We Explain Popular Investment Opportunities For New Zealand Investors Including Term Deposits Shares Index Funds Property Peer
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What An Insurance Adviser Costs And How They Get Paid
Like mortgage brokers, insurance advisers typically get paid a commission from the insurance company when they help you purchase the right type of cover for you.
This means they dont cost you anything to use or to get advice from.
So, its more than worth it to have them on your side.
Your Solicitor will make sure you are sorted from a legal perspective.
Theyll look over:
- The sale and purchase agreement
- The LIM Report
- All the clauses within your contracts to make sure you are protected.
How Do I Choose The Right Property
Once you know where you want to move, youll need to find a specific property to suit your needs. Here are some factors to consider.
It helps to know the local phrasing when youre considering buying a place overseas. Even with a shared language, there can be some differences in the wording when it comes to property descriptions.
In New Zealand youll find properties described as attached or standalone. As you might imagine, attached options include apartments and townhouses. Standalone options are more likely to be landed properties and single family homes. Its helpful to know that land purchased for building on is known as a section in New Zealand. If youre planning on building a place youll need to look carefully at the zoning of the land as some areas can not be developed easily, as well as any permissions needed to buy as a foreigner.
Condition of the property
Before you finally decide on a place to buy, youll want to check the condition of the property to ensure there are no major works required. Youll be able to do this using a property inspection. Your real estate agent should recommend a few different property inspection companies to you, for you to select the one you want to use.
Theres lots of helpful advice on the New Zealand Governments Settled webpages covering this and other essential home buying topics.
Other things to look out for
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Get Funds For The Investment
The most important part of investing in property is securing the funds from the bank to buy the investment.
Some investors are surprised to learn there are different types of mortgages they can use to secure the loans, and that the most common loan property investors use is not the same one they use for their home.
The two types of loans are:
Who Is The Buy And Hold Property Investment Strategy Right For
Most New Zealanders will find the Buy and Hold is right for them. At a minimum it requires no background or specialist knowledge and can require the least amount of money to get started.
Its also a strategy that tends to complement your day-time job, whereas a Buy and Flip strategy can easily turn into a second fulltime job.
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Why Investors Like Buy And Flip Property Investment Strategy
1. Immediate Equity Gain
While not all Buy and Hold investors renovate, almost all Buy and Flip investors will.
Successfully executed, a Buy and Flip strategy is the quickest way to create immediate capital gain within the property, because once renovations are finished the property is worth more.
With this strategy, if you paint the walls on the inside of the property, or change the carpet, you can increase its value relatively quickly and then sell for a profit.
This strategy can often be used by investors who are just starting out and need more equity to become Buy and Holdinvestors.
2. You Get The Money Straight Away
If you buy a property, renovate it, and then sell it, you get access to the profits straight away .
Its an immediate pay-off, whereas under the Buy and Hold strategy, your pay-off is down the road through long-term capital gains and cashflow.
3. Personal Satisfaction / Thinking It Looks Good On TV
The other reason people think about going down the Buy and Flip path is emotional.
Although we may not all admit it, there is an innate romanticism about executing a Buy and Flip.
As mentioned above, us Kiwis like the idea of painting a room, ending our day tired and covered in paint droplets. Its a bit of a dream being hard at work while imagining our future gains.
Hold = keep the property. Flip = sell the property.
What Is Land Banking
When we talk about land in this context, we are talking about undeveloped land that has nothing on it a blank site. Investors who purchase this sort of property are often known as land bankers if they sit on it and dont develop it immediately.
The benefits of investing in land
Goes up in value the quickest
Bare land tends to go up in value quickly because developers want it.
If house prices are increasing at a rate faster than the cost of building the house, then developer margins start to increase. In other words, building properties becomes more profitable.
Because of this, developers can bid the price of land up, and therell generally be more demand for it.
So in a rising market, the value of bare land can increase quickly.
Lots of opportunities to add value
If you choose to build on the land yourself , you can add a lot of value to the property very, very quickly.
Adding a house will add hundreds of thousands of dollars to the value of the property. Theres lots of risk associated with this strategy, which well get into, but the rewards are certainly there.
Lowest stress while you hold
If you invest in land, and dont develop it, there are no tenants and no real maintenance that needs doing.
This means holding the land is very low stress while youre doing nothing with it.
The drawbacks of investing in land
Because you cant rent out land to residential tenants, if you invest in land and dont develop it, you probably wont have any cashflow.
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Which Is Better New Builds Or Existing Properties
Its almost incomparable to say which of these very different strategies is better than the other.
