Making a start with property investment
Property is a popular subject in New Zealand. Buying, selling or investing in property dominates many a backyard barbecue chat. Opinions tend to outweigh investors. All the well-meaning advice can be confusing for the first-time property investor.
Why invest in property?
The aim of investing in property is to increase wealth and secure your financial future. It's a long-term strategy not a get rich quick opportunity.
Property is generally considered a less volatile investment than shares. As the property owner, you'll receive a rental income. When you sell the property you'll hopefully realise a return on your investment. The ROI will depend on many factors including capital growth and your pre-purchase research.
Research and plan your property investment strategy
Before purchasing a property, it pays to thoroughly research the market. Start by buying in an area with which you are familiar. Talk with other property investors, our professional mortgage brokers, renters, and property management companies as part of your research. Also, check out vacancy rates and upcoming changes in the area, such as zoning or potential developments, that may affect the future rental or sale potential of your property.
Do the math! Look hard at the income versus expenses equation. When you buy a property, you need to consider the costs of buying – conveyancing fees, legal costs, search fees, pest and building inspections – in addition to the purchase price. Ongoing costs to bear in mind are council rates, water rates, insurance, body corporate fees, land tax, property management fees, repairs and maintenance costs.
These days you also need to do a meth check. As a landlord, you are obligated to provide a clean and uncontaminated property. As the costs of decontamination can be huge, it's vital you establish if the property is affected before you purchase.
Gearing – positively or negatively?
Borrowing to invest (which most first time investors do) is known as gearing. When doing your sums, you need to see if your gearing will be positive or negative. Negative gearing is when the rental income earned is less than the expenses and interest paid. Any loss here is offset against your taxable income thereby reducing the amount of tax you pay.
Positive gearing occurs when income is higher than interest and expenses. The extra earnings are added to your income and taxed accordingly.
Let your head lead, not your heart
When you are in the market for a family home, emotions often play a role in the final decision. And so they should. It's your home; the place you'll live. Buying an investment property is a whole other deal. It's time to take an analytical approach not letting yourself be swayed by emotion. All too often, first time investors focus on a place where they can see themselves living and this is the wrong approach. Remember this is purely business.
Start small with a low maintenance flat or unit. Look for features that will benefit a broad range of potential renters – singles, couples, families, students.
Here are a few things to ask yourself when taking that first step on the property investment ladder:
Unlike a term deposit, a property investment is not a set and forget deal. You have two options when it comes to property management. Do it yourself or appoint a property management agent. If you choose the former, you need to show the property, review tenant applications, manage rental income, organise maintenance and repairs, ensure return on investment, and comply with landlord regulations. Enlisting the help of a good property management company allows you to be guided by their experience and expertise, and the costs are tax deductible.
Protect your property
Once you have your property don't forget to insure it as best you can. There are a number of good policies for landlords to protect against a wide range of potential problems. It would also be wise to review your personal risk policies if you're unable to work, made redundant or die. We can help make sure you're protected and point you in the right direction if other professional advice is required.
Talk to us to start the process and find out how much you can borrow to get your first investment property.
You might also like to read our blog post: Property Buying Tips
Why invest in property?
The aim of investing in property is to increase wealth and secure your financial future. It's a long-term strategy not a get rich quick opportunity.
Property is generally considered a less volatile investment than shares. As the property owner, you'll receive a rental income. When you sell the property you'll hopefully realise a return on your investment. The ROI will depend on many factors including capital growth and your pre-purchase research.
Research and plan your property investment strategy
Before purchasing a property, it pays to thoroughly research the market. Start by buying in an area with which you are familiar. Talk with other property investors, our professional mortgage brokers, renters, and property management companies as part of your research. Also, check out vacancy rates and upcoming changes in the area, such as zoning or potential developments, that may affect the future rental or sale potential of your property.
Do the math! Look hard at the income versus expenses equation. When you buy a property, you need to consider the costs of buying – conveyancing fees, legal costs, search fees, pest and building inspections – in addition to the purchase price. Ongoing costs to bear in mind are council rates, water rates, insurance, body corporate fees, land tax, property management fees, repairs and maintenance costs.
These days you also need to do a meth check. As a landlord, you are obligated to provide a clean and uncontaminated property. As the costs of decontamination can be huge, it's vital you establish if the property is affected before you purchase.
Gearing – positively or negatively?
Borrowing to invest (which most first time investors do) is known as gearing. When doing your sums, you need to see if your gearing will be positive or negative. Negative gearing is when the rental income earned is less than the expenses and interest paid. Any loss here is offset against your taxable income thereby reducing the amount of tax you pay.
Positive gearing occurs when income is higher than interest and expenses. The extra earnings are added to your income and taxed accordingly.
Let your head lead, not your heart
When you are in the market for a family home, emotions often play a role in the final decision. And so they should. It's your home; the place you'll live. Buying an investment property is a whole other deal. It's time to take an analytical approach not letting yourself be swayed by emotion. All too often, first time investors focus on a place where they can see themselves living and this is the wrong approach. Remember this is purely business.
Start small with a low maintenance flat or unit. Look for features that will benefit a broad range of potential renters – singles, couples, families, students.
Here are a few things to ask yourself when taking that first step on the property investment ladder:
- Can I afford this property?
- Would this property suit a range of different renters?
- Does the property have a second bathroom?
- Is it in a highly-sought after location?
- What is the proximity to transport, shops, and schools?
- Will it provide a good return when sold?
Unlike a term deposit, a property investment is not a set and forget deal. You have two options when it comes to property management. Do it yourself or appoint a property management agent. If you choose the former, you need to show the property, review tenant applications, manage rental income, organise maintenance and repairs, ensure return on investment, and comply with landlord regulations. Enlisting the help of a good property management company allows you to be guided by their experience and expertise, and the costs are tax deductible.
Protect your property
Once you have your property don't forget to insure it as best you can. There are a number of good policies for landlords to protect against a wide range of potential problems. It would also be wise to review your personal risk policies if you're unable to work, made redundant or die. We can help make sure you're protected and point you in the right direction if other professional advice is required.
Talk to us to start the process and find out how much you can borrow to get your first investment property.
You might also like to read our blog post: Property Buying Tips