Property investment can be controversial – but under current lending and taxation settings, it’s a legitimate way many New Zealanders seek to get ahead. In my experience most are not wealthy, they’re simply trying to improve their circumstances, and getting it wrong could have the opposite effect.
Interest rates rising and struggling to find a tenant are the most obvious situations where a property may end up costing more than you initially bargained for, so let’s start there.
If you’ve used equity in your home as a deposit rather than cash, you’ll more than likely be “topping up” the property each week – that is, because the rent doesn’t cover the entire mortgage, you cover the shortfall. When interest rates rise, that shortfall becomes larger and potentially more unsustainable for your personal finances. For that reason, when you purchase the property, it pays to stress-test your top-up at higher interest rates. The days of 7% mortgage rates aren’t so far in the rear-view mirror that this should be surprising, but many people still assume current conditions will persist indefinitely.
Beyond interest rates, you need to consider what would happen if your household’s circumstances changed – say someone loses a job or gets sick and can’t work. What would six months or a year of topping up the mortgage be, and could you afford it? These are considerations to factor into your financial buffer or emergency savings calculations. It pays to factor them into your personal insurance calculations, too, so ideally, you’re not forced into selling when life is dishing up something that’s stressful enough on its own.
Not being able to find a tenant is the most common fear of new investors I’ve worked with, as without any rental income you must cover the whole cost of the property. In reality, however, this can be managed by adjusting the rent to be more competitive, so your risk exposure is the cost of that discount over 12 months rather than the property sitting empty indefinitely (which is a much scarier number).
There are a few other situations that might not be immediately obvious to you when considering how much is “enough” to ensure you’re able to hold on to your property come what may.
Securing a tenant for a fixed term can be a great thing – unless of course they stop paying the rent. While you’d no doubt have sympathy for a good tenant who has hit hard times and is unable to pay, that doesn’t change the fact it has an impact on your financial situation, too.
I won’t attempt to unpack the nuances of the Residential Tenancies Act here – I always recommend using a professional property manager to ensure your obligations as a landlord are met to the letter of the law. What matters for investors is understanding how the process affects cashflow.
If you can’t resolve the issue with the tenant and need to involve the Tenancy Tribunal, you may be waiting a while. Wait times for a Tribunal hearing, according to their website, are between 25 and 30 working days – so up to six weeks – and in Auckland, it’s longer than 30 days. MBIE couldn’t provide a response about the latest wait times in time for publication, but pointed to the most recent Tenancy Tribunal annual report. That suggested that in 2024 it took, on average, 49.43 working days – that’s almost 10 weeks – to get a hearing.
Whatever the number, what it boils down to is you may need to be able to cover all the costs of the property for a considerable period if there’s no rent coming in.
Of course, if your situation changes and the cost of ownership is no longer tenable, you can opt to sell the property, but that’s not quick, cheap – and in fact might not be so straightforward, either.
If you have a fixed-term tenancy in place, (as opposed to periodic), you cannot simply give notice for the tenant to vacate the place because you want to – or have – sold it. Their right to occupy continues uninterrupted until the end of the fixed term even if the property sells. Attempting to sell with a tenant in place will likely impact the pool of potential buyers and possibly the price, not to mention you may need to discount the rent while the property is being marketed for sale.
None of this is an argument against investing in property. It’s a reminder that doing so successfully requires more than just equity and optimism. Going in with your eyes open – and with the financial capacity to absorb things that can (and do) go wrong – can be the difference between a property that builds wealth, and one that destroys it.
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