If you tick these 8 boxes, then now could be the time to become a property investor
Property investment is nearly an obsession in New Zealand. With low interest rates, increasing property prices, demand for housing, and no capital gains tax, it will probably remain that way.
At is simplest, residential property is an easy investment to understand – we all need somewhere to live!
To see if you’re ready to take the plunge into property investment, see if you tick these eight boxes:
A lot of Kiwi homeowners – even those still repaying a mortgage – might not know how simple it could be for them to become a property investor. The simple way is to use their home’s equity.
Home equity is the difference between the market value of your property and the amount still owing on your home loan. So, if the market value of your home is comfortably more than the amount you owe, you may be able to use this to get another mortgage to buy another property.
First, estimate the value of your current property, then
Subtract the sum you owe – usually just the existing mortgage.
For example, if the market value of your home is $800,000 and your total mortgage owing is $300,000, then your equity would be $500,000.
A recent uptick in NZ house prices means many homeowners now have more equity than they might realise.
2. Time horizon
Despite some media headlines, property investment is not a get rich quick scheme. It suits those who can play the long game.
If you’ve got a long term perspective, then property could be a great investment for you.
3. You’re attentive
The “she’ll be right” approach does not work when it comes to being a landlord. You’ll need to keep on top of rent payments, track your expenses, and don’t choose tenants just because they seem nice.
Credit check potential tenants and make sure you get lots of details because, if you read them wrong and they do a runner leaving unpaid rent, damage, or both, the more information you have the easier it will be to track them down and hopefully get your money back.
4. Numbers matter
You don’t have to be a maths guru, but you’ll need to at least be handy with a calculator.
This is because numbers are everything – remember, you’re not buying a property you love and that you want to call home – this is an investment. Work out your gross income yield (i.e. total rent), then your net income yield, considering vacancies, maintenance, repairs, insurance, rates, mortgage payments, management fees, and body corporate fees.
When you buy the property, you will have the cost of valuations, building reports, and lawyers’ fees.
If you’re renovating the property, then you’ll be paying a mortgage but not receiving any rent for that period of time. Plus, renovations almost always take longer and cost more than planned, especially if you’re trying to do them yourself.
Costs can make the difference between a good opportunity and a massive drain on your finances, so you need to keep a very close eye on them.
Directly investing in property is time consuming. Here you have a simple choice, either:
Spend a lot of your own time, or
Pay someone to do it – a good property manager.
6. Do it for you
At it’s worst, property investment isn’t for the fainthearted. Sometimes, everything can go wrong all at once and you’ll have bills up to your eyeballs and a vacant property that’s not providing rental income. If you’re not that into being a landlord, it’s going to be tough to stick it out.
On the flipside, if you’re doing it because you love it, then the tough times will be a little easier to push through – and it’s by pushing through the short-term periods of pain when the rewards will start to mount-up over the long-haul.
7. You have other cashflow
This is two-fold:
Property is considered illiquid, that is, it can be tough to turn the value into cash in a hurry, and
Property investment has ongoing costs, and usually requires lending to buy in the first place.
Property investments suits those with a stable source (or sources) of income, most often from a stable, salaried job or perhaps from long-running self-employment. It’s better still if you have low expenses to match – which means you’ll have a regular surplus.
8. You can listen
The best property investors are good listeners. This means they’ll commonly listen to a good; solicitor, accountant, mortgage broker and financial adviser (sometimes the same person).
Here at Become Wealth, we offer mortgage broking and financial advice specifically related to property and other investments. To book a complimentary initial chat with a trained professional, get in touch.
Listening probably also includes understanding then deciding on one or more of the three basic strategies:
‘Buy and Hold’ is probably the most common, and usually the least risky. It involves investing in existing properties then holding them for the long-term – building equity as the properties increase in value, and receiving rental income along the way.
‘Fix and Flip’ involves buying a property that needs some work, undertaking renovations on the property, and then selling the property straight away. Sometimes, the property can transition to be a ‘buy and hold’.
‘Build’ involves building properties to either sell immediately, or sometimes to hold over the long-term.
Fix & flip and build strategies usually requires the ability to listen to additional subject matter experts such as builders, architects, and so on.
The bottom line – when to become a property investor
To sum-up, taking the plunge to become a residential property investor could be a great idea if you tick-off the eight criteria above.