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7 Tips to Get Started in Property Investment

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Property investment can be complex as each investor have their own goals, buying rules and journey they wish to follow and achieve specific goals. 

To help you get started, we have listed our top seven tips! 

Firstly, why invest in property?

There are many reasons why people invest in property, however one of the most stand out features is the ability for long term capital growth.

One stand-out feature of real estate investment in terms of creating wealth, is the ability for long term capital growth.

Purchase a property for $200,000. After 10 years, it will be worth:

  • 5% Capital Growth $326,000
  • 10% Capital Growth $519,000
  • 15% Capital Growth $810,000

During this period of wealth creation your property investment portfolio can also be continually earning you income in the form of rental yields too, it is easy to see that real estate can be a great way to implement a wealth creation plan and give you excellent, long term outcomes.

1. Check your finances

Speaking with a professional financial adviser will allow you to see your current financial situation and how much you have available to invest. 

Investors are also able to consult a bank or mortgage broker and get a pre-approval on how much is available to borrow based on your current situation and circumstances. This will also help you set a realistic budget. 

2. Set goals

Why do you want to invest in property? What would you like to achieve?

Many investors will buy high cash flow properties to replace or supplement their current income. Most property investors will have a clear and definitive plan in place which will outline the goals they would like that particular property investment to deliver them. 

3. Understand risks

As with all types of investment, property investment carries inherent risk and the amount of risk you're willing to take will usually depend on your current financial situation and time of life.

Investors should consider their level of income, the needs of dependents and current debt repayments which need to be met. 

For example, young investors will be more eager to take a bigger risk than those investors close to retirement whom instead may work on a strategy that gives short term returns. 

Starting simple (not over borrowing or committing) can reduce your amount of concern, no need to panic if capital growth stalls for a couple of years. 

4. Investing strategy

There are many different property investing strategies you can follow, which include:

  • Discount - Purchasing investment properties below valuation. The valuation is the amount the bank and lenders see as the property’s value.
  • Positive cash flow - This is contrasted with negative gearing, this is when the income returns do not offset holding costs, and the investor uses the tax treatment of loses to their advantage.

You can download a free pack of suburb reports, from the team at Real Estate Investar, outlining the high growth and cash flow areas in New Zealand.

  • Sub-division - Dividing an existing area of land into more segments with individual titles, allowing separate properties to be built on the new segments. This works on the principle the split pieces of land are worth more than the single lot.
  • Off-the-plan - Entering a contract to buy the property before or during its construction. However, you won’t be able to inspect the finished property until construction is complete.
  • Renovation - Adding value by improving a property’s condition or adding new features. The key is targeting properties with potential that you make improvements and add value to, for the type of buyer or tenant looking to reside in that area.

5. Property Research

There can be thousands of properties listed within New Zealand, making sure the adequate amount of research is done to find one which matches your strategy and buying rules can be a massive impediment for investors. 

Thorough research should include:

  • How long the property has been on the market for.
  • Its on-the-market history; any changes in advertised price since it was placed on the market.
  • Its sales history i.e. how much the previous owners bought it for.
  • The median sale price and historical capital growth rates of the location.
  • How much comparable properties are selling and renting for.
  • An estimated market value of the property.

6. Stay focused and avoid mistakes

Investment properties should be treated as a business, keeping in mind it's a long term journey. Keeping on top of set goals and milestones to achieve along the way.

Don’t assume you can do it all by yourself.  Form a property investing team of people around you that can help.

  • Don’t lose sight of the big picture. Regularly review your goals and when you have started investing, check on your portfolio’s fundamentals regularly. 
  • Don’t neglect your property. You may have what it takes to manage your own investment property, but consider using a professional property manager.
  • Create a realistic budget that factors in the running costs, repayments, rates, insurance etc of owning investment property and ensure you can meet them.
  • Factor in a scenario of what would happen if the property is vacant for 2 – 3 months and ensure you have a contingency plan that can meet this cost.
  • Always crunch the numbers before you invest, and treat your property investment as a business, don’t get sentimental about an investment property.

7. Build a team

Property investors should always have a property team of experts which can be called upon. 

This team will include: accountant, lawyer/conveyancer, bank/mortgage broker, independent valuer, contractors (trades) and property manager.

Property investment is a complex subject, but we hope this article will help you get to grips with some of the fundamentals and can go some way to help you decide whether it is a wealth creation strategy that is right for you.

Ready to take the next step?

Register for a free strategy session today.  We can help you formulate a strategy for your individual circumstances and create long term wealth through property investment.

Book a Free Strategy Session

 

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