What do I need to get started in property investment? It’s a common question. I’m going to give you three ‘thresholds’ you’ll need to meet to get started in property investment. Then I’ll show you how to break the rules and share with you some strategies you can use if you don’t meet these thresholds.

Threshold 1: NZ$90,000 of useable equity within your home

Many of us have equity – ‘dead money’ – in our homes, but we aren’t making the best use of it. Many of us can use this equity to secure a deposit for an investment property. But, not all of it. We can only tap into ‘useable equity’. To figure out how much useable equity you have, multiply your property’s value by 80 per cent. This gives you the ‘bank value’, which is the maximum amount you can borrow against your property. Then, take away the balance of your mortgage from this figure. This gives you your useable equity. You’ll typically need at least NZ$90,000 of useable equity to get started. This will give you enough to secure an NZ$450,000 property.

Threshold 2: A small amount of cash each week

If an investor buys an investment property with 100 per cent lending, through using your useable equity as a deposit, then it’ll generally make a small cash loss each week. This means you’ll need to top up the mortgage by a small amount each week. How much will you need to top it up? I’d say NZ$50 to NZ$100 a week will typically allow you to invest in a property that will achieve good capital growth, like a standalone house or townhouse (depending on the city).

Threshold 3: A team to support you

Finally, you need an existing team you can call on to support you into property investment opportunities as they arise. This includes your property coach or ‘finder’, mortgage broker, solicitor and property manager.

Now, let’s break the rules

1. Not enough equity?

Here are some strategies you can use if you don’t have enough equity:

• You may be able to meet the deposit requirements by supplementing your useable equity with cash savings, so you can meet the 20 per cent deposit requirement.

• Try to secure a loan with a 10 per cent deposit. Only 85 per cent of each bank’s lending must be within the Reserve Bank’s loan-to-value ratio rules, so there’s a chance you’ll qualify, if you ask. If you can secure a 90 per cent loan, you can get started with $45,000 through a mix of useable equity and cash.

2. No cash surplus?

• Invest in a property like an apartment that may make a small surplus each week, so you don't need a cash surplus.

• Invest in a property to use as an Airbnb, rather than a tenanted rental. This might generate higher cash returns than tenanting the property. Be sure to weigh up the pros and cons, and risks, of Airbnb before taking the plunge.

• Increase the term of your existing mortgage, to decrease the payments you make to your bank. Extending the duration of a NZ$500,000 loan from 20 to 26 years will free up NZ$100 per week, which could be used to top up a capital growth investment property. This strategy may allow a couple to pay off their mortgage 10 years early and could save almost NZ$400,000 of repayments.

• Purchase a property early in its development (off the plans) and negotiate a cashback from the developer, which you can use to pay the contributions.

3. No team to support you?

Here are some strategies to use if you don't have a team to support you. Talk to a property coaching business like Opes Partners, who can introduce you to the right professionals and can guide you through the process. While there are rules of thumb about what you need to get started in property investment, there are strategies you can employ to make a start.

Rental properties require either you to be the landlord and deal with the tenants, or you’ll have to pay a property manager to manage it on your behalf. These are important things to consider when considering a rental property. Buying a second property might not be the right move for everyone. See an independent financial adviser and property expert to see if this works for your financial situation, level of risk, and goals. The key is to start a conversation with professionals who can help you work through your personal situation.

Published 25 November 2019

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.