Property market in New Zealand
The New Zealand property market has had great track record over the years. As we know, from the data provided by the Real Estate Institute of New Zealand (REINZ) the property market follows a cyclical pattern but overall showing an upwared trend over the long term (15+ years).
Why is residential property investing so popular
The benefits to residential property investing can include that you are able to insure property, you can utilise leverage through bank lending, you can incorporate property managers to manage your portfolio, land is scarce and the nations poulation is contiually growing. The hrash reality is that ultimately everyone needs somewhere to live and its up to you to make the decision if you want to pay someone rent or get paid rent.
How do you make money with property
In order to recieve an income from property you can recieve rental income from renting out property as a landlord and also by selling investment properties with the intention of making a capital gain because of the increase in the price of the property.
Is property investment still achievable today?
In recent years, there has been a lot of negativity in regards to first home buying. According to Statistics NZ Income Survey, research shows that in 1998 the median salary was $29,900, while the median house price was $143,625 in comparison to September 2022 the median salary is $56,000 with the average house price of $987,887. Although house prices are signficantly higher, there are many ways you can get your foot in the door.
How much do you need to have saved
In order to get to accumilate enough money for. In 2013, the Reserve Bank of New Zealand introduced loan-to-value ratios (LVR) meaning how much a bank is allowed to lend compared with the value of the property.
In 2022, first home buyers as an owner-occupier will need to have saved a deposit of at least 20%. For example, if the property costs $600,000 you will need to have saved $120,000 (20% of the purchase price). However, under some circumstances there are exemptions to LVR restrictions with lending loans to buyers with lower deposits 10% - 20%, so talk to your bank or a mortgage adviser if you have a substantial deposit saved but is still below the 20% requirement.
Five tips for getting your deposit together
1. Ultilise KiwiSaver which is a savings scheme that allows any individual to.
2. Set up a budget of how much you want to save per week which will go towards your deposit and create a separate account for your deposit savings which you should try not to withdraw from.
3. Make use of the Kaiangaora first home grant which is government incentive to help first home buying easier where you can recieve $1000 for every year you have been contributing towards your KiwiSaver upto a maximum of $5000. Also, if you purchase a new build property you can recieve $2000 for every year you have been contributing towards your KiwiSaver upto a maximum of $10,000.
4. Start a sidehustle to increase your income or develop your skillset to enable you to be more valuable with the intention of increasing your salary.
5. Potientially selling old stuff you have that you might not use anymore e.g. old clothes and shoes, bicycles, surfboards, toys, furniture, books, playstation, board games.
How to purchase your first property
1. The first thing you will need is to work out your budget.
2. Once, you have a budget to worth with you will then need to get pre-approved for a home loan. Before you begin your search, it’s important to find out how much money you can borrow. You can find this out from your bank or financial institution.
3. The next step will be getting in contact with a lawyer to give you the right independent legal advice which they will make sure all legal processes are followed and can help you acquire reports such as land information memorandums and titles (LIM reprts).
4. The next stage in the process will be to finally start searching for properties within your budget. You can use websites online to help you with your search such as trademe property, real estate.co.nz, oneroof, homes.co.nz and independent realesate companies.
5. Step five will be to inspect the property and utilising speacilist reports such as a LIM report as dicussed previosuly and gettting a builder to look over the property.
6. Make an offer by incorporating your lawyer, making sure you get sufficient property checks done and, if you're making a conditional offer, decide on the conditions of the affreement with correct documentation.
7. Once the offer is accepted the property will go unconditional which means neither the buyer or the seller can change their decisions.
8. Before settlement sign the sale and purchase aggreement.
9. Settlment day is when you pay the balance for your new property.
How to use equity
After purchasing your first property and your starting to look at building a property portfolio taking out a home loan using your existing property can be a viable option. One you have obtained your first property and are paying down debt your home’s value increases, either through market changes and/or home by renovating the property to add. Also, you can pay off your principal which is the amount you’ve borrowed and reduce the credit limit (borrowing limit) of your home loan over time.
In order to calculate your home's equity find your home’s current market value, then minus what you still owe the bank, and you’ll be left with your equity. For example, if the market value of your home is $500,000 and you still owe the bank $200,000, then your equity would be $300,000.
Property investing strategies
When choosing a strategy for residential property investing there are a number of investment strategies that investors use. The first most common strategy used is buying and holding which involves purchasing property and holding it for the long term. The key benefit to this strategy is that by renting the property out and paying down debt over the long term There And the second most common strategy is buying and flipping. This involves purchasing undervalued property that needs renovating and then reselling this property within a shorter timeframe with the intention of making a profit.
People who can help
When you begin your property journey in can be quite difficult trying to do everything on your own and by building a team of people that can help you save time trying to figure eveything out and save money from making mistakes.
1. The first person you will need on your team is a solicitor (property lawyer)
2. Property adviser
3. Mortgage adviser
4. Property manager
5. Property accountant
Insurances you will need
Once you have prucahsed your first property on the possession day you should arrange house and contents insurance for your new property.
Thereafter, once you purchase your first rental property it would be highly benefcial to acquire landlord protection insurance which provides comprehensive cover to protect your rental property and income if issues arise with your property or tenants.
It is important to fully read the different policies as each insurance providers policies will vary. Most insurance providers will cover the main policies but its is still important that do your own reserach into specific details. For example, some important policies you should consider are home cover for accidental damage, loss of rent, methamphetamine contamination cover, and legal liability.