Last year more than 50,000 property investors were making losses on their portfolios. (File photo) Photo: Unsplash/ Artful Homes
A big chunk of property investors do not make money from their investments - and those who do are pulling in an average of less than $16,000 a year.
RNZ revealed last year, more than 50,000 of the roughly 120,000 property investors in the country were making losses on their property portfolios.
Now, new data released under the Official Information Act has shown even those with a profit were making a limited amount.
In the 2024 tax year, the average rental income made across all entities reporting a profit was $15,680.
Based on the average house price, that is a return of 1.7 percent.
Individuals were making $13,240 and trusts $26,490.
The year before, the average income was $15,590. A year earlier, it was $16,680 and in 2021, $14,800.
Simplicity chief economist Shamubeel Eaqub said it highlighted people were not investing in property for cash yields but for other reasons.
Simplicity chief economist Shamubeel Eaqub said capital gains was a motivator for investors. Photo: Supplied
Those included being able to borrow from the bank to invest in property in a way that other investments were not able to, and the lack of tax on properties not captured by the bright line test.
"The real motivation is capital gains - because the cash return means tenants aren't the main business, the house is.
"Roughly, if your cash earning yield is 1.7 percent, and let's say the cost of equity is 10 percent - probably a bit higher in NZ, then investors are assuming house prices will increase by over 8 percent a year forever.
"So we have this weird setup, that encourages people to make a pretty serious financial bet, through tax and banking regulation, and cultural norms."
Including capital gains, investors would have made 6.6 percent a year on average over the past five years.
In 2022, they would have had a 19 percent return, and in 2021, 15. percent, before recording total losses in the most recent two years.
He calculated investors would have made an average $179,672 in the 2021/22 year, thanks to capital gains, and $111.464 the year before.
But they would have lost almost $85,000 in the 2023 year and another $21,362 in the 2024.
NZ Property Investors Federation spokesperson Matt Ball said he was not surprised by the data.
"We have one rental property ourselves and I'm putting in $300 a week at the moment because I'm stuck on an interest rate of 6.65 percent.
"But we've been doing that for the last year, 18 months. We'll make a loss just because that's how it is."
He said property investment was not "winning Lotto".
"It's hard work and to make money out of it you have to put in some effort. You can't just buy a place and sit down and watch the money roll in.
"That's why if you can add a bedroom or upgrade it so you get a bit of rent of rent or whatever, do some work to it, that's the goal."
He said 85 percent of property investors had another job.
"I think if you could put the money into other investments you'd probably be getting a strong income… the leverage is the difference, I can't borrow $1 million to put into shares."
Sarina Gibbon, general manager at Auckland Property Investors Association said some investors would be operating across multiple entities.
"Since FY22, when interest deductibility started being phased out, the IRD hasn't been privy to the economic reality of investing, let alone reporting it accurately. It has been reporting legislated distortion.
In FY24, landlords could only deduct 50 percent of interest costs. Cash-poor portfolios got pumped into the system and spat out as paper-rich operations.
"So, no, the numbers are not surprisingly low; they are deceptively high. We are taxing revenue, not profit.
This sort of tax distortion is nothing else but political theatre. Here's the irony, though: flawed as the policy was, it did rewire investor behaviour from accumulating to improving.
"Sure, more deductible repairs and upgrades led to better-quality housing, but also higher rents. So the adversarial policy borne out of flawed design and bad leadership cornered investors into action to benefit their tenants and no one else."
She said now investors could claim their home loan interest against their income again and interest rates had fallen, there was some breathing room.
"In the long term, I expect investment to be more dynamic, yield-focused and taxable income from the investor cohort to grow."
Property investment coach Steve Goodey said investors starting out would usually make losses but people who had been investing for a while would often have properties without mortgages.
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