Investing In A New Universal Home
Property investment is one of the most popular ways of investing in New Zealand, and quite often it is one of the biggest investments people will ever make.
For the uninitiated, investing in property can be a daunting prospect, and that’s why Universal Homes have an Investment Specialist who can offer expert tips and insights into property investment.
Universal Homes offer varying styles of properties across multiple estates throughout the greater Auckland region, from the lock and leave terraced homes to large stand-alone family homes.
Is it a good time to invest?Watch Video Now
Many factors can influence the right time for investing but buying an investment property can be a great way to generate income and build wealth over time.
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Numerous elements need to be considered such as; establishing if an investment property is right for you, choosing where and what you want to buy, assembling the right support team, securing your financing, calculating cashflow, just to name a few.
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Universal Homes have a long-established reputation for providing homes of excellent quality. With over 60 years in the NZ home building sector, Universal are a trusted brand with vast experience and knowledge. Rent ready means the property is ready for tenants to move in to, from the landscaping to the brand new appliances. They simply need to move their furniture and belongings in!
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Investing in rental properties is a great way to get both income and long-term appreciation, and thanks to the relatively easy (and safe) use of leverage, investment properties can produce remarkable returns.
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Lot 6 - 4E Nohoanga Road
- Land is 186 m2
- House is 173 m2
Hot Properties for sale
How to Start Investing in Real Estate in New Zealand
Government experts estimate that there are around 1.8 million private dwellings in New Zealand. These properties change hands every day. When you factor in commercial property as well as residential buildings, you end up with a very active property market.
Many people only buy and sell property for practical purposes. However, for others, the property trade is an opportunity to make a profit through investment and speculation.
If you're curious about how to start investing in real estate in New Zealand, keep reading.
How to Start Investing in Real Estate in New Zealand in 2020
Because it is so broad, real estate investment is something of a misleading term. There are many ways to invest in real estate. The one you choose should depend on a number of factors.
Before we look at the different ways in which you can invest in this area, we're going to consider the factors that should affect your decision.
There are a number of key things to look at when it comes to property investment, including but not limited to; where to buy, what to buy, how to finance it.
You will always hear people talking about how location is key for an investment property, and they’re right. The simple fact is that capital growth in New Zealand’s major centres is greater than that of the regions, and this will just about always be the way due to the nature of those centres being home to greater economic sectors.
When you make any investment decision, the primary guiding factor should be your appetite for risk. You need to decide at the outset of your investment journey how much of your stake you're willing to lose.
If you're a younger investor with a certain amount of money you can afford to part with, you may want to undertake a high-risk venture. On the other hand, if you're approaching retirement and you're looking for a safe investment to make up part of your pension, you should seek something as low risk as possible. A financial advisor or your accountant is a good place to start in terms of assessing your risk capacity. It’s also important to be fully informed and understand the risks of what you are using to fund your investment i.e. using another property as collateral.
Level of Involvement
Some real estate investments require you to be actively involved in them. If you buy a property to use as an Airbnb, for example, you will have to meet guests and prepare the living space between stays. You can choose to hire someone to carry out these tasks, but this is a significant cost. Unless you have a few high-value properties, it is unlikely to be worthwhile. On the other end of the spectrum, there are property investments which are entirely passive in nature. If you buy shares of a real estate investment trust, you won't have to take any active part in your investment whatsoever (short of selling the shares when you want to cash out).
Before getting into real estate investment, you need to decide what you want to get out of it. If you're looking for something to form part of your retirement income, you should steer clear of high-risk ventures like fixing and flipping. Conversely, if you're out to make big profits and you're not afraid of high risk and hard work, this kind of strategy is exactly what you need. Dependent on your level of deposit and repayments schedule, renting may even provide a profitable income, over simply covering the costs of your long-term investment.
Buy to Rent
This is one of the more common styles of real estate investment in New Zealand. You buy a property and lease it to residents, preferably families or young professionals. While university students are also an option, they tend to pose issues in terms of maintenance and excessive noise.
