What first-time buyers need to consider before investing

Buying your first property doesn't necessarily mean buying your first home to live in.

For some New Zealanders, particularly where homes are more affordable outside the area they want to live, buying an investment property first can seem like a way to get onto the property ladder.

But buying an investment property as your first property can affect your finance, KiwiSaver eligibility, tax position and responsibilities as a landlord. Before you commit, it's important to understand both the immediate purchase and what it could mean for your future home ownership plans.

Do your due diligence before buying

Before signing an Agreement for Sale and Purchase, make sure you understand exactly what you're buying.

Depending on the property, your due diligence may include:

• Reviewing the property title
• Obtaining a LIM report and council property file
• Arranging a building inspection
• Checking easements, covenants or other title restrictions
• Reviewing tenancy information if the property already has tenants
• Obtaining any other specialist reports relevant to the property

Spending time and money investigating the property before you become committed can help identify issues that may otherwise become expensive surprises later.

Financing an investment property may be different

Even though it's the first property you've purchased, your bank or lender may treat it as an investment property if you don't intend to live there yourself.

That can affect the deposit required, lending criteria and other finance conditions that apply to your purchase.

Talk to your lender or mortgage adviser early so you understand how much you can borrow and what conditions you'll need to meet before making an offer.

Can you use KiwiSaver to buy your first investment property?

Generally, no.

A KiwiSaver first-home withdrawal is intended to help eligible members purchase a property they intend to use as their principal place of residence. It cannot be used to purchase a property that you intend to hold solely as an investment.

There is another important consequence to consider.

If you purchase an investment property, you become a property owner. That may affect your ability to access a KiwiSaver first-home withdrawal if you later decide to purchase a home to live in.

Some previous homeowners may subsequently qualify under separate KiwiSaver first-home withdrawal rules if they no longer own property and meet the applicable criteria, but eligibility isn't automatic.

Before purchasing an investment property, talk to your lawyer, mortgage adviser and KiwiSaver provider about how the decision could affect your future plans.

A conversation before you buy could prevent an expensive mistake later.

Understand your responsibilities as a landlord

Buying a rental property also means becoming a landlord.

That brings legal responsibilities relating to the property and your tenants, including requirements that may apply under New Zealand's residential tenancy and Healthy Homes rules.

Before purchasing, make sure you understand the condition of the property, any work that may be required and the ongoing responsibilities and costs involved in owning a rental property.

If you're purchasing a property that already has tenants, there may also be existing tenancy arrangements that need to be considered as part of the transaction.

Think about how you'll own the property

The way you structure ownership can have legal, tax and asset-planning implications.

Depending on your circumstances, you might purchase the property personally, jointly with someone else, or through another ownership structure.

If you're buying with a partner, family member or friend, it's also important to consider how each person's contributions and ownership interests will be recorded.

Speak with your accountant and lawyer before signing the purchase agreement so you understand the implications of the ownership structure you're considering.

Think beyond this purchase

An investment property may be your first step onto the property ladder, but it is worth considering how it fits into your longer-term plans.

Ask yourself:

• Do I want to buy a home to live in later?
• How could this purchase affect my future borrowing?
• What does it mean for my KiwiSaver?
• Can I comfortably meet the costs of being a landlord?
• Am I comfortable with the risks of owning an investment property?
• Is the proposed ownership structure appropriate for me?

Looking at the bigger picture before you buy can help you avoid making a decision now that limits your options later.

Get legal advice before you commit

Buying an investment property as your first property can be a way to begin building property ownership, but it isn't the same as buying your first home to live in.

There are different considerations around finance, KiwiSaver, ownership, tax and landlord obligations, and these should be understood before you sign an Agreement for Sale and Purchase.

Smith and Partners' Property Law team can review the agreement and property title, assist with due diligence, advise on ownership arrangements and guide you through the legal aspects of the purchase.

Thinking about buying an investment property as your first property? Talk to our Property Law team before you sign.

Frequently Asked Questions