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Elevate Magazine
October 4, 2024

Property Investors Report Negative Rental Income

property investors report negative rental income

Inland Revenue data indicates that in the 2023 tax year, there were 53,350 taxpayers who reported negative rental income. This means their rental income did not cover their expenses.

The average loss for these taxpayers was $9,020. 

51,740 taxpayers reported an average loss of $7,450 in the previous year. 

Circumstances have become more challenging for many since the end of 2023 due to rising interest rates and a decrease in the amount of deductible interest.

According to Kelvin Davidson, the chief property economist at Corelogic, it’s the majority of recent investors who are likely to be experiencing losses.

“If you bought a rental property in the last 12 months or 24 months, it’s pretty unlikely you’re going to be making a profit. But of all the landlords, most didn’t buy in the last year or two. Most have been investors for a long time,” he said. 

He mentioned that it is typical to purchase rental properties that require initial investment, anticipating future rental growth and capital appreciation.

“Whether people are investing simply for capital gain, I don’t know. The investors I speak to—that’s not right. Any investor I speak to says, ‘I just want to pay down a mortgage over 30 years and have a mortgage-free asset. That’s always the focus.”

“Capital gains are nice, but for most people I speak to, it’s more about reducing the debt over time.”

He also mentioned that cash flow is an aspect that investors can control. Thus, it is wiser to focus on it more. Although there can be initial losses, the situation can be improved gradually over time. Capital gains, on the other hand, are inherently unpredictable.

Meanwhile, spokesperson for the Auckland Property Investors Association, Sarina Gibbon, stated that negative gearing is prevalent. 

“Negative gearing is still popular and viable for newbies but in a different way. Lending restrictions and interest rates and interest limitations all have an effect on new investors’ appetite to gear negatively and the extent to which they can financially. So yeah, still a popular strategy but not as easy and available to as many people as before.” 

“We are moving towards a generation of investors who are likely to be more cash rich from their personal circumstances—such as higher income earners—and that demographic shift has implications across the rental sector, not just to do with the resilience of our financial system but also rental price trends, tenancy relationships, and policy developments.”