Taking the first 3 steps on your property investment journey
So, maybe you've been thinking about how to create wealth in the long run – a source of money that you can fall back to when it's time to kick back and spend rest of your Sunday afternoons at your Tauranga bach pondering the deeper questions of life.
There are a number of ways to invest, such as managed funds, bonds, term deposits bank savings and more. One of the most popular ways to grow money is through property, and there are a few main reasons for this.
- There are two ways you can gain from your investment property: a steady flow of rental income and capital gains. The latter has been something that many home owners in Auckland and Hamilton have been benefiting from. QV reports that both these cities experienced respective home value growths of 24.1 per cent and 18.2 per cent in the year to October.
- The rental income from tenants can be used to pay for some or even the entirety of your repayment each month.
- Properties are referred to as an investment of 'bricks and mortar', which means it's a tangible, reassuring way to see where your money has gone.
You might feel ready to go all-in and buy an investment property in New Zealand. But be aware – this isn't a jolly day trip but a long trek through sometimes uncertain woods. With that in mind, here are a few steps to ensure you hit the ground running.
1) Doing the paperwork
Grab a note pad, a laptop and take an hour or two to get a clear image of your financial capability.
Grab a note pad, a laptop and take an hour or two to get a clear image of your financial capability. This means going through your assets, your sources of income and your usual expenses. The easiest way to do this is to sit down with a property investment expert and work through your finances together.
After this, you'll be able to try and get a loan pre-approved. Statistics from the Reserve Bank of New Zealand reveal that with the cash rate at 2.75 per cent, interest rates are more or less at a record low, making it an ideal time for borrowing. Again, having the right property investment advice here will do wonders if your legs are still a little shaky in this early stage of the trek.
2) Set your goals
Knowing your objectives plays big part. As you're choosing to invest in property, your goals will generally be longer-term. The Financial Markets Authority recommends setting a specific time frame as well as a dollar value to your plan. For instance, your aim might be to pay off the home outright in 12 years, which might mean forking out an extra $300 to supplement the rental income being earned.
Having quantifiable, measurable figures will help you stay on track over the course of your investment journey. From here, you've created a springboard from which you can create your budget when it comes time to make those repayments or save for a deposit.
3) Property hunting with a cool head
With the help of sound property investment guidance, you might have all your finances sorted and maybe even a pre-approved loan in hand, ready to go. Soon, it'll be time for you to leap into the market and search out for a home that can help you generate wealth. During this part of the process, it's easy to let your excitement get the better of you.
However, it's important to to again refer back to your goals and keep the numbers at the forefront of your mind. For instance, you might love the idea of living in the heart of Auckland central (as do many), and be biased toward buying property in that area. But taking a look at QV figures will show you that the value of Papakura homes are increasing far more rapidly than those around the CBD (33.9 per cent vs 22.2 per cent in the year to October), possibly making it a more ideal region to invest in for your objectives.
This is just an example, but it shows that you should always treat it like a business decision and keep to your chosen path like glue. All of this is made far easier when you have the right investment property advice to help you stay focused and get you on that hammock as soon as possible.
Authorised Financial Adviser / Investment Property Expert
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