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News

Investment?

07-May-2015

THINKING ABOUT AN INVESTMENT PROPERTY? 

With so much action in the property market, more and more Kiwis are exploring investing in residential property. While this can be a fantastic investment, success relies on sound purchasing, mortgage management, taxation planning and good property management. 

Here are some of the key considerations:

  • Location is key! (and it’s a good idea to buy nearby so you can keep an eye on the property).
  • Avoid properties that need a lot of maintenance.
  • Go for properties where there’s the potential for development.
  • Three or four bedroom houses are easiest to rent and have higher resale value.
  • Aim to generate a rental yield greater than the rate of interest.
  • Work with a financial adviser to tailor the best loan solution. Choose fixed rates to reduce risk, or floating rates for flexibility. You can even explore the increased flexibility of revolving credit.
  • If you have a mortgage on your own home consider making your investment property loan ‘interest only’ (as principal repayments on your home loan are not deductible.)
  • Get an accountant to help ensure you maintain accurate, complete and tidy tax records.
  • Consider using a property manager and regularly review rental rates as the market changes.

Form good relationships with your tenants and always respond quickly to their requests

WHO DO YOU WANT MAKING DECISIONS IF

YOU'RE NOT AROUND

If you don’t identify who you want in charge when you die, chances are that some random person will make a court decision and choose that person for you. That’s why you need a will. 

A will is designed to make certain that, when you die, whatever assets you possess are distributed as you wish. It is particularly important if you have young children, as it gives you an opportunity to choose a guardian for them (rather than the court appointing guardians for you). Put simply, a will safeguard your family and dependents if you can not.

Although the thought of composing a will sounds daunting, it doesn't have to be. A will can be as simple as your wishes jotted down on paper, or preferably a standard will form. The ideal situation is to have a will professionally drawn up – as this means you’ll have all bases covered and it should help avoid any potential disputes.

If you’ve already got a will, that’s great. But just have a think about the last time you updated it and anything that’s changed since. You need to always make sure that your will is aligned to your current circumstances. 

REPLACEMENT VERSUS INDEMNITY 

Ex gratia, claim notification clause, duty of disclosure, subrogation, aggregate limit… the world of insurance is a minefield of complex terminology and jargon. If you’ve teamed up with a good insurance broker understanding this ‘insurance speak’ is not essential. However, knowing the difference between replacement and indemnity cover is something basic that we all should understand.

Replacement cover
This is the most popular type of policy in New Zealand. As the name suggests, it’s when the insurance company replaces a lost or damaged item with a new version or repairs an item so it is like new. In most situations this cover works well, but there are older items or items that become obsolete quickly that may not qualify for replacement value, and there is also a limit on what you can claim. In situations such as this, and you want a cash settlement, you may only get the indemnity value.
Furniture, furnishings and home appliances are examples of items frequently insured for replacement value. However in some cases this replacement value cover can revert back to indemnity cover when items reach a certain age.

Indemnity cover
Indemnity cover is often referred to as present day value cover. The basis of this cover is to ensure you are no better or worse off than you were immediately before the loss. This means that rather then receiving a replacement item, settlement is based on the cost of a second-hand replacement or the replacement cost less depreciation for age and use.

Although most insurers operate in a similar way, each insurer will has their own list of items that can only be covered for indemnity value and also what their maximum cover will be for other items on a replacement basis. Given there are differences, it is always best for you to check what your specific policy covers. We’re happy to help you understand what your policy limits are.