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Why invest in property?

There are many different reasons why New Zealanders may invest in property.

Perhaps the most stand-out feature of real estate investment in terms of creating wealth is the ability for long term capital growth.
During this period of capital growth your portfolio can also be continually earning you income in the form of rental yields too.

Real estate can be a great way to implement a wealth creation plan and give you excellent, long term outcomes.

 

Property investing strategies

 

Positive cash flow

  • It’s actually a very simple concept. For property investors, the positive cash flow definition is: the money you’ll get to keep from your total cash income after deducting all rental property expenses.
  • Positive cash flow properties can increase your serviceability and can make you more attractive to lenders.

 

Sub-division

  • Dividing an existing area of land into more segments with individual titles, allowing properties to be built. This works on the principle the split pieces of land are worth more than the single lot.
  • You may also use the variation of adding a minor dwelling where applicable to add to the rental cash flow of the property.

 

Renovation

  • The renovation strategy is adding value by improving a property’s condition or adding new features. The key is targeting properties with potential that you can add value to and are in a location worth the expense.
  • You must be careful not to over-capitalise. This is where you spend too much on the property and the market may not appreciate the value of the upgrades.

 

How to use your home to purchase

The way most people fund the deposit for their investment properties is through the equity within their own home. Equity is formed through the capital growth of the your home purchase.

For example: If you bought a house in 2014 for your own use. If the house was priced at $500,000, at the time most buyers would use a 20% deposit to secure a mortgage of $400,000 (80% of $500,000).

In 2020 this property has increased in value to $690,000. When purchased a $100,000 deposit was used.

Equity = Property Value – Mortgage

This means you now have $90,000 worth of wealth or equity within the property. Banks can use this equity and added cash to fund your next purchase!

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