Planning to invest in real estate is a rewarding choice. Whether you want to start a career in property investment, or are simply looking to invest in your future, property investment is a great way to make money. Of course, like any investment, there is always a risk which is why it’s important to feel fully prepared before looking for an investment property.
Many first time investors struggle to make the profit they were hoping for. It’s important to note that making it in the real estate world is not easy and requires a lot of hard work. In order to help make your property investment a success, we have put together our most extensive guide yet filled with tips, advice, and local recommendations.
This step by step guide will act as a useful reference to make your property investment experience as stress free as possible.
From choosing your property investment strategy to building a team of real estate agents, accountants, and lawyers, we have everything covered. We will also look at pitfalls to avoid in order to ensure that you don’t make common first time investment mistakes along the way.
Choose Your Investment Strategy
The first step on your property investment journey will be to choose your strategy. A strategy is the way in which you plan to buy and sell your property. There are many real estate strategies and each one depends on your financial goals and intentions.
Always seek professional advice from a real estate agent before choosing your property strategy. A real estate agent can advise on the best option to suit your property type, intended outcomes, and location.
Home Ownership
Home Ownership is the most common property investment strategy in New Zealand. Home ownership is where you buy a home to live in and over that duration, the property will eventually rise in venue. The majority of people who own a house in New Zealand use this strategy whether they are aware of it or not. This option is great for those hoping to get onto the property ladder and find a family home. Home ownership also allows you to renovate the property at your own pace in order to increase its value over time.
Buy and hold
The buy and hold strategy is when you purchase a property to keep, but instead of living in it yourself, you rent it out over a lengthy period of time. This option is a good option for those looking to sit on their property and wait for it to increase in value. Buy and hold will also bring in rental income which could cover the mortgage repayments, and, in some cases, make some profit. Always make a detailed financial plan to see whether there will be any shortgoings that you will need to cover yourself. This strategy is a good option for those new to investment property because it requires less upfront money than the buy and flip strategy.
Property Trading / Renovate To Flip
The other option is to buy and flip a property which involves purchasing the property, renovating it, and selling it straight away. This type of strategy can generate immediate capital gain, but it also requires more work and higher risk than a buy & hold strategy. Ideally, you will want to find a property that has potential for renovation.
This strategy tends to work best for those who intend to make a profit in order to purchase their next investment property. When considering the buy and flip option, you need to ensure that you have enough upfront capital, a deposit, and enough money and time to work on the property. Create a concise budget of how much the property renovations will cost, overestimating incase you find other problems along the way.
It is always best to seek out advice about ways to add value to a buy and flip property. The last thing you want is to make renovations that take a lot of time and add little or no value to the property. This does happen, particularly for first time investors, so it’s important to ask a real estate agent or property valuer for advice beforehand. You need to be prepared incase the project exceeds your budget and time frame, which can occur with buy and flip properties.
In order to successfully execute the buy and flip strategy, you will also need to do some research on the construction sector by using social media pages and online guides.
Positive Cashflow
A positive cashflow property is where you buy a property and hold it with the intention of renting it out to generate a high income. So, instead of holding the property and waiting for the real estate value to increase, this property would be for the sole purpose of making profit through the rental prices. For a positive cashflow property, the rental income generated would be higher than any outgoings you have.
First of all, when choosing a positive cashflow strategy, you need to be sure that you can afford your property. Using professional advice, you will need to ensure that the rental prices provide you with a comfortable profit on top of any outgoings.
Always underestimate the property income and overestimate your outgoings to feel fully prepared for any issues that may arise. The property may increase in value too but this isn’t the sole intention of a positive cashflow strategy.
Negative gearing capital growth
A negative gearing capital growth strategy is where you buy a property in which the income is not as much as your outgoings . While your income will not be as much as your expenses, the idea is that the property will grow in value at a higher rate than your shortgoings. For example, if your outgoings are $1,000 a month higher than your rental income, then your property value would need to increase by more than $1,000. This way you will still make a profit.
Subdivision
Subdivision is where you purchase a section of land. You then go through the necessary legal steps to divide that land into two separate plots. Once you have split the land, you can then resell them together at a higher price, or as two individual plots. This option always makes a good profit but it will require you to go through the council and seek out legal advice. Subdivision is a good option for more experienced property investors as it will require you to understand the legal process and communicate with the local council. You should always seek the advice of a property lawyer too.