If youre the sort of investor who wants a passive strategy, by this we mean you want to buy a property and have your tenants move in, then new-builds are probably the way to go.
But if instead youre the sort of investor who wants to follow a BRRRR strategy, or a flipping strategy, then existing properties will fit the bill better.
How Much Of A Deposit Do You Need For Property Investment
The amount of deposit an investor needs to buy an existing property under the Loan to Value Ratio is currently 40% as of September 2022.
However, it is important to know there are ways to work around the Reserve Banks rules and purchase property with a lower deposit.
For instance, new-build properties bought directly from a developer are exempt from LVR restrictions. The rules dont apply.
So, in practice, you can purchase a new-build investment property with just a 20% deposit.
But well talk more about the strategies you can use to purchase with a lower deposit shortly.
However, before we do, you need to know these restrictions will change over time.
Since this guide was originally written in 2019 the LVR restrictions have moved from 30%, to 0%, back to 30% and then again to 40%, where they sit today.
And they have moved at least 7 times since they were first introduced.
Whats the key message here? The Loan to Value Ratio restrictions can, and will, change over time. So keep an eye out. If they loosen, perhaps youll be able to make a purchase. If they tighten, you may no longer be in a position to invest in property.
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Reason #1 Investors Use Interest
If your property investment strategy includes holding the property, then the primary way youre going to make money is through the property increasing in value over time.
Lets say you purchased a property for $490,000 in 2016, and financed that property on an interest-only loan.
Because the median New Zealand house price increased 73.47% over that period then you will have still made $360,000 in capital gain even though you still have a mortgage.
In other words, investors can build wealth without paying down debt.
Choosing A Place To Invest
You know you want to be a property investor. But where do you want to invest?
Some people choose to buy investment properties in their own neighbourhoods because they know them well. They know which sorts of properties are popular, understand what tenants are looking for and know the things to watch out for when selecting a place to purchase. Buying an investment near your home can be helpful if youre planning to manage the property yourself, too.
But other people look further afield, particularly if they are investing in several properties. Diversification gives you broader exposure to the market and you may identify opportunities in areas that are a little further from home.
There are a few things to consider if youre deciding where you want to buy.
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What A Property Accountant Does
With the recent introduction of interest deductibility rules from the IRD, property accountants are more important than ever.
Not only will they file your tax returns with the government and IRD, ensuring the numbers behind your investment stack up theyll also make sure you are paying the correct amount of tax.
This is because many property investors pay more tax than they need to. This often happens when investors arent using companies or family trusts correctly, or theyre not claiming all of the taxable expenses they could.
Remember, succeeding in property investment is less about the property and more about the investment .
Putting It All Together& Taking Action
At GRA we use of a blend of mentors, accountants and good finance brokers, that together make up our clients’ team of experts. Using our recommended team de-risks trading and investment, because experience stops you making expensive mistakes.
Identifying all the costs and the likely selling price, is part of the science of property investment. The Property Analysis Tools in our Wealth Suite are a great way to identify costs. Coupled with experienced people, this significantly reduces risk for investors. Everything you might be considering doing has been done before. By taking advice from experienced investors who are in the game themselves, you can avoid many of the pitfalls and mistakes that people make.
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How Can You Make Sure Youre Buying The Right Property
Before you settle on a home, you need to ensure its the right one. You dont want to spend hundreds of thousands of dollars on something that isnt absolutely perfect for your requirements. Thats why buying a home in Parnell, Auckland, isnt a brilliant idea if you want to enter the property market at the lower end of the scale.
Take your list of requirements into account before you spend anything consider things like how you want to use the property, if youll have property managers looking after it, where the best property managers are, and what sort of tenant youd prefer. You wont get many long-term businesspeople in your home down in Cromwell or Queenstown, just like youre less likely to get many short-stay holiday-makers in your Auckland rental.
The Cost Of Not Using An Insurance Adviser
If you dont use a insurance adviser, you may end up buying the wrong insurance.
Or worse, you may end up purchasing an insurance product that has prohibitive terms and conditions . This can make it hard for you to claim on that insurance when you need it.
Its important to note, not all insurance policies are created equal. The quality of the policy, which is what you can claim on, is determined by the specific wording within the insurance agreement.
And because these policy documents are complicated, it takes someone dealing with them day-in day-out to really understand the differences.
An insurance adviser will also help when it comes to claim time, working with the insurance company to make sure your claim is paid out.
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Whats The Property Market Like In New Zealand
Property in New Zealand is relatively expensive considering the countrys small population and large land mass. This is thanks to years of sustained growth in housing prices, following consistent strong economic results and high demand for homes.
