Features to consider before buying an investment property

Purchasing an investment property might be a smart fiscal move. If done correctly, you can earn a high rate of return through passive income, tax benefits, and capital gains. However, a high rate of return on your investment is not a guarantee—you must think strategically when selecting and acquiring your investment property, and you must follow both market trends and basic investment standards to determine whether your investment is a success.

Consider the following points before browsing or purchasing:

Location

The location of your purchase will influence the type of renters you attract and your vacancy rate. If you purchase near a university, students will likely dominate your pool of prospective tenants, and you may struggle to fill vacancies each summer. Instead, a property near an intermediate school can attract long term and respectful tenants who are more likely to pay their rent on time.

Taxation of real estate

Property taxes will almost certainly vary significantly across your chosen area, and you’ll want to know how much money you’ll be losing. High property taxes are not always a bad thing—they might be beneficial in a desirable neighbourhood that draws long-term tenants, for example—but there are also undesirable areas with high property taxes.

The council’s assessment office should have all tax information on file, or you can speak with local homeowners. Make certain to ascertain whether property tax increases are likely in the near future. In times of financial difficulty, the government may increase taxes much beyond what a landlord can demand in rent.

Education

If you’re dealing with family-sized homes, consider the quality of the area schools. While you’re primarily concerned with monthly cash flow, the overall worth of your rental property comes into play when it’s time to sell. If there are no good schools nearby, the value of your investment may suffer.

Amenities

Take a walking tour of the neighbourhood and take note of the parks, restaurants, gyms, movie theatres, and public transportation connections, as well as all the other amenities that attract tenants. Town Hall may provide promotional literature that can help you determine the optimum location for a mix of public amenities and private property.

Area security

Nobody wants to live next to a crime hotspot. Neighbourhood crime statistics should be available from the local police or public library. Check vandalism and major and petty crime rates, and don’t forget to record whether criminal activity is increasing or decreasing. Additionally, you may like to enquire about the frequency of police presence in your neighbourhood.

Opportunities for advancement

The local council department will have information on existing developments or plans for the region. If a lot of building is taking place, the location is definitely a promising growth area. Keep an eye out for new developments that may have an adverse effect on the value of adjacent properties. On top of that, additional new housing may compete with your property.

Listings & Vacancies

If a neighbourhood has an exceptionally large number of listings, this could indicate either a seasonal cycle or a neighbourhood in decline—you must determine which is the case. In either instance, landlords are forced to reduce rents in order to attract tenants. Landlords can increase rents due to low vacancy rates.

Rents on an average

Rental revenue will be your primary source of income when investing, therefore you should be familiar with the area’s average rent. Verify that any home you are considering can command a sufficient rental income to cover your mortgage payment, taxes, and other expenditures. Conduct sufficient research on the area to determine its potential direction over the following five years. If you can afford the region now but taxes are likely to rise in the future, purchasing an affordable property now may result in bankruptcy later.

Natural Disasters 

Insurance is another expense you will have to subtract from your returns, so you need to know just how much it’s going to cost you.  If you live in an earthquake- or flood-prone area, insurance costs might eat into your rental revenue.

Our broker has been in the mortgage industry for over a decade now and has helped many kiwis climb the property ladder, if you are ready to jump in and invest in your future, contact us for a free consultation to get things going.

Is real estate still a good investment?

Are you considering purchasing an investment property? Given that real estate has generated many of New Zealand’s wealthiest people, there are numerous reasons to believe it is a solid investment. However, experts believe that, like with any investment, it’s best to educate yourself before investing hundreds of thousands of dollars. Many investors are fearful of the new housing laws, and they are questioning if it is still worthwhile to invest in property at this point.

The rules for property investors have altered, with the elimination of interest deductions on loans for rental properties and the extension of the bright line test to ten years. Consider the following variables and difficulties before purchasing your first rental property.

Determine if you have what it takes to be a landlord

While being a landlord can be a profitable source of real estate income, it is neither straightforward nor glamorous. Along with selecting the appropriate property, preparing the unit, and locating trustworthy renters, there are always maintenance challenges and headaches.

Are you familiar with the contents of a toolbox? How adept are you at drywall repair and toilet unclogging? While you could hire someone to do it for you or engage a property manager, both of these options will eat into your profits. Property owners with one or two homes frequently perform repairs on their own to save money.

To maximise the potential, investors must make prudent investment decisions. The location has a considerable effect on rental demand, tenant quality, and the rate of return on your investment. Therefore, seek out properties in areas with reasonable property values and relatively strong rental yields. This entails focusing on places with robust local economies and rapidly increasing populations.

How can I increase my chances of profiting from my property?

There are still techniques to increase your chances of profiting from property. The longer you hold a home, the more time you have to take advantage of any future property price increases (or recover from any falls).

Determine if the neighbourhood has adequate transportation and educational opportunities, as this can assist enhancing house prices or, at the very least, protect them from the worst dips.

Finally, if there is work to be done, it is more sensible to use your own paint brush. The less money you spend on the house, plus any increase in value when you sell, equals a larger profit for you.

The property’s return values

Property can generate two distinct types of results. One is derived from rent paid by tenants, while the other is derived from the property’s appreciation in value – referred to as capital gain.

Property investments are not deemed ‘liquid’ because they cannot be readily withdrawn. To obtain funds, we must either sell the home or increase the mortgage balance. This may not be simple – and additional expenditures like as valuation and real estate agent fees may apply.

Individuals purchase investment properties in order to profit from rising property values over time. In the near term, rent may generate little or no profit when expenses such as mortgage, insurance, rates, and upkeep are deducted. Additionally, if we sell within ten years of purchasing, we will be subject to income tax on the sale. (This is sometimes referred to as the ‘bright-line property rule.’)

Establish your margin

Wall Street corporations that acquire distressed buildings strive for returns of 5% to 7% since, among other costs, they must pay employees. Individuals should aim for a 10% return. Annual maintenance costs should be estimated at 1% of the property’s worth. Additionally, homeowners’ insurance, prospective homeowners’ association fees, property taxes, monthly expenses such as pest management and landscaping, as well as routine maintenance costs for repairs, are included.

The basic conclusion is that property investment is no longer a sure-fire way to make a quick buck in the present climate. However, for those willing to play the long game, there are still chances available. If you are ready to take the next step towards building your investment portfolio, we are experts, gives us a ring and let’s chat.