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10 tips for Property Investment Planning

How can you take advantage of the many benefits in owning an investment property? Is owning an investment property, even if you’re renting, within reach for you?

It’s New Zealand’s favourite investment strategy. Unfortunately for many it just seems too hard to jump on that property ladder. Property investment can be a great tool to help you create wealth and provide a passive income in retirement… if you know how to get started and if you have the knowledge to get it right!.

  1. Decide to become an investor: If you decide to become a property investor it’s a big commitment, you’ll likely have to make a few sacrifices to reach your goals, and you should be aware that unexpected costs do pop up. You should not let emotion play a big  part in your financial decisions. Your focus should be on medium to long term goals and gains. Property investment can be boring and is not sexy. It can also be extremely exciting and rewarding. Your mindset will determine your success, if you enjoy the process and look forward to the rewards, it’ll help you get over the ups and downs. If you buy the right property, in the right location, the ups and downs should be very minimal. Once the decision is made things get very exciting. If you’re not experienced and not sure what to look for, let someone else manage the process while you enjoy the financial rewards.

  2. Answer the question of affordability ‘can I afford this?’. The most obvious question is ‘can you afford to buy investment property?’. Many people shrug off this question with a confident ‘NO!’ or a meek ‘yes’ because they’ve got a mortgage already or feel the pain of other expenses daily (like rent or day care). Good news though, because if you’ve got a good income, some security or assets, and especially if you already have a mortgage with some good equity in your home... property investment is within reach.

    Remember that the mortgage on your investment property is not like the mortgage on your home. Often people spend the most part of their working lives paying off their home mortgage. The thought of going back into debt when you’ve spent 20-30 years paying off your own mortgage can be daunting. But try not to be alarmed… remember this time you’ll have the tenant and the taxman helping you to pay it off. And this time… you’re investing in an asset that’s going to provide you an income in your later years. Not like your home that is simply going to provide you a roof over your head.

  3. Take advantage of the bank... they want you to. What’s the point of property investment? You’re trying to create a scenario where you use a little bit of your own money, and a lot of the bank’s money, to buy a property that grows in value over time. This is called ‘leverage’ and in basic terms this means you invest a relatively small amount of your own money and borrow the rest using some security. If the borrowed amount is significantly more than what you've put in we get what is called ‘highly leveraged’. At a very basic level you might buy a $500,000 property in Hamilton using your home in Auckland as security or just a deposit you have saved up... let’s say $50,000. If over the next 2 years the property increases in value 10%, the house is now worth $550,000 and you’ve increased your money (capital) by 100% because if you sell the house you’ll have $100,000 left after you pay back the bank loan of $450,000 (of course there’s a lot more to it and this is a simplified example). The banks all need to lend, it’s how they operate, what we want to do is show them you’re a good option, a safe bet, a reliable candidate.

  4. Set up the Tax benefits early. The benefits of property investment include the extra security in having something tangible (instead of owning stock), the tenants pay the mortgage through the rent, and if your investment is structured correctly the tax benefits are great (negative gearing). If we’re getting a little wordy we’ll go through things in detail in person... this is to help you understand the nitty gritty and make sure you’re comfortable with property investment before you get started.  

  5. Choose the right property for the right price! Don’t get to an auction, get caught up in the hype and spend $50-100k more than you’d hope to. Property is difficult to price fairly, the market conditions play a big role, the key is research. Independent valuations need to treated with caution especially if they’ve come from the agency selling the house. Because you won’t be living in this property it does not need to be the house you’d want to live in. Most people choose their homes because it’s in an area they like, close to friends, family, work, good schools etc, and because of it’s appeal. ie; you like the colours, they layout etc etc. That’s fine when choosing your home. When it comes to investing, it all comes down to the numbers. You need to consider which areas are expected to grow, what type of property will appeal to as wide an audience as possible and still fits within your budget.  

