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Residential or commercial property as an investment

Property investment offers long-term wealth growth potential, with distinctions between residential and commercial property advantages and tax implications to consider.

Kiwis love investing in property, and it’s traditionally been a great way to build up your wealth over the long term.

Property has one major advantage when compared to investing in other asset classes: it’s much easier to borrow to buy property than it is to buy shares. This can maximise your potential gains – or losses – of owning property.

Over time, property prices tend to increase. However, in the short term they can fall quite significantly. This means property investment requires a long horizon, and you should always be buying with long-term goals in mind.

Commercial or residential property?

There are important differences between investing in residential rentals (renting a house to tenants) and commercial properties (leasing a retail, office or industrial building to a business).

The advantages of residential property include:

  • Wide range of property types to choose from, many at affordable prices.
  • Ease of finding tenants.
  • Relative ease of securing a mortgage.

The main downsides? Residential tenancies are typically much more time-consuming than commercial ones, and tenants can be higher maintenance.

The advantages of commercial property include:

  • Not needing to adhere to the Residential Tenancies Act or Healthy Homes legislation.
  • Higher rents and yields, returns are usually much higher.
  • Long-term tenancies.

On the downside, quality commercial property tends to be very expensive, and finding tenants can be a challenge.

Being a good landlord

Whatever type of property you choose, you’ll need to find good tenants, keep them happy, and maintain your property to a high standard. There are significant ongoing costs to property ownership, and if you can’t afford to do regular maintenance and repairs on a property, this probably isn’t the right investment for you.

Other ways to invest in property

If you don’t want to be a landlord, or it doesn’t suit your budget, there are other ways to invest in property. From just a few dollars, you can buy shares in listed companies that own or build properties, either residential, commercial or retirement. This is a totally hands-off way to invest, which you can access using an online trading platform.

Talk to us about the tax implications

Whenever you invest in property, there are important tax considerations – including the bright line test, variations for new builds, and whether you need to pay GST when you purchase a property.

We can help you navigate your tax obligations, fine-tune your strategy, and work out the optimal structure for owning a property. We can also get your accounts sorted out if you’re applying for a loan. Just drop us a note or give us a call, we’d love to hear from you.