There are many methods for investing in real estate. Some methods are passive, such as investing in real estate investment trusts (REIT’s), buying real estate related stock or even investing in deals through a real estate crowdfunding platform.
Or you might choose to invest in a more active approach such as purchasing properties directly whether they are commercial or residential, either to flip and resell them for profit or rent them out for ongoing income.
In general, the price of property in New Zealand is considered less volatile than other types of investments such as stocks / shares. New Zealand is consistently ranked well for quality of life, education, health care, air quality, and leisure activities meaning property is attractive as an investment or home and should continue to appreciate over the long-term.
Learn how to invest in a rental property. Discover what is involved in owning a rental investment property and what the costs are with MyFuture.
Should I Invest In A Rental Property?
This depends on what it is you are wanting to achieve over the long-term! Depending on what your financial goals are, what resources you have available to achieve those goals, and your appetite for risk, will ultimately dictate whether or not investing in rental properties are appropriate for you. With the best guidance and skills by your side, however, rental property investment can be extremely lucrative and can be the best option for you to achieve your more ambitious long-term goals.
Avoid making costly mistakes by surrounding yourself with our professional team of Qualified Financial Advisors, use our knowledge to speed up your wealth creation.
What Are The Benefits Of Investing In Rental Property?
Rental investment has the possibility to create two types of return on investment:
First of all, it can build appreciation over time. When a property’s value increases over time, it is said to be appreciating. While there are no guarantees that property will appreciate, understanding the market conditions and making smart choices within that environment can protect your investment. With rental property, as long as you have stress tested all the numbers and know what ‘worst case scenarios’ look like, then you should have the added benefit of being able to sit on the property until it is the right time to sell.
Secondly, it still has the potential to provide you with cash-flow from your tenants in the meantime which can be used to help pay for the costs associated with maintaining the property (such as the mortgage, rates and insurance).
If, as an investor, you can obtain attractive financing to secure a rental property that produces positive cash-flow in an appreciating market then rental property can be a lucrative investment option. But remember, even if the property is cash flow neutral or negative, if your goal is for long-term capital gains, then the cash flow situation is an indicator of affordability only, and is not what is going to make you wealthy.
Reach out to our experts at MyFuture to guide you through your rental property-buying journey and connect you to professional mortgage brokers to get you the most bang for your buck.
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Rental Property Investment Strategy
To determine whether a rental property investment will work for you, it’s important to obtain an informed estimate of the return on investment (ROI) that the property is likely to generate. When it comes to estimating ROI on stocks, this can be calculated relatively easily with a simple calculation of how much you gained minus the cost you bought them for.
Unfortunately with property investment it’s a little more complicated than that. You will need to factor in all the variables that can affect both the income potential and the expenses of the property. Determining the possible ROI of an income-producing property will require you to make estimates based on historical data. Take into account:
- Market rates
- Vacancy rates of similar properties in the area
- Mortgage repayments
- Property management fees
- Property taxes
- Ongoing expenses for maintenance and operations
- Other variables that can change at any time
How To Find A Good Rental Property
Determining the best rental property requires assessing many criteria. Again, depending on what your long-term goals are will determine what makes an appropriate investment property for you. Generally speaking, if you’re after long-term capital gains, then you want to be investing in areas where there is long–term infrastructure investment happening. If you’re investing to maximise your retirement income, then rental property may not even be an appropriate asset class for you.
Our rental property investment experts have the knowledge and the know-how to create a viable strategy, determine a good rental property, connect you to the best financing options, increase your cash flow and build a steady income stream. You could find yourself replacing your day job and supporting your retirement plans.
Is Rental Property Still A Good Investment In 2022?
Real estate is still going strong in 2022 and is an appealing long-term investment vehicle for a lot of people because it offers many attractive benefits. First of all it has the advantage of being a tangible asset, unlike stock and if you’re looking for a better return on investment, property has the added benefit of leverage.
The power of leverage
Property investments have a built-in benefit of the power of leverage. Using leverage can be a great way to grow your property portfolio and increase profits, but it’s important to know how to use it to your advantage while avoiding the heavy risks involved. When leveraging a property, you borrow funds from a lender, such as a bank, credit union or a private money lender, to purchase a property instead of covering the entire cost yourself.
The bank will lend you the loan-to-value ratio (LVR) for investment property loans in New Zealand, which they are unlikely to lend you the same amount for to invest in other assets such as stocks. This means you’re able to increase your spending power and use leverage to generate higher returns by using property as your wealth creation vehicle.
This strategy is one of the reasons investing in property is so attractive. Leverage allows an investor to either purchase property that costs more than the amount they have available or to spread out the money across multiple properties.
Return on investment
Return on investment measures the performance of investment properties. It is calculated by the percentage of invested money that’s recouped after deducting associated costs. It’s important to investigate the potential ROI on a property before you invest as there are always many variables at play.
Return on investment in property versus stocks or bonds is generally much higher because you gain the ROI on the full amount invested including any loans. With stocks you only gain interest on the initial amount you invest.
There’s no guarantee you will get a ROI from your real estate, but our qualified financial advisors can help you assess potential ROI and navigate the complexities of property investing.
In addition to power of leverage and return on investment, there are other advantages to rental property investment:
Managing risk is a large part of investing. Diversifying your investments and building a property portfolio across different asset classes, sectors, and strategies so that a downturn in a particular area is less likely to impact the whole portfolio. While there is risk when investing in real estate, by having diverse holdings consisting of properties, shares, or other investment vehicles, you can mitigate your risks.
Tax deductions are not the main reason that most people invest in real estate, but they can provide a significant advantage. There are several tax incentives and deductions offered to real estate investors. Our experts at MyFuture can work with you to navigate the tax benefits available to you when investing in real estate.
Reach out to us today for your no obligation FREE Discovery Session to start your rental property investment journey.