Auckland Unitary Plan
Second Dwelling
Second dwelling is where you buy one plot of land. Instead of splitting the land and reselling it, like in Subdivision, you will build two different properties. This could be two houses or a duplex. You will then sell the brand new properties, bringing in a reasonable profit. Again, this option is best for those who have worked in property investment before, as you will need to split the land to begin with.
Syndicated buying
Off The Plan
Off the plan is when a property has not yet been built but all the plans have been made. Purchasing a property off the plan to sell once it is complete, can bring in a good income because a house usually increases in value upon its completion. To make this strategy work well though, you will need to find an area that is likely to increase in popularity over the next two years.
Buying off the plan requires an upfront deposit. You will then pay the rest of the money once the house is complete. In some cases, the property may not be worth the money you pay because developers use projections to provide an ‘off the plan’ price. If this happens, it can become more challenging to get financing, or you may end up in negative equity.
Partnerships
Partnerships are a good way to go if you do not have the money to purchase a property alone. Purchasing a property with someone else means that you can split the deposit or find a property that you simply wouldn’t be able to afford alone.
Before embarking on a partnership, make sure that you can fully trust the other person. If you partner disappears off the radar, you will be legally responsible for any mortgage repayments. Always going into a partnership cautiously and seek legal advice throughout your real estate journey.
Owner Finance
Owner finance is a complicated one but it also can bring in a lot of income. This strategy is where you buy a property and then resell it. When you sell your property, however, you are actually providing a loan to the buyer. The buyer will then pay back the loan overtime. Essentially, you are acting like a bank to the buyer. Owner financing means that you can sell the property higher than its market value. You will also receive a high interest rate, providing you with two incomes for one property. Don’t rush into owner financing though as you will need a lot of professional guidance with this strategy.
Best Place To Invest In Property in New Zealand?
Before choosing an investment property in New Zealand, it is wise to choose a location first. Choosing where to buy an investment property is usually more important than the property itself. The location is important because you want to ensure that your property will increase in value. If a town as high unemployment and a low population growth, then the real estate market is unlikely to go anywhere quickly.
Most cities in New Zealand tend to be a good option for investment properties due to their job prospects and high number of rental tenants.
The best thing to do before choosing an area is to research both the property and rental markets. If you intend to rent the property out, you will need to ensure that the average rental prices within the area will be enough to cover any expenses you may have, unless you are planning to cover the shortfalls.
When researching a location, you will want to look at historical trends and the annual growth increases, population trends, the local economy, construction trends, and rental yields.
Becoming a market expert
In order to fully understand the property market, it is best to undertake some online research of your own. Consult a real estate agent who will also provide you with heaps of knowledge about the area you have chosen.
Is it a good time to invest in Property?
This totally depends on your location. Generally speaking, now is a good time to invest in property in New Zealand. Having said that, it’s important to really understand the local property market before making an investment. Once you have chosen your location, it is best to ask real estate experts in your area in order to get a clearer idea of what you can expect.
What Type of Property is a good investment?
Once you have chosen a location, you will need to consider the type of property you would like to invest in. Your investment return will totally depend on the type of property to go for. Whether you want a residential property, commercial, or an apartment, each property type comes with its own list of pros and cons to consider.
Residential
A residential property is located on an area of land that is intended for people to live on. Residential properties are the best option for first time investors. Beginning in residential properties will enable you to learn about the market in detail. From there you can then move onto commercial real estate, if that is your intention. Plots of land are also classed as residential, so long as it is intended for people to live on. Residential properties, particularly houses, tend to rise in value faster. For example a detached family home in New Zealand increases by 5% a year on average. Family homes are usually easy to sell and usually contain plenty of space to renovate and extend the property.
Commercial
Commercial properties include offices, hotels, farms, warehouses, and residential complexes. A commercial property usually houses a business, although larger residential rental building are also classified as commercial. Commercial real estate is entirely different to residential and requires a lot of research, education, and expert.
Apartments
When considering an apartment it is important to remember that apartments are located within one building, meaning that you will have to share the building amenities with other property owners.
The pros of purchasing an apartment is that they are usually cheaper to buy and tend to have higher yields. Apartments are popular rental properties, making it a good option for buy and hold, and positive cashflow strategies.
