Rental properties are a popular form of investment in Auckland. While most people get home loans for a primary residence, others look for a mortgage for an investment property. The primary difference between a residence and a rental property is the potential for the owner to make a substantial income. In this article you can learn more about the risks and returns associated with owning rental homes.
An investment property is considered a non-liquid asset because the owner cannot access its value without selling the property or getting a second mortgage. Obtaining home loans in Auckland for rental properties can be difficult because lenders often see these loans as being a substantial risk. Locals buy these properties to make long-term profits as housing prices increase, but there may be little profit in the short term after expenses are paid. If the property is sold within two years of purchase, the seller must pay income taxes on the proceeds, which can diminish overall returns even further.
Investing in Property
It is typically more difficult to borrow money for rental properties than for primary residences. Some of New Zealand’s traditional lenders may have lower limits on these loans, and they will consider what the borrower can afford to repay. For the best results, a potential property investor should consult a mortgage broker in Auckland with a focus on investment lending.
Property Investment Risks
Property investing requires more work than other types of investments such as bonds, shares, and deposits. The risks include:
- The chance that the lender may ask for full repayment on your home loan and the borrower cannot sell the property for an amount sufficient to repay the mortgage
- The risk that the bank could sell a borrower’s primary residence and the investment property if they are mortgaged with the same lender
- The chance that the borrower could be left owing money after a sale if the property has declined in value
- The likelihood of an interest rate hike.
By paying a mortgage quickly, the borrower can reduce these risks. While investing in property is exciting for many New Zealanders, it can be challenging. If you are looking to buy an investment property in Auckland and need a home loan, visit our team of experts at Home Loan Advocate NZ (www.homeloanadvocate.co.nz) for a consultation.