealand, you must ensure you are eligible to do so. Currently, only New Zealand, Australian and Singaporean citizens, as well as permanent residents, are allowed to buy houses and apartments in the country.
It is important to understand the implications of the type of property that you are buying, as most house sales are completed through a real estate agent vs. privately. The process of purchasing an apartment or house for rent in New Zealand takes three to four weeks to complete and it is most useful to consult a specialist for advice.
You should also be aware of rates, which are a tax based on the value of the property charged by local councils to help pay for the services they provide the community.
4. How do I know if my rental property is profitable?
You can ensure your rental property is profitable by either purchasing one where rent will more than cover the mortgage and give an ongoing stream of income or by banking on the expected capital gains of a property. To maximize profit and to get good a rental yield, buy a property in a developing area with transport infrastructure and plenty of amenities.
Pros & cons of owning rental property in New Zealand
Rental property is a popular investment that can offer excellent long-term returns in New Zealand. While the property price level may fluctuate, rent prices have consistently risen over time.
Owning rental property is a business that involves a lot of work and carries some potential risk, but it can allow individuals to build up wealth and provides you with a direct income stream.
5. What are the advantages of renting property in New Zealand?
There are three main advantages to renting property in New Zealand.
Firstly, on a national basis, it is cheaper to rent than buy a property. It is a more affordable option, giving you the ability to invest your money elsewhere.
Renting also provides flexibility, allowing you to relocate easily if the need arises.
Finally, renting means that you are not responsible for the repair and maintenance of the property and any problems will be dealt with by the landlord.
6. What are the disadvantages of renting property in New Zealand?
In locations other than Auckland and Queenstown, where house prices are higher than average, buying property can work out to be more cost-effective than renting it. Indeed, getting onto the property ladder can be a wise investment as, historically, house prices have nearly doubled every decade, guaranteeing long-term financial security that renting cannot.
It is also undeniable that renting property does not offer a sense of security, as it is ultimately up to your landlord to determine how long you can stay. The ephemerality is further highlighted by the fact that landlords often do not allow any changes to be made to the property.
It is predicted that competition for rental properties will get more intense due to a limited supply, which will, in turn, affect the quality and standards of available rental options.
7. What is the average return on rental property in New Zealand?
While the returns on rental property in New Zealand depend on the location and type of the property, the national average rent for a 1-bedroom property is estimated at NZ$1,487 in the city center and NZ$1,211 outside the city center. For a 3-bedroom property, it is estimated at NZ$2,435 inside the city center and NZ$1,967 outside the city center.
8. What is a good rental return on a property?
A rental return, known as rental yield, is a percentage expressing the gross annual rental income compared to the property purchase price. According to Corelogic, since the start of 2018, rental yields in New Zealand have been rising and will continue to do so. Rental returns are particularly good in Wellington (5.5% on 1- and 2-bedroom houses) and Auckland (6.09% to 7.18% for apartments).
Being a landlord in New Zealand
In order to make the most out of their rental property, landlords should have clear goals about their investment. They ought to choose their property wisely, thinking about the type of tenant they would like to have, as well as considering other factors before investing.
For maximum returns, you should look to invest in properties with appreciation potential that have heating and insulation and amenities nearby. The rent price needs to reflect the market rates and the quality of the property.
9. Can you become rich being a landlord in New Zealand?
To become a landlord can be an excellent financial move for a lot of people. While owning a rental property will not make you wealthy automatically, it is often argued that property investment is the best and fastest way to increase’s one’s net worth.
There is a direct correlation between property investment and wealth creation, which would explain why half of the top 20 people on New Zealand's richest list built their wealth through property investment.
10. Can a landlord increase rent?
Yes. The New Zealand law states that landlords can increase the rent after the first 180 days of tenancy and every 180 days thereafter, in order to get the best possible return from the market. Landlords must give a 60 days' written notice of the rent increase, informing the tenant about the rent increase amount and about the day the increased rent is due.
11. How much can a landlord increase rent?
New Zealand law does not set any limits on how much landlords can increase rent. It is up to the individual landlord to decide how much to raise the rent. However, under the Residential Tenancies Act, certain guidelines are prescribed so as to ensure the fairness of the rental market.
12. What do landlords do with rent money?
While there are no stipulations on how a landlord should use rent money, all landlords have responsibilities under the landlord-tenant law that they have to meet and which can often be costly.
A large percentage of the rent money is often used for expenses directly related to the rental property. These include mortgage, property taxes, repairs, maintenance, insurance, and utilities. The money left is considered profit.
13. Is being a landlord in New Zealand worth it?
While it is undeniable that recent rental income tax rules have put many investors off the market, it is still worth it being a landlord in New Zealand. As long as one keeps up-to-date with legislative changes and is willing to lay down the appropriate business structures, it can be very profitable.
Rental property tax
In New Zealand, rental income is taxed at progressive rates, meaning the amount of tax you pay is dependent on the amount of income that you earn during the financial year. It ranges from 10.5% for income up to NZ$14,000 to 33% for income over NZ$70,000.
14. Do you have to declare rental income?
Yes. If you are renting out a property in New Zealand and making rental income, this must be declared with Inland Revenue by filing a rental property tax return. This applies even if you are renting the property to friends or family at below-market rent.
15. Is rental income taxable in New Zealand?
Yes, the tax must be paid on any rental income that you earn.
16. How do you calculate rental income on taxes?
There are two methods of calculating the tax you are liable to pay on your rental income.
The first is the standard-cost method, which calculates the rental income against outgoing expenditures such as rates, insurance, interest costs, mortgage, repairs, and maintenance, using a country-wide average set of prices which is annually adjusted for inflation.
The actual-cost method is applied only if you are making income from five or more tenants and requires that you complete an income tax return to declare profits.
17. What are the new tax rules for landlords?
The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill was introduced in late 2018 by the New Zealand Parliament, to come into effect from 1 April 2019.
The new tax rules introduced on the Taxation Bill affects residential landlords’ ability to offset rental losses arising from residential property against their other income sources (i.e. salary, wages or investment income) which would more-often-than-not result in reduced tax liability or income tax refund.
There are various different ways to reduce the amount of your payable rental property tax. It is particularly useful to familiarize yourself with what can be claimed as an expense in your tax return.
Remembering to claim for all rental property-related expenses, such as transport costs to and from the property, advertisement costs, bank charges, legal and accountancy fees is vital when filing your returning, hoping for a tax reduction.
If you are renting furnished property, up to 10% of the rent can be claimed as an expense through the wear and tear allowance. Expenses incurred while your property is empty (i.e. utilities, council tax) are referred to as “void period expenses” and can also be claimed.
18. How much rent is tax-free?
If you make less than NZ$4,000 a year including your rental income, you will not pay any tax.
19. What expenses are tax-deductible on the rental property?
Rental property expenses that are subject to tax deduction include mortgage repayment insurance, accounting fees for the preparation of accounts, rates, and insurance, depreciation, interest paid on money borrowed to finance your property, fees or commission paid to agents associated with your rental property, repairs and maintenance, and travel expenses. If the work carried out while repairing and maintaining the property increases its value, the cost will not be tax-deductible.
20. How can I avoid paying tax on my rental property?
It is not possible to avoid paying tax on a rental property, as a rental property is essentially a business that generates income.
Try yourself as a landlord!
New Zealand’s favorable tax regime, along with low interest and mortgage rates, has enabled many individuals to build wealth buying property to rent out. Since the start of 2018, rental growth has been outpacing property values, making it a good time to invest for people who want to enjoy a regular passive rental income, excellent capital gains and ongoing financial security.