In New Zealand, property is one of the most common forms of investment, and it’s not hard to see why. Not only is it tangible and relatively easy to understand, but investing in property comes with two potentially lucrative forms of income – rent and capital gains. With both the rental and sale markets rising dramatically over the last decade, this has meant significant gains for property investors.
But if you’re a newbie investor thinking of venturing into the property market, take some time to consider your options before you dive in. Property investment does come with risks, and it can be much more labour-intensive than other forms of investment. Dealing with tenants, renovating and maintaining the property, and eventually reselling can all be time-consuming and intense. And even though the market is still generally rising, if you buy in the wrong place at the wrong time, it’s still entirely possible to lose money on property.
Still keen to give it a go? Here are our top tips for new investors:
1: Remember the risks
Like every investment, property comes with risk. Taking on a new mortgage means committing to repayments even if the property is between tenants, and there’s always the risk of being unable to sell when you want out. Before you take the plunge, work out what kind of risk you’re comfortable with, and what you can afford.
If you’re relatively young and easily able to take on a second mortgage, you may be happy to hang onto a property for a decade or more. This lets you ride out the market and benefit from long-term capital gains. If you’re older or less financially stable, it might make sense to invest in a smaller, cheaper property to begin with – then if things go wrong, you’re less likely to risk losing your retirement savings or your home.
2: Start small
Property doesn’t have to be glamorous or exciting to turn a profit. If you’re a newbie investor, it makes sense to start small – think unit, apartment, or small house – rather than diving into a high-value investment or two. Start with a single, small property and see how you manage the demands of being a landlord before you expand your empire.
3: Get the timing right
When the market is at its peak, investing in property sounds like a great idea. But that can actually be the worst time to buy. Prices can’t rise forever, and if you buy in a hot market you’re more likely to overpay. You might not lose money on the investment, but you could end up with very little to show for your hard work. It’s smarter to do your research and invest during a period of downturn in the market. When prices go up again, you’re in the perfect position to benefit.
4: Buy with your brain, not your heart
Buying for investment is very different from buying for yourself. When you’re looking for a property for you and your family, you want to find something you love, that you can really imagine living in and improving over time.
When you’re buying property as an investment, you need to be much more pragmatic. Don’t get carried away by street appeal or nice-to-haves, and focus on the practical. How many bedrooms does it have? Is it well-maintained? Is it well insulated and heated? Is the location close to public transport, shops, and other facilities? You’re more likely to be successful as a landlord if you buy a practical, easily maintained property rather than a cute or quirky one.
5: Due diligence
As with any property purchase, it’s essential to do your due diligence before you buy. Give yourself a few months to look at sales in the area and go to open homes and auctions to get a good sense of the market before you start making offers and attending auctions as a buyer.
When you find a likely property, get building reports, a valuation and rental estimate, and talk to a lawyer before you buy – you really don’t want to be stuck doing expensive repairs or dealing with other issues before you can rent the property. Even if you are happy to buy a do-up, make sure you get a professional to assess the work needed. Some things that seem like simple DIY jobs at first glance can turn out to be complicated, costly projects later on.
6: Manage and maintain
Property management isn’t as easy as it seems. You need to screen and select tenants, collect rent and file the bond with the Tenancy Tribunal, deal with complaints and issues, and maintain the property. If your tenants fall behind on rent or cause damage to your property, you may need to chase them for payment or take them to court. If you own a property for several years, you’ll also need to raise rents as the market changes.
You can choose to manage your rental property yourself or hire a property manager to do the work for you. Either way, proper management can help you maximise your profits – if you neglect your property or your tenants, you’re more likely to run into expensive problems.
7: Get help from the experts
Our most important tip – get expert advice before you make any property investment decisions. A financial advisor – like the ones at Global Finance – will be able to help you crunch the numbers, offer advice before you purchase, and find you the best mortgage options when you’re ready to buy. With the support and ongoing advice from the experts, you’ll feel far more secure as you start your property investment journey.
Ready to invest? Talk to the team at Global Finance now.