Below we've Plotted out 8 steps to take you from home owner to property investor, with our cheat sheet tips which provide valuable shortcuts for the first time investor. If you are new to property investment, we recommend signing up to a free property club seminar, or personal consultation, which will help you through each step in greater detail… Just sign up here… http://goo.gl/forms/pdo8kI47SP
1) Is it the right time to buy?
Property investment is a long term game, so if you're looking for a get rich quick scheme, you're in the wrong place. Don't get hung up on what the property market might do over the next few months. The important thing is what happens over the next few years, and that's generally a steady gain, which averages about 6% per year.
Cheat sheet - Check out the stats since 1992, for Auckland, Christchurch & Wellington, on the REINZ website… https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=8850044A-1DEB-43E2-B6F1-5F0193958C56&siteName=reinz
2) Will the bank lend you money?
This doesn't mean you need thousands of dollars in the bank. If you own your own home, you're already on the property ladder. This is the hardest part of all, so well done if you fit into this category. Once you've owned a home for long enough, you'll notice it's worth significantly more than you paid for it. This is known as gaining equity, which is the key to step three.
Cheat sheet - Get an approximate value based on your most recent Christchurch Council valuation here… http://www.ccc.govt.nz/services/rates-and-valuations/rates-information/
3) Use your equity to fund your deposit
Before the bank will lend you money to buy a rental property, you need to prove you have a 20% deposit, but this doesn't need to be cash. Most property investors use the equity they own in their family home to satisfy the banks criteria. For example, if your home is worth $500,000 on today's market, and you only owe $300,000 on your mortgage, you have $200,000 equity, so can probably borrow another $500,000 to buy a rental property.
Cheat sheet - Use a mortgage calculator for an idea of your borrowing capacity, like ANZ Bank’s indicative approval process here… https://onlinestore.anz.co.nz/get/home-loan
4) Choose the right type of property
There are two ways to profit from property. Yield is the rental income you receive on the property, and capital gain (aka growth) is the increase in value that will happen over time. Generally speaking, the higher one is, the lower the other, but there are definitely some that are better than others overall, so you're looking for the right balance between the two.
Yield will help you pay the mortgage, but capital gains will make you far more profit in the long run, so it depends on your own financial situation. If you can afford to pay off some of the mortgage from other income, such as your salary for example, it's worth choosing a property which can offer better long term gains instead.
Apartments/townhouses and cheaper suburbs usually offer higher yields, while larger houses and more expensive suburbs offer better growth. A larger house in a cheaper suburb might offer you a good balance in between.
Cheat sheet - Westpac offers great statistics of yield and capital gains, broken down by suburb and dwelling type. Download the report here… http://www.westpac.co.nz/home-loans/property-investment-hub/investment-tools-and-resources/westpac-property-investor-report-3/
5) Get some tax advice
Property investment can be structured to offer significant tax savings, if you do it right. Some things to consider before you buy might be whether you will be considered a speculator, subject to capital gains tax, or what expenses can be deducted from your usual income, to decrease your weekly tax bill.
Cheat sheet - pro-Tax NZ offers free advice to home owners. Request a free consultation from the Christchurch Property Investors Club here… http://goo.gl/forms/pdo8kI47SP
6) Shop around
Now that you know the type of property you're looking for, it can be fun choosing a rental to purchase, but be prepared to set in for a long wait. Setup search criteria on Trademe Property and Realestate.co.nz, so you're emailed the latest suitable listings daily, and set aside your Sundays for open homes. Often the best buys are made before they are even advertised though, so it pays to contact local agents and let them know what you’re looking for.
Cheat sheet - Real Estate agents are usually happy to find you a property that suits, and won't cost you a cent, as they will be paid by the seller of the property you eventually choose to purchase.
7) Crunch the numbers
Before you purchase your first rental property, you want to be sure you can afford to make the repayments on your new mortgage. Things to consider are how much the repayments will be, how much rent you can charge, and what other expenses you'll be liable for, such as rates, insurance, property management and maintenance.
Cheat sheet - Westpac offers a great calculator here… http://www.westpac.co.nz/home-loans/calculators/property-investment-calculator/
Bonus tip - You will often find property managers are willing to give you a free rental appraisal. We recommend the team at Venture Property Management… http://venturemanagement.co.nz/
8) Due diligence
This is where a solicitor is important. Before you sign a purchase agreement on a property, ask the vendor to send a copy to your solicitor. The solicitor will uncover any potential issues with the property, and ensure your legal interests are protected. Usually you will enter into a ‘due diligence’ period of around 10 working days, during which time you can consider the property in more depth, while maintaining an option to cancel the purchase. Common things which your solicitor might ask for are confirmation of finance and insurance.
Cheat sheet - Here is an example of a fairly rigid due diligence clause you might include in your purchase agreement…
"This agreement is, in all respects, conditional upon the purchaser being satisfied that the property is suitable for the purchaser’s requirements following the purchaser carrying out a due diligence verification of the property, including by way of example and without limitation...
1. The value and condition of the property including compliance with building and local authority regulations.
2. The terms of all encumbrances, rights and interests registered against or in respect of the title.
3. The overall financial suitability of the purchaser’s proposed purchase of the property.
The date for fulfilment of this due diligence condition is that date being 10 working days after the date of this agreement. The parties acknowledge that this due diligence condition is inserted for the sole benefit of the purchaser and may at any time prior to this agreement being voided be waived by the purchaser giving written notice of waiver to the vendor."
The Ultimate Cheat - Sign up to the Christchurch Property Investors Club, and we’ll arrange a Property Investment Consultation with one of our sponsors, who will help you through steps 1 to 8, FREE!... http://goo.gl/forms/pdo8kI47SP
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