The cons surrounding apartments are that the property values grow at a much slower rate than houses. On average, an apartment will increase at a rate of 3% per year compared to 5% for houses. You will also need to pay body corporate fees to maintain the apartment building and its facilities. This fee has to be paid regardless of whether anyone is currently living in the property, so take this into consideration when planning your budget. Because you do not own the apartment building, you will also be limited when it comes to renovating the apartment as you will be unable to make any changes to the building itself.
Positive & Negative Cash Flow
Build Your Team
Whether this is your very first property investment, or, you have already built a successful portfolio, you will need a team of knowledgeable and experienced professionals to help you along the way. For every single investment property, you will need a real estate agent and lawyer. Mortgage brokers, accountants, property valuers, renovation experts, and property managers, are all useful ways to ensure that your investment property runs as smoothly and successfully as possible.
Property Investment Real Estate Agents
Find a real estate agent that has extensive property investment experience within your chosen location. We can provide you with a list of thebest real estate agents in your area, to help make the decision a little easier.
Mortgage Brokers
Mortgage brokers are here to help find mortgage lenders. They alleviate the stress of finding a lender and act as a middleman to negotiate the best interest rate possible. Check ourmortgage broker recommendations.
Property Accountants
Due to recent changes in the law, property accountants are not as necessary as they once were. They are, however, still very useful because they will file your tax returns and track investment finances. The cost of a property accountant entirely depends on their experience and the services required. On average, property accountants in New Zealand charge between $600 and $12000 a year. For more information, check out ourlistof local property accountants.
Setting up the right structures
Tax on selling an investment property
Property Lawyers
A property lawyer is a vital asset to have when going into property investment. A lawyer is here to support you legally throughout the property buying process. They will look at your sale and purchase agreement, and make any necessary negotiations with the real estate agent. They will also cover the LIM report, which involves conversations with the local council, and they will make sure that you are legally protected in your contracts should any issues arise.
The cost of a lawyer will depend on their experience. As a general rule, you can expect to pay between $1300 and $2000. Make sure you find a lawyer that you can trust and feel comfortable with. Be prepared to interview a number of lawyers before making a choice. This way you can negotiate and compare costs and experience. To help you find a good property lawyer, please check out ourdirectory.
Property Management
A property manager will take away the stress of looking after a property. They will be responsible for finding reliable tenants, increasing rental prices, and managing repairs and inspections. This will make your role as the property owner far easier and potentially increase your returns.
A property manager will advertise and find the tenants so you don’t have to. They will also arrange the signing of the contract, make regular inspections, and take care of any repair work that may be needed. This means that you will spend less time managing the property, which is ideal if you are planning to expand your portfolio. We have put together an extensive list ofproperty managersin New Zealand to help make your choice a little easier.
Renovation Team
If you are renovating your investment property for rental or reselling purposes, then we’d recommend getting a renovation team. A renovation team can offer expert advice on how to increase property values. They will know which parts of your property are worth renovating so that you don’t waste any money,
Project management company
Build your trusted trades team
Property Valuers
Having your property valued will provide you with a realistic idea of what you can expect. Hiring someone to value your property will also provide you with ways to increase your house price. They will take a good look at your property and tell you how much it is worth in the current market. They will also be able to tell you how much the property could be worth if you renovate it. A good property valuer will know the local house market well and can be an invaluable way to make some profit.
Property Investment Courses and Coaches
It’s important that you feel fully equipped for your property investment journey. Investing in property is a big step and can come with many challenges. It’s also vital that you walk into this with as much knowledge as possible. One way to do this is to enrol onto a property investment course at a local school or college. You can even find online courses, or, hire a coach who has expertise in property investment. Take a look at our list fortop rated courses.
Property Investment Events
Another way to learn about the property investment sector is by attending events. These types of events are a great way to network and connect with property investment professionals. Learn from the best in the business and share experiences with other investors like you.
How Much Money Can I Borrow For Investment Property
The amount of money you are able to borrow entirely depends on your financial circ*mstances and the property that you are hoping to buy. Ourguidewill provide you with lots of information on how much money you can borrow for property investment. We also recommend seeking advice from a professional mortgage broker too.
