Can I Buy an Investment Property?
Buying an investment property might not be quite as easy as rolling a four to land on Mayfair and collecting rent, but it’s still within reach for many Kiwis. The key is understanding the lending rules, how to use equity, and how the banks calculate whether you can afford it.
Let’s walk through what you need to consider if you’re ready to grow your wealth through property investment.
How Much Deposit Do You Need for an Investment Property?
Since May 2021, banks have required a 30% deposit for existing investment properties. New-builds are exempt from this rule and can usually be purchased with just a 10% deposit, but for the purpose of this article, we’ll focus on the standard 30% scenario.
Unlike owner-occupier lending, where the focus is often on income first, investment lending usually starts with the deposit. Why? Because the deposit requirement is more black and white—it’s easier to work out how much you can borrow based on the equity you hold.
Do I Need Cash, or Can I Use Equity?
You don’t necessarily need cash to get started. In fact, most investors use the equity in their current home as a deposit for their first rental property.
If you’ve paid off a decent chunk of your mortgage, you may have enough equity to cover the full 30% deposit requirement.
Here’s an example:
Current home value: $1,000,000
Current mortgage: $500,000
Usable equity: You can borrow up to 80% of your home’s value, which is $800,000. Since you already owe $500,000, that leaves $300,000 in available equity.
You could use that $300,000 as a 30% deposit for a $1,000,000 investment property, assuming your income supports it.
You can also combine equity with savings to either increase your purchasing power or reduce how much you need to borrow against your home.
How Do I Use Equity to Fund the Deposit?
If you’re sticking with your current bank, the process is fairly straightforward. Your mortgage adviser will apply for the new loan, secured across both your current home and the new investment.
If you're using a different bank for the investment property, the process involves two applications—one with your current bank to extract the equity, and another with the new bank to fund the remainder.
What About the Income Requirement?
While deposit is the first hurdle, your income still needs to support the full lending.
Here’s a quick formula advisers often use:
Multiply your household income by 5
Multiply your expected rental income by 7
Add those two numbers together
If that total is higher than your current mortgage plus the new investment mortgage, your income likely stacks up.
Example:
Current mortgage: $800,000
New mortgage for rental: $557,000
Total lending: $1,357,000
Household income: $220,000
Rental income: $40,000
Calculation:
$220,000 × 5 = $1,100,000
$40,000 × 7 = $280,000
Total estimated lending capacity: $1,380,000
In this example, you’re likely to meet the affordability test.
Even if your income is lower, it doesn’t mean you’re out of the game. A cheaper property, higher rental yield, or joint ownership with a partner could still make it work.
What’s a Good Rental Yield?
Yield is your rental income as a percentage of the property’s value and is a good early indicator of how profitable a property might be.
Auckland: 3–4% is typical
Wellington & Christchurch: 4–5% is more common
If you’re aiming for cashflow positive (where rental income exceeds all expenses), you’ll need to hunt for a property with a higher yield—usually 5%+—depending on interest rates and outgoings.
Can You Buy More Than One Investment Property?
This is where things often get tricky. On paper, to be self-funding under the bank’s stress test rates (often 8%+), a property may need to return upwards of 14%, which is very rare in New Zealand.
That’s why most investors only get to one or two properties—they eventually hit an income wall, even though in practice the rental covers the costs.
If you can’t afford multiple properties now, don’t worry. As rental income increases and your personal income grows, your borrowing power will too.
What About Tax?
Speak to your accountant to fully understand how tax rules affect your investment strategy.
Ready to Invest? Here’s Your Checklist:
Work out how much equity or cash deposit you have available
Add together your current mortgage and the proposed new loan
Multiply your household income by 5
Multiply your expected rental income by 7
If the total is greater than your combined mortgage, you’re in a good position to explore pre-approval
Buying an investment property might not be a guaranteed win like owning Park Lane, but with the right advice and planning, it’s one of New Zealand’s most popular and proven wealth-building strategies.
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