From First Home to Second Home
Do you want to get into property investing? Financial adviser Andrew Armstrong of Lighthouse answers your questions.
8 October 2021
Q How will the new changes affect me if I want to buy my first investment property?
A Removing the ability to deduct interest is a big change for property investors, and may impact your ongoing cashflow.
Think hard about this when you’re weighing up a potential investment property, as relying on the net rental income to provide a return after tax will make some investment properties financially unviable.
These changes will shape the type of property that investors are looking to buy.
With the bright-line test for existing properties being extended to ten years, new-build properties at just five years may become more attractive to investors.
These changes are likely to push up new-build property prices as they become more attractive for investors and the demand increases. This will have an impact on first-time investors and first-home buyers who are competing for the same properties.
Q What do you think, should I buy old or new?
A There are pros and cons for each, but new-builds will have a lower bright-line than older, existing properties, so they may fit your investment horizon better. New-builds also need a lesser deposit, which makes them more affordable.
Another key advantage to new-builds and turn-key properties is that you’re not usually buying at auction because they’re generally sold at a fixed price. This means there’s less chance of catching ‘auction fever’ and potentially overpaying.
Regardless of the type of property you’re buying, our advice is to do the cashflow numbers and build in some contingency. This covers you for possible interest rate rises in the future, or unexpected property costs.
Q Refinancing, what are my options?
A Dollar-for-dollar refinancing is exempt from Reserve Bank rules and gives you a chance to get the best market rates and contributions, irrespective of your overall loan-to-value ratio (LVR).
By splitting your banking across several lenders, we can take advantage of the different banks’ valuation and lending policies.
Say you’d have 75 per cent LVR if you had both loans with one bank. By splitting the loans between Bank A and Bank B, you might meet their criteria.
As interest rates continue to drop, it’s more attractive for investors to ask their own bank for a better rate and compare these with interest rates from other lenders.
Outside the main banks, we find second-tier lenders are giving competitive interest rates and attractive LVRs. They’re a great option if you’re looking to refinance and increase your total lending to a position a main bank might not like.
Q I had finance approved recently but things changed for me. Should I lose hope?
A Absolutely not. We often see this where customers are buying new-builds and their position changes between the initial approval and final approval prior to draw-down.
It’s always a good idea to discuss potential changes in your circumstances with your mortgage broker or banker before you sign up for a property purchase with a long settlement over a new-build or turn-key purchase.
We work with second-tier lenders to make sure you’re able to meet your settlement even if your existing bank can’t help. There are alternative financing options available to help you settle on a property, should the worst occur.
People often think of non-bank lenders as loan sharks who charge 1000 per cent interest. Actually, that couldn’t be further from the truth.
Non-bank lenders can offer rates around 1 per cent over what you’d pay at a main bank and often have more relaxed credit policies and repayment terms.
Q Is it worth renovating my rental property?
A Yes, absolutely. We call it the RR and R strategy: Renovate, Revalue and Release your additional equity towards your next deposit.
As long as you don’t overcapitalise, renovating can give you more reusable equity than the amount you spent on it.
This equity increase, plus regular capital gains, can be a great boost into your second property.
Any questions, call Andrew at Lighthouse, 027 2240159, or email AJ@lighthousefinancial.co.nz. For more information check out Lighthouse’s podcast, Cheques and Balances.
Informed Investor’s content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.
Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.