Buying your second property might be easier than you’d expect
Property investment isn't just the domain of the outrageously wealthy – even in Auckland. The fact is that if you already own a property and have built up a good chunk of equity over time, you too could reap the benefits of the ever-flourishing New Zealand property market.
If you do so the right way with sound financial advice and a thought-out plan in place, you could improve your financial future markedly. We have a look at the basics of buying your second property as an investment.
Using your equity for leverage
This is a basic concept that most who own property will be familiar with, and yet us Kiwis seem to underestimate its significance. It's a relatively straightforward process to use equity that you have in your current property (either through capital gains or repayments) to pay for a deposit on a second.
There's a fair bit of logistical work involved though, and your property is at stake, which is perhaps part of the reason why some are reluctant to take the plunge. With the right investment advice the risks can be minimised and the rewards maximised.
The importance of rental yields
If you're feeling a little uncertain about your investment, finding a property with a high rental yield should set your mind at ease. A high enough yield should cover the majority (or all) of your second mortgage and provide security in the unlikely event that the value of your properties decreases.
A high enough yield should cover the majority (or all) of your second mortgage.
A Barfoot and Thompson report on rental trends in August 2016 shows it's still possible to find decent yields of between 4 and 4.5 per cent in Auckland – if you know where to look.
Hamilton and Tauranga offer similar opportunities, whereas QV data shows that Whangarei boasts even higher yields – approaching 6 per cent in certain areas.
What do you stand to gain?
If you can balance the security and cashflow of high yields with capital gains, you stand to gain a considerable amount. With two properties, you will gain equity at twice the speed thanks to capital gains on both. Plus, you'll be building equity from the bottom up as you repay both mortgages with the help of rental income.
You don't have to establish a wide-reaching property empire to provide financial security in future. Getting into that second home (and first investment property) could be all that's required to start incubating a healthy nest-egg and ensuring a comfortable retirement.