How To Buy Investment Property With No Money
If you are short on money, do not worry because there are lots of ways to buy an investment property with no money. Some of our favourite options include partnerships, guarantor loans, and using any existing equity you may have. There are also other ways to buy an investment property with little or no money. For more information, check out ourextensive guide.
Syndicated Property Investment
Find a Good mortgage broker
A mortgage broker is there to find the best property loan for you. They will research into different banks to find a mortgage that suits your property type. They will also study the mortgage contract and make negotiations with the banker in order to make sure you receive the best interest rates possible.
Interest Only vs Principal and Interest On Investment Property
Interest only and Principal & Interest are the two most common loan types for investment properties.
The most common type of loan is the principal and interest option. This is where you pay are larger upfront principal payment followed by smaller monthly interest payments to the bank. Because you are making an upfront payment, your monthly fees are usually smaller and manageable. The higher the principal fee, the smaller the interest repayments will become. This is the most popular option for homeowners across New Zealand.
An interest only loan is where you pay back monthly interest to the bank. There are no principal payments and the amount of the loan never changes. This type of loan is appealing to investors, particularly to those planning a buy and hold strategy. You will also have lower outgoings which is very useful for investors who are renovating their property.
Getting started
If you are a first time investor, getting started can seem a little overwhelming. The main things to remember are that you should always seek professional advice and avoid making uninformed decisions. Here are a few top tips to help you get started.
Buying Your First Property Investment
Buying your first investment property can seem daunting but as long as you find a dedicated team of professionals and undertake your own research, you should have a fairly stress free experience. Ask for advice every step of the way and learn from fellow investors.
Get Educated - Take Your time
When investing in a property it can be really easy to get excited and rush into things. Our advice is to avoid this sudden surge of energy and take your time. This is a huge financial investment and something you shouldn’t go through with until you are fully prepared. Dedicate some time to learning about property investment. Make a list of everything you need to do and find out exactly how to do it. Attend events, research online, interview prospective real estate agents and lawyers, and ask lots of questions. The more prepared you are, the more successful your investment will become.
Know Your Numbers
Make sure you keep on top of your finances. This means everything from the price of your team to your final investment income. Before embarking on an investment property, make sure you can afford it. Seek professional financial advice to determine how much money you will need. Calculate your yields to determine whether you will make enough money to cover any outgoings.
Learn How to negotiate like a pro
Negotiation is key to getting exactly what you want. If you are new to the investment game, you will need to become confident with negotiating. This is particularly important when building your team of professionals. In order to get the most competitive rates, you will need to negotiate with real estate agents, lawyers, accountants, and mortgage brokers.
Choose A Strategy
Before you get started, you will need to know what strategy suits you best. Take advice from your real estate agent and choose a strategy that suits your property type. The most common strategies include buy and hold, buy and flip, and positive cashflow.
Property investment courses
In order to feel fully prepared before you embark on a property investment, it is a good idea to enrol into a property investment course. These courses will provide you with invaluable knowledge about the property investment market. You will learn about the different processes, property types, finances, and things to look out for when building your team of professionals. Courses are available online and at various colleges in New Zealand.
Best Property Investment Books
Reading is another great way to learn more about the property investment market. Go to a local library or do some online research about the best property investment books. These books can also act as references throughout your investment journey.
Free Resources
Make the most of the free online resources available. These resources will provide you with lots of information and advice about the property investment market.
What are your Property Investment income goals?
Another important thing you will need to consider are your income goals. How much do you need to make from this investment property? Will your profit then go towards your next property in order to build a portfolio? Is this something you would like to make into a career? It’s always best to have a clear idea of what you would like to gain from this property investment, and your goals moving forward. This way, your real estate agent will know the best property type to suit your needs.
Invest In Your Future
A property investment is a huge transaction but remember that it will also benefit you in the future. Whether you are looking to hold your property, or renovate and flip it, the money you can make from this kind of investment can help you in the future whether you want to make it a career, or simply buy a dream family home.
Property Investment Career
A property investment career is a good choice if you are successful with your first property. This kind of career is not easy though and requires you to learn, research, and ask for professional advice.
Build a portfolio
In order to enhance your investment property career, you will need to build a portfolio.
Is Property Investment Risky?
Like any investment, property investment can be risky business. That’s why it’s important not to rush into it. Allow yourself some time to learn about it. Enrol onto a course and read as much on the topic as possible. Always seek professional advice before embarking onto any investment.
