So you want to be a landlord…
Property investment is a key part of many New Zealanders’ wealth creation strategies.
With strong capital gains in recent years and rental growth boosting the income of those holding investments for the long-term, it just makes sense for many people.
However, rising prices can also make it tougher to get in the door of your first rental.
Here are a few ways to make it happen.
Borrow and buy
Own a house already? Then you may be able to borrow against the equity you’ve built up in it to buy an investment property.
Depending on how long you’ve owned your place, you may be surprised at what it is now worth. You can usually redraw an owner-occupied mortgage up to 80 per cent of the current value of the property, and use that money as a deposit for another purchase. We can help you work out what equity you might have available, and what that would allow you to buy.
Create a home and income
Not yet ready to buy a full separate property? You might still be able to generate a secondary stream of income using the one you already have.
You can take in a boarder, or create a self-contained unit or dwelling on the property. You could rent that out as a long-term rental, or explore the short-term accommodation market.
This extra income could help you get into a solid position to invest again, should you want to.
Subdividing
Those of us who are lucky enough to live on large sections can sometimes find an investment property on our doorsteps.
If your local zoning rules allow, you may be able to carve off a second section from your existing one, put a house on it and then rent it out. The cost to do this is not insignificant, and it’s important to talk to a property lawyer to understand the legalities of this move, but it may still be cheaper than buying a whole other property. Plus, banks’ loan-to-value restrictions may not apply if you’re building and creating new housing stock.
Buy with friends
It’s increasingly common to pool resources to buy a property. If you have friends with similar goals and financial position, you can combine your money – both in terms of the deposit you have saved and the income you are earning to service a loan – to purchase a property, and then split the proceeds of the investment.
Just a note of caution: Make sure you have a good legal agreement drawn up before you jump in, to ensure everything is clear and understood from the outset about payments, ownership and any future sale of the property. Borrowing money can be complex in joint ownership too.
Commercial property
For many people, property investment automatically means residential homes. But commercial property can offer another great option.
Some commercial properties are of a comparable price to their residential neighbours, and you generally have more surety about the tenant, who also picks up more of the costs associated with the property. Get some expert advice if you’re considering commercial for the first time as the market, and owner obligations, are different.
Want to talk?
Are you planning to invest in property? Give us a call today to talk about the options available to you and how we might help you along the way. We also recommend talking to both a lawyer and your accountant to make sure you meet your legal and tax obligations, and understand the implications of these.