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Owning an investment property is fraught with risk and uncertainty - and definitely not for the faint-hearted or faint-walleted! At least, that's what most well-meaning, 'property-shy' folks will tell you… but be warned…

The s-h-o-c-k-i-n-g  t-r-u-t-h about investment property ownership costs is not what you've been led to believe!

The true cost of maintaining ownership of an investment property is often less than one-fifth the cost of maintaining the ownership of your own home!

Don't believe it? Consider the following scenario…

"Where the home loan balances for your family home and investment property are the same or even similar, the cost of servicing the loan against your family home will be around five times the true cost (to you) of servicing your investment property loan!

But how can that be???

Easy! You're forgetting that the tenant and the *taxman (*via depreciation and expenses claims) combine to pay for around 80% of the total cost of ownership of your investment property.

Just the other day I did a presentation to a client where, in the first year, the tenant would end up paying 49%, the taxman 39% and my client a mere 12% (of the total cost of ownership).

By year fifteen, my client's contribution will have averaged out at around 20% pa (ie. one-fifth), the tenant 59% and the taxman 21%.

No matter which way you look at it, owning an investment property - certainly in New Zealand anyway - works out to be approximately 'five times as financially viable and safe' as owning your own home!

So, should you re-evaluate your baseless but otherwise terrifying fear of investment property ownership? Of course you should!

Look at it from this point of view… when you first decided to take out a mortgage on the home you're living in, you took a big gamble didn't you?!

Who was there to help you if you lost your job or became ill? Did you/do you get any form of tax relief on your own home? No? I didn't think so!

Whatsmore, assuming you don't have borders or a granny flat tucked away somewhere, you don't receive a single cent in "rent" either, do you!

Are you beginning to get the picture here?

Even though you were aware that you would be legally 'fully liable' to the bank for the loan you've now got against your family home, you went ahead and took it out anyway!

You knew that your ability to repay it depended entirely on one or both of you holding down your job/s. You also knew that property doesn't always go up in value - it has corrections along the way like every other asset class. And you knew that the economy isn't always a 'bed of roses'…

… but you weighed up the risks, considered your future, and took out that mortgage on your family home, despite this.

Now consider the same risks with an investment property…

Firstly, given that the tenant and taxman are contributing a huge portion of the total cost of ownership (i.e. home loan interest repayments, repairs, maintenance, accountant costs, rates, insurances etc.,) your own contribution is even less than what it'd cost you to pay off a decent car!

I'm talking $100 - $150 per week!!!

For example, if Mrs Smith who earns $60,000 pa wants to purchase a brand new $330,000 investment property returning $330 per week in rent, her own contribution towards the total cost of ownership would be:

$141 per week in year one 
$169 per week by year three
$165 per week by year five
$134 per week by year ten
$108 per week by year fifteen!

*Assumes interest only loan at 9.20%pa, but does take into account additional costs such as rates, insurances, accountant, conveyancing, valuations etc.,

If she was purchasing the same house to "live in" and took out a Principal & Interest loan, her loan repayments (not including conveyancing costs, valuations, rates and insurances) would be:

$654.95 per week!

So there you have it - the s-h-o-c-k-i-n-g  t-r-u-t-h about the cost of family home ownership versus investment property ownership should be enough to put a warped smile back on the face of even the most ardent cynic