Growing wealth through property
Kiwis have always had a love-affair with investing in bricks and mortar and the benefits are obvious. Property represents a tangible and reliable investment and the management is well understood. We can help you get the best investment loan to grow your property portfolio.
We understand that just like finding the right tenant, getting the right investment loan is a critical component to a successful investment. That’s why we have access to a wide panel of lenders that suit every borrower. From standard residential investment loans to complex commercial property funding- we do it all.
Residential Property Investment
The go-to property choice for many successful property investors.
However, there is still plenty to think about. Are you looking to buy-to-sell or buy-to-hold? Some properties provide opportunities to buy, do-up and make a short term capital gain, while others are more attractive for a long term hold. Deciding on the right investment strategy for you plays a big part on the properties you invest in. LVR restrictions, Bright Line tests, security ring-fencing and tax structures are also considerations that need to align to your investment strategy.
Even with RBNZ restrictions there are still plenty of options to get the funding to suit your investment profile; which can include 80% funding on residential lending.
The right mix and formulating the right investment strategy will help achieve a good outcome.
Commercial Property Investment
Commercial property investing can offer excellent returns to savvy investors. Lower deposits, higher yields, no-to-low operating expenses and longer leases are just some of the reasons why so many investors are choosing to diversify their portfolios with commercial property.
Gaining a deep understanding of both the tenants and the property is critical to ensure the investment meets your risk profile and obtaining suitable funding.
Home away from home
Just like owning their own home, Kiwis dream of owning a holiday house by the beach, on the lake or deep in the country. It opens up the ability to escape the hustle and bustle of the city, create family memories and provides an option for retirement further down the track.
Short-term online rental options mean you can use the property when you want, and when it’s not being used, you can get an investment return. The best of both worlds really.
More and more, we see people use the equity in their city homes to help purchase homes away from home.
Next time you’re planning your family holiday, give us a call.
Property Invesment 101
Kiwis have always had a love-affair with investing in bricks and mortar and the benefits are obvious. Property represents a tangible and reliable investment and the management is well understood. Read on for more information on the why property is such a popular investment choice in New Zealand and help around establishing a strategy which best suits your situation and goals.
The benefits of property investment
Buying an investment property is a popular investment option in New Zealand. One of the main advantages is that you have control over most parts of your investment. You have the power to decide:
• If the purchase price, rental and potential for capital growth are acceptable.
• How much cash you’re going to put into your property investment, if any.
• How you’ll structure your mortgage(s).
• How you’re going to improve the value of your investment property to achieve the rental return you want.
• If you’ll manage your investment property or properties yourself, or pay a property manager to do it for you.
• How you’re going to maintain the property and whether you’ll repair it yourself (if you can) or get someone else to do it.
This doesn’t mean you have to do everything yourself, but it does mean you have to take an interest in what’s going on. Residential property investment is not a passive way to make money. More specific benefits of property investment include:
The security of bricks and mortar
When you buy an investment property you’re buying a physical asset. Many people are more comfortable with this than other less intangible investment types such as unit trusts or shares.
Tax benefits of property investment
New Zealand offers several tax benefits for investing in residential property. For example, expenses you incur to generate your rental income may be tax deductible (you should seek professional tax advice).
You can put the income from renting your investment property towards the repayments on the mortgage you’ve taken out to buy the property. (If your financing costs and other investment property-related expenses are greater than your rental income, you may find yourself in a “negative gearing”. While this has risks, it can also have advantages). Use our handy Property Investment calculator to calculate the viability of your investment options.
Potential capital gains
Capital gains are the second form of income from your property investment (along with rental income). You achieve capital gains when the value of your investment property increases. Returns from capital gains depend on movements in the housing market and may take longer to achieve than rental income returns. Keep in mind that while property values tend to increase over time, they can go down as well as up. One strategy for achieving capital gain is to look for investment properties that you may be able to purchase for below their market value, or in areas where you think house prices will increase.
Combining rental income and capital gains
As an investor, you may aim to buy investment properties that can provide both types of investment return. Different investment properties will provide different levels of capital gain and rental income. It’s up to you to decide on your investment goals and the most suitable properties to achieve them.
