If you grew up in New Zealand, you’ve probably been sold the dream of owning your own home. There is something romantic about owning the house you live in, but for some forward-thinking Kiwi investors, the financial advantages of renting are too much to pass up. The fact is, more often than not, if growing your wealth is a priority, paying rent while you own rental properties elsewhere is the smart financial model. Let’s explore the main advantages:
It’s a purchase made with your head. You are one of two types of property purchaser. You are either one that bases your decisions on emotion, or you want to make the smartest financial decision. This generally puts property into one of two categories; the emotionally satisfying owner-occupied, or the financially satisfying rental.
Renting provides flexibility, allowing you to move more freely, without the burden of real estate fees at every turn. Our personal circumstances change constantly; as does our housing requirements. You can be a tenant in whichever place suits you at the time, while you’ve got tenants of your own, paying off the mortgage in your rental investment.
There are significant tax savings. If you own rental property, the IRD will allow you to deduct expenses from your rental income, which you otherwise couldn’t, if you occupied the house yourself. Rates, insurance and repairs are all legitimate expenses which will minimise your income tax payments, but there are some real doozies like interest payments and depreciation on chattels, for those who get the right financial advice.
It’s important to understand that everyone’s personal tax situation can be different, so we recommend speaking to your accountant before you make any final decisions. There are even some organisations that will offer this advice for free, like OPES Partners in Christchurch.
So, if you want to make a smart financial investment, while maintaining your flexibility and reducing your tax payments, renting the house you live in could be just the right thing for you.
