How to Buy

Property investment needs a serious commitment of money and time. Get it right, though, and you can turn the bank’s money into a lucrative income source.

Let’s start with the planning and thinking you need to do before you start waving your arms around at an auction.

What’s your investment style?

Think about your spare time – how much of it are you prepared to dedicate to your properties? Many New Zealanders manage their own properties, which saves money but adds risk.

If you like the idea of managing your rental, that’ll have an impact on the locations you choose and the types of properties you consider buying.

Even with a property manager, direct residential property investment is far from a hands-off choice. You need to be ready to invest time learning, researching, and strategising your investment.

How to find the right advice

We often meet clients who have purchased one or two properties and then found themselves stuck because they haven’t planned ahead with the right structuring, borrowing, and tax set-ups.

Nobody’s an expert in everything, and nobody expects you to be either. The key is finding the right experts and leveraging their experience into your own success.

You need a lawyer and an accountant who both understand rental property.

I believe you should choose professionals who invest their own money in rentals – these people tend to have the best understanding of what you’re trying to achieve.

Talk to property managers and real-estate agents in the areas you’re thinking about buying. They are the people who’ll help you learn what tenants are looking for – and where the best deals are.

Again, the difference between the ones who understand the drivers of property investment and those who don’t? It’s like night and day.

Are you investing for capital gains or cash flow?

Investing for capital gains means you might spend money each month topping up a mortgage, but in the long run the value of the property will grow significantly to boost your wealth.

A cash-flow strategy is one that aims to have all the costs of the property covered by the rent, but the growth is likely to be far lower.

Truthfully, a good strategy isn’t fixed on cash-flow versus capital growth.

Cash-flow investors will often use their extra cash to buy capital-growth properties, while capital-growth investors in a flat market – like the current one – will prop up their outgoings with a cash-flow positive property.

The right choices will depend on your own goals and situation.

What’s your risk tolerance?

Some investors can sleep soundly with NZ$4 million in loans against NZ$5 million in property. Others feel nervous at the idea of debt higher than NZ$1 million, even if they do have NZ$5 million worth of houses.

That’s a personal choice and you’ll have to decide what your risk tolerance is. It might be lower than what the bank is willing to lend you, which could alter your strategy.

First published 26 November 2018

Story by Andrew Nicol, Opes Partners

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.