Negative gearing on property investments
Negative gearing is when your expenses and outgoings (such as interest repayments on your home loan) are higher than the rental income, which often happens in the early years of owning an investment property. In effect you are making a loss on your investment, but you can offset that loss against your income tax. This tax advantage is one of the key benefits of negative gearing. Investors following a negative gearing strategy often choose interest-only loans, because they increase the tax-deductible expenses on your investment property (as you’re not repaying any principal).
The impact of leverage on the return from your property investment
Leverage” is when you buy an investment property using borrowed money. instead of using your own. The more you borrow, the more you’re said to be “leveraged”. Leverage is one factor that can accelerate your investment return. If your investment property goes up in value, the higher the return on the actual money you’ve invested. On the other hand, it also increases the risks if your investment property or properties go down in value.
Property investment strategy
The first step in successful property investment is to establish a strategy, setting out how you will achieve your goals and the rules you’re going to follow. You’ll need to think about:
• What property market do I want to invest in?
• Who do I need to help me? • What ownership structure will I use for my investment property(s)?
• How can I get the best return from my investment property(s)?
• What are my property investment goals?
Choosing a property market to invest in
The property market is made up of many smaller markets, defined by particular areas or types of property. You need to:
• Decide on your geographic area
• Identify potential properties
• Conduct a basic rental income return on investment analysis.
Once you’ve decided on an area to focus on, research the market and create a list of properties that are likely to meet your investment criteria. If you’re looking in a city, your list may contain 30 or 40 potential investment properties. If you’re looking in a small town you may only have five or six properties. You can then narrow them down by doing a basic analysis to compare each property. To do this, you’ll need to know:
• The purchase price of the property
• How much it will cost to manage and maintain the investment property
• How much rental income you’ll get (remember to factor in potential vacancies)
• How much your mortgage repayments will be (you can use our Property Investment calculator (to calculate this).
Your property investment team is one of your greatest assets as you grow your property portfolio. Research your team carefully before you start investing in property to save time and money in the long run. You’re the selector and coach – your aim is to select the best players who you trust and can work together to get the job done. Your team will include permanent players and players you keep on the reserve bench for when they’re needed. The permanent players in your property investment team will include:
• Your Hatch home loan and insurance specialists
• Your accountant
• Your lawyer. Your reserve bench might also contain:
• Real estate agents
• Registered valuers
• Property managers
The ownership structure you choose for your residential property investments can make a big difference. The best choice will depend on your own circumstances and goals. Things to consider include:
• Flexibility over time
• Simplicity – a complex ownership structure isn’t always necessary
• The ability to introduce other people
• The growth of your property investment portfolio
• Taxation • The ability to exit your property investment if you need/want to
• Your accountant and lawyer can help you to decide on the best structure for you.
Getting the best return
To make money through investment property you need to buy wisely and choose a property with one or more of the following factors:
• It’s in a location with potential for improvement
• It provides a high yield
• It can be bought at a reduced price
• It has potential for improvements that increase its value.
The best way to increase your investment property’s value (and your income) is to add features that tenants desire and are willing to pay a higher rent for – for example:
• A garage or carport
• An extra bedroom (by adding to the building, re-organising existing rooms or adding a sleepout),
• New carpets
• Security alarms
• Even just making the place clean and tidy can give you a price advantage over other rental properties.
Improvements to your investment property are best considered (and budgeted for) before you buy it. When considering improvements, make sure the extra cost will achieve a high return on your investment.
Setting your investment goals
Goal-setting is as important in property investment as in any other aspect of life. Questions to ask yourself include:
• Why are you investing in property? Is it to generate an income, is it to build wealth, is it a form of savings for retirement or is it a combination of all these?
• What is your investment timeframe? For example, are you investing to provide for your retirement in 20 years’ time?
• What type of investment property will you buy to meet your goal – e.g. five two-bedroom flats, three three-bedroom houses or something else? (You’ll also need to think about what’s involved in managing different types of properties).