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.