Investing in property can be a great way to grow your wealth over the long term.

What are the advantages and potential disadvantages of residential versus commercial property – and can you still invest in property if you don’t want to be a landlord?

Kiwis love investing in property, and it’s traditionally been an effective way of building wealth over the long term.

Property has one major advantage compared to investing in other asset classes: it’s much easier to borrow to buy property than to buy shares. This can maximise the 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 far horizon, and you should always be buying with long-term goals in mind.

What are the pros and cons of investing in commercial or residential property?
There are significant differences between investing in residential rentals (renting a house to tenants) and commercial properties (leasing retail, office or industrial premises 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, meaning that returns are usually much better
  • Long-term tenancies

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

Being a good landlord
Whatever type of property you choose, you’ll need to find decent 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.

You don’t have to be a landlord 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, accessible via an online trading platform.

Talk to Pathfinder Solutions about the tax implications of property investment

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

Our team is well-versed in this area. 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 if you’re applying for a loan. Just drop us a note or give us a call; we’d love to hear from you.

About Pathfinder Solutions

Pathfinder Solutions advisory team members have either owned or managed businesses, or are investors themselves, so we know first-hand the challenges you face in your world.

Sure we’re Accountants, but the best solutions in business come from focusing on more than just the numbers. Our real-world business experience delivers just that.

Get in touch – we’d love to help

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