If you buy the property with a mortgage, you just need to ensure that your monthly rent exceeds your repayments by enough that the investment is worthwhile. You must also factor in other relevant expenses, such as maintenance costs. This approach can double up with the buy and hold strategy we look at below. While renting out your property to tenants, you can keep your eye on market prices in your area and sell if you think the time is right. It is important to note that the Healthy Homes bill comes into play when you are renting out a property. The healthy homes standards which became law on 1 July 2019 are in place to ensure properties meet specific and minimum standards for heating, insulation, ventilation, moisture ingress and drainage, plus draught stopping rental properties. This is an important factor to keep in mind when purchasing as if these standards are not met, you may find there is significant cost involved in getting the property up to standard. Of course, these upgrades may also be worthwhile undertaking if you’re able to secure the property at a favorable purchase price initially. Given the high demand for rental properties, this is often the most popular and reliable form of property investment.
Fix & Flip
This strategy involves purchasing a house with structural, aesthetic, or maintenance-related issues, fixing them, and selling for a higher price. It is labour-intensive, and potentially risky. The strategy relies on the market as much as on the work you do, so if property prices fall while you're holding the property your investment may not make you a profit. On the other hand, there is the potential to make very significant returns over a short timeframe. If you have a high-risk appetite and are good at home maintenance work, this investment approach could make you a lot of money. Time is also of the essence when flipping properties as you will be making mortgage repayments whilst doing the renovations, therefore each day, week, or month that is spent renovating is essentially costing you money. It is also to be aware of your tax obligations when flipping properties. The bright-line tax, for example, is a tax which must be paid on investment properties sold within five years of purchase. For overseas investors, a withholding tax may also be deducted at the time of the property sale if the property is owned for less than the bright-line period. A discussion with your lawyer and/or accountant is always recommended to find out your tax obligations.
Buy & Hold
Buy and hold strategies are, in some ways, the opposite of fix and flip approaches. They involve buying a property with the intention of holding it for a long period of time and selling it once the market for property improves. Unlike fixing and flipping, buying and holding doesn't require you to find a property that's undervalued due to poor maintenance. The desired appreciation in value should come from rising market prices, not an increase in the price due to individual factors. Because property prices tend to appreciate gently over time, this is not a high-risk option. However, to make the most of it, you'll need to be in a position to hold the property for several years. Determining how you utilize the property while holding it is a decision that should be looked at prior to purchase in order to determine how your investment will cover its own costs while gradually increasing in value i.e. renting the property to long term tenants, use as short term accommodation as per next point.
This type of real estate investment has exploded in popularity in recent years. The main reason for this is Airbnb, the online accommodation service which has revolutionised vacation accommodation across the world. Because all tenants stay on a short-term basis, you can charge much higher rates per day, week, or month than if you were dealing with a long-term tenant. You will also avoid the possibility of tenant disputes over maintenance, unpaid rent, and so on. If you buy a property in a particularly desirable location, you will be able to command high rates from tourists.
The drawback to this approach is the level of involvement you will have compared to a longer-term renting arrangement. Many Airbnb guests stay for only a night or two; after each of these stays, you'll have to make sure that the property is prepared for your next guests. The current Covid climate has had a significant impact on this industry due to travel restrictions, therefore it is wise to determine whether it is feasible to cover repayments while there is a down-turn in the tourism and travel sectors.
Putting Your Money to Work With Real Estate
If you're thinking about how to start investing in real estate, you're not alone. A huge number of people are exploring real estate investment as a way of putting their money to work. However, turning a real estate investment into a profitable venture can sometimes be easier said than done. This is especially true in a market as unstable as the one we currently have. However, market uncertainty can create a lot of opportunities for profit-making. If you make the right investment at the right time, you could capitalise on a massive upswing and make huge gains.
If you'd like to learn more about how to capture this kind of growth through real estate investment, contact Universal Homes’ New Home Consultant, Srecko Ulrich today.
P: 0222 007 622