If you bought a property now for $500,000 and it increased in value by just 5% a year, guess how much it’d be worth in 5 years? $638,000, and in 10 years it’d be worth $814,000. Here is how you can create wealth through proven and tangible property investment.
1. Set goals and devise a property investment strategy
You should never buy a property investment without goals and a workable strategy. First of all, you need to think about what you want to achieve with property investment – are you looking for quick capital gains to boost your wealth and perhaps start building a property portfolio? Or are you in it for the long term, holding for capital gains and cash flow to steadily build your wealth until retirement?
Once you know what you want to achieve, you need a plan and a strategy to make it happen. If you’re after quick capital gains, buying a property in an in-demand area or adding value via renovations might be your best bet. On the other hand, if you’re looking for a long term buy-and-hold investment, something low-cost with a high rental yield may be better. If you’re not sure what’s right for you, it’s a great idea to speak to a financial advisor who specialises in property.
2. Research the property market, then research some more
Before you start sorting your finances and looking at properties, you need to learn as much as you possibly can. Read books, articles, and guides to get a better understanding of how to succeed as a property investor.
Then research the property market in New Zealand – look at past property price growth, rental yields and buyer demand. Speak to real estate agents and other property investors to learn from their experience. Key numbers to look at are:
- Historic price growth in the area – if prices increased in the recent past, they may continue increasing (this isn’t a sure thing though).
- Population growth – will housing demand increase?
- Economic performance – can renters in the area afford to rent, can buyers afford to buy?
- Construction activity and buyer demand – will there be a housing or rental shortage in the future?
- Rental yields and current house prices – will your rental income cover the property’s expenses?
3. Sort your deposit
If you don’t have a deposit, you’re not going to get past square one when buying an investment property. In most cases, you’ll need 30% of the property’s value but if you buy a new build from the developer or build a home yourself, you’ll only need 20%.
You may be able to buy an investment property with a smaller deposit – chat to a Financial Adviser to see if this is an option for you. Here’s how you can put your deposit together.
- Saving: This can be a tough ask as a 30% deposit on a $500,000 house is $150,000. If you can manage to save your entire deposit, lenders will look at your application favourably.
- Leveraging equity: If you have over 30% equity in another property, you may be able to refinance your existing home loan to free up that excess equity and use it as a deposit.
- Gifting or family loans: If you’re lucky enough to have a family member who will gift or loan you money for a deposit, this is a great way to get started.
- Share the cost: Going halves when buying an investment with a friend or family member is a great way to split the costs and the challenge of the deposit.
Before you start saving, it might be an idea to speak to an advisor or lender to get an idea of how much you need to save and how you can get there.
4. Get finance pre-approval to buy an investment property
Before you look at a property, you need to know how much you have to spend. At this stage, you’ll need to speak to a mortgage adviser to get impartial (free) advice and to secure home loan pre-approval.
Pre-approval is an indication that your lender will loan you a certain amount to buy a home. This provides a clear idea of how much you can spend so that you can house hunt with confidence.
5. Assemble a team of property investment experts
Before you buy, you should have a team of experts in place to advise you. That should include:
- a mortgage adviser,
- a financial adviser,
- an accountant,
- a building inspector,
- a conveyancer or lawyer specialising in property,
- a property manager.
Getting the right advice at the start will set you up for success in the future.
6. Find an investment property, do your sums and purchase
Once you’ve got pre-approval, it’s time to start your property hunt. Keep your research in mind at this stage and make sure you’re only looking at properties that fit with your strategy and will help you reach your goals.
In general, it’s best to only buy freehold properties, in cities with a population over 100,000 and a diverse economy. A good rule of thumb is to look for something that is appealing – if you’d be happy to live in it, so will renters and future buyers (if you ever sell).
Before you purchase, you need to check the property out from top to bottom and be sure that you know exactly what you’re buying.
7. Execute your plan
Once you’ve assembled an expert team around you and purchased a home, your investment journey has only just begun.
If you’re gunning for quick capital gains, you’ll need a real estate agent and a handy builder if you’re planning on renovating.
If you’re renting the property out long-term, it’s extremely important that you choose a high-quality property manager that you can trust. Don’t just go with the first one you meet – arrange meetings with three or four, asking each of them questions about their service. Choose someone who you trust to communicate with you, look after your property and treat your tenants fairly.
Buying your first property investment and becoming an investor is a challenge, but with a plan and the right help, you can make it happen. If you need a hand setting goals, budgeting, making a plan and securing finance, get in touch with the Properli to guide you.