  6. Think NZ not AKL. You will have seen that what is happening in Auckland, Hamilton, Tauranga, Wellington, and Christchurch is all connected. With the increase of investors (local and foreign) flooding the Auckland market in particular, it might be worth looking outside of the Auckland Region for property investments. It’s an option that right now makes financial sense. We’ve seen clients be very happy with their choices and find properties they can buy much cheaper, quicker and possibly with a better upswing due to not buying in the heightened Auckland market

  7. Think medium term. Not short term and not long term. Short term thinking is dangerous, we’re not endorsing a property flipping strategy. When buying property you should be looking for gains... but waiting 30 years will just bore you. We encourage clients to think in 7-10 year stints. You may have 20 years until you reach retirement, but that doesn’t mean you will hold that same property for 20 years. You might buy a property today in an area that is growing more rapidly than others, reap the benefits over the next 7-10 years, then sell and move on to the next area that is expected to grow more rapidly than others.

    Personally, I’ve been helping our clients for 13yrs with their property investment decisions. In today’s market, you get the benefit of making your savings go a little bit further when buying out of Auckland. In growing centers it’s easy to find long term tenants. The key is securing ‘long term tenants of a year or more to reduce your risk and prevent fluctuations in your investment plans.

  8. Create an unfair advantage. It’s relatively simple to plan for property investments, simple, but not easy. Our Investment Analysts heavily invest their time and expertise in an effort to ensure your investment will perform to its utmost potential. Your personalised financial strategy plan will map the path to take you from where you are now, to where you want to be financially in the future. Data plays a big part in your success or failure and knowing the right decisions to make and when to make them, based on previous experience, is essential. The key is to design an investment strategy plan that will allow you to achieve your financial goals and aspirations with minimal risk.

  9. Protect and Grow: What do we mean? So many people focus on growing their wealth with little or no thought about protecting it. Insurance is such a taboo subject but it really is an important pillar in your investment framework. Surviving a market crash or a major event like fire or a health scare, can throw seasoned investors off track. Having insurance in place to cover and replace the lost incomes ensures that when you’re fighting fit the investments and wealth creation can continue. A significant section within your financial plan will be Wealth Creation strategies. No two clients are the same and each has their own unique life experiences and plans for the future. Your wealth creation strategy will consist of carefully selected investments that will gain maximum returns for your preferred level of risk, while ensuring tax effectiveness of the investments where appropriate.

  10. Getting advice is a no-brainer. But wait! If you have been asking some friends, family or colleagues you’ve seen succeed in property investments in the past, be weary. What has worked in the past does not always translate into today’s property market. Be very careful not to get sucked into schemes and not to take advice from people who will happily tell you about their successes but may neglect to mention their failures. Data has a big part to play in the buying decisions for property investors. We’ll be able to show you suburbs that are performing well and those that are expected to get better with time. It’s not just what is good today but what will be good over time. You wouldn’t expect many people to successfully build a property portfolio without someone helping them along the way... not only providing timely and detailed financial advice but also helping you stick to the game plan. The accountability is often half of the battle. Just like promising to meet a friend at 6am for a morning walk... you’re 10x more likely to turn up because of the commitment. Authorised Financial Advisers (AFAs) have the skills and qualifications to guide your decisions, there are a lot of cowboys out there trying to get you into their programmes. AFAs cannot make the call for you, but with an AFA in your corner your odds for success are 10x greater than all on your own.

Our property professionals have the expertise to enable you to appreciate how property can perform as a safe, profitable, and high growth investment vehicle. We will work with you to unravel the complexities of this investment and help you understand your choices. Sitting on the same side of the table as you, helping plan out all the steps for success.

Direct Property Investment can be an excellent vehicle to create wealth tax effectively and allow you to achieve your long term financial goals, however like any investment, it requires careful planning to ensure that the elements of the specific investment meet your personal objectives.Calculating investment yield is a great way to accurately evaluate the financial return you are likely to receive on a given property. Use the calculator below to get an idea of how your money can work for you when investing in property.

Wealth Works help clients with the mortgages, the insurances, the financial plans and the ongoing management of property investments. When you work with an adviser from the start you’ve got every detail mapped out and a sounding board to discuss strategiesWe manage the process dealing with solicitors, property managers, home loan setup and reviews. We help choose the best type of property, assessing your budgets and cash flows, the timelines (picking the best time for you to buy) and helping you remove emotion from the decision (if at all possible).

Some of our clients thought that ‘property investment is out of reach’ and ‘it’s too hard or expensive’... you’re not the only one if you think you can’t afford it but rest assured with the right structure and some existing leverage in the form of a deposit, a business, or existing home (with a mortgage is okay) you can start planning and be ready when you find the right property.

Amy Wilkes

Wealth Works Ltd


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