In fact, the price of houses went up an enormous 114% between 2001 and 2007¹, followed by a pause from 2008 as the world dealt with the financial crisis. Costs of homes then started to rise again in 2012 and have demonstrated a series of healthy increases since. This has resulted in the government implementing some measures to stop housing becoming too expensive for local buyers, including restrictions on some foreign purchases – more on that in a moment.
The Cost Of Not Using A Solicitor
It is highly risky not to use a solicitor.
You may end up investing in a property you dont fully understand. For example, legally what happens if there is a shared driveway.
You may also accidentally agree to clauses which arent in your best interests.
For instance, lets say you want to purchase a new-build. During negotiation you agree to a Sunset Clause that allows the developer to cancel the contract if the build takes too long.
Now, lets say during the construction of the property, house prices go up and your property is now worth more. The developer may allow the build to drag on, which allows them to cancel your contract. Now, they can sell the property to another purchaser at a higher price.
This wouldnt happen if your lawyer negotiated the Sunset Clause solely for the benefit of the purchaser , preventing the developer from cancelling your contract under this clause.
In another scenario, lets say you want to buy a cross-lease property. It all looks good so you go unconditional without consulting a lawyer.
Just before settlement you later discover the conservatory at the back of the house isnt on the flats plan. For a cross-lease property, this could mean the conservatory is illegal. So, the property has a defective title and the bank wont lend you the money.
Its 2 days from settlement , and the bank has withdrawn their offer of finance. This means getting hit with penalty interest.
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The Share Of Investors In New Zealands Market Is Falling Fast
Data for Wellington, Canterbury, and the Rest of New Zealand show similar trends. Wellington real estate investors only represented 27.8% of buyers in August, down from 34.2% in March. Canterbury investors fell to 28.7% of buyers, down from the 32.4% peak in April. Investors in the Rest of New Zealand fell to 29.4% of buyers, down from the insane 38.4% peak hit in March.
New Zealand To Eliminate Investor Tax Advantages
The capital gains-like tax is just one of the ways theyll try to stop investor tax advantages. Housing Minister Megan Woods said, the tax system favors debt-driven residential property investment over more fully taxed and more productive investments. They hope to tilt that in favor of first-time homebuyers.
On that note, theyll also be closing the loophole allowing mortgage interest deductions. Investors previously could write off the interest paid against rental income. That wont be the case in the near future. Theyre also considering closing the interest-only loans speculators receive, later this year.
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What Property Investors Think Of Real Estate Investar
“I joined Real Estate Investar and have since gone on to buy four buy and hold properties which my partner and I are very happy about.”
“I used Real Estate Investar to find property matching my criteria of cash flow and capital growth which saved me hours of time & helped me find deals before the rest of the market.”
“I didn’t realise just how efficient Real Estate Investar was. It quite literally slashed my research time to a fraction of what I had been spending to find property deals.”
“My renovation has propelled my investing portfolio and provided a $50,000 equity gain, plus the property is cash flow positive after every expense. I fully endorse Real Estate Investar and can prove the results.”
“Real Estate Investar has helped improve our quality of life. Our portfolio is now cash flow positive, and it has provided an excellent return on investment.”
New South Wales
“It was so worth the subscription cost of joining Real Estate Investar. Thank you for helping us to grow a property portfolio that will give us a great lifestyle.”
How Can I Find A Property In New Zealand
New Zealand has a highly regulated property market. This means that youll find lots of helpful information online about how to find an agent, and the process of purchasing a property. Buying a place should only take 3 or 4 weeks from start to finish – significantly shorter than in many other countries.
Make sure you stick to official guidelines to navigate the process without hassle.
Property agencies and agents
Most property purchases in New Zealand are done through a property agent. Its possible to make a private purchase but this is fairly unusual – and as a new arrival in New Zealand, youll likely find that having an agent on side makes the whole experience easier.
Real estate agents in New Zealand must be licensed. Check out the credentials of your agent – or find the right agent for you – by visiting the website of the Real Estate Authority of New Zealand.
Buying a home in New Zealand should be straightforward, and there are plenty of protections in place to make sure consumers dont run into trouble. For example, once an offer has been accepted, its not possible for another buyer to make a last minute bid and get the property youd agreed to buy.
If you have any complaints about the real estate agent youre using, or need advice or guidance, check out the Real Estate Authority of New Zealands website for support.
Property websites in New Zealand
Here are a few of the larger property websites to start your search off:
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