The New Zealand property market has long been a cornerstone of wealth building, and for many homeowners, their greatest asset is right beneath their feet—home equity. If you’ve built up significant equity in your home, you may be sitting on an opportunity to expand your investment portfolio by leveraging that equity to purchase a second property. But is it the right move for you? Let’s explore how home equity can be used strategically and the key factors to consider before taking the leap.
Understanding Home Equity and How It Works
Home equity is the difference between your home’s current market value and the amount you owe on your mortgage. As property values rise and mortgage balances decrease, equity builds, giving homeowners financial flexibility.
In New Zealand, lenders often allow homeowners to borrow against this equity through a top-up loan, a revolving credit facility, or a home equity loan. These funds can then be used as a deposit or even full financing for a second property. Here is a diagram showing how it works:
Why Invest in a Second Property?
- Wealth Growth – Property investments have historically appreciated over time, offering potential long-term capital gains.
- Passive Income – Owning a rental property can generate ongoing income, helping cover mortgage costs and providing financial security.
- Diversification – Spreading your assets across multiple properties reduces risk and enhances your financial stability.
- Tax Benefits – Rental property owners in NZ can offset some expenses against rental income, providing potential tax advantages. Speak to a Financial Adviser about what these might be.
Why Now is a Good Time to Invest in Property
We are currently in stage 7 of the Property Cycle, which makes it a great time to buy a property for max. potential. Why?
- Market Stabilization & Growth Forecasts
After a period of correction, property prices are beginning to stabilize, with a projected 5% increase in home values in 2025. Investing now means getting in before prices potentially rise further.
- Interest Rates Have Already Fallen
New Zealand has already seen a decline in interest rates, making borrowing more affordable than in previous years. Lower mortgage rates improve cash flow, reduce loan servicing costs, and increase overall investment returns.
- Strong Rental Demand & Rising Yields
New Zealand’s ongoing housing shortage and increasing rental demand mean rental yields are improving. Investing in areas with high rental demand ensures a steady income stream and reduces the risk of vacancies. Areas such as Auckland, Hamilton, Bay of Plenty and Christchurch are all good rental yield locations, with many new subdivisions planned or in development stage.
- Increased Buyer Power
More properties are on the market, and motivated sellers create opportunities for buyers to negotiate better deals. Investors have a stronger position when it comes to securing a good purchase price.
- Long-Term Investment Potential
Real estate has proven to be a strong long-term investment in New Zealand. With the combination of price stabilization, increasing rents, and potential capital gains, now is an ideal time to consider expanding your property portfolio.
The Next Steps with a Financial Adviser:
If you believe releasing home equity for a second property is an option for you and aligns with your financial goals, here’s how to move forward:
- Speak to a Financial Adviser – They can work out your home equity value, and explore home loan options with you to ensure the investment suits your financial situation.
- The latest Market Data – Our Investment team uses the latest property and regional data to determine the best regions to invest in property.
- Run the Numbers – We calculate affordability, potential returns, and all associated costs for you.
- You can make an Informed Decision – We explain the risks and rewards, and provide a personalised recommendation so you can make the right decision for your future.
Leveraging home equity to invest in a second property can be a powerful wealth-building strategy if done wisely. By thoroughly researching the market, understanding the risks, and working with an experienced Adviser, you can make informed decisions that set you up for long-term financial success.
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