Adding an investment property to your portfolio can be an effective strategy for building wealth and securing your future. It can provide an extra revenue stream, offer tax benefits and is viewed as a stable investment – after all, everyone needs a place to live and not everyone owns their own home.
Although the prospect of having an investment property sounds exciting, the process to ownership can be a little daunting.
How to invest in property
Just like any investment, there are risks, however property is viewed as a less volatile option. To make it successful, it requires detailed planning, research, knowledge and, importantly, the right people behind you.
Here are some important steps you should navigate on your journey to becoming a landlord.
Thoroughly understand and review your personal cash flow and budget
Before you consider an investment property, you need to understand how much cash you have to invest in a property and whether you can afford the cash flow impact that comes with owning an investment property. If you have not done this before, it can be as simple as listing your assets, including income, and working out your expenses.
You will need to ensure you have enough cash for the deposit, and it is important you make sure you do not over commit. For investment properties, it is likely you will need a 40 percent deposit, so check with your bank or mortgage broker so you know exactly how much cash you need before making an offer.
Get pre-approval and understand your commitment
Once you understand your personal cash flow, the next step is to get a mortgage broker involved to find out how much they will lend and what interest rates you can expect. It is also important that you consider the economic climate and how interest rates may be impacted. This may influence your decision to lock in an interest rate for a number of years, or whether you settle on a floating rate.
After you get pre-approval, you will know how far your budget will stretch and what properties are within your reach.
Understand your goals
You need to be clear with yourself about what you want to achieve with an investment property. Consider whether these are short or long term goals, and whether they are attainable. For example, if this is part of your retirement plan start with the goals you want to achieve every step of the way so by the time you are ready to retire you have the financial stability you wanted.
This will make it clear what you need to achieve with your investments.
Get your accountant involved
Your accountant is the best person to help you understand the tax implications when buying an investment property.
You want your accountant to clarify the bright-line property rules, and what tax you may be required to pay on the rental income you earn and the capital gains should you sell the property.
Find a conveyancer or lawyer
During most property purchases, investors enlist the services of a conveyancer or solicitor to handle the purchase process. While it is possible to handle this yourself, the process of documentation and settling can be complicated, which may be daunting.
With the support and assistance of a qualified expert to help you during the purchasing process, you will have a contact to turn to when legal questions or obstacles are raised during your time as a property investor.
Have a property checklist
Now you have the hard part done, you have clarity around how much money you can borrow, understand all the tax implications and you have the right legal support, you are ready to find an investment property.
If you do not know exactly what you want, it could be valuable to create a property evaluation list to identify what features are important in an investment property. It is best that you list your key requirements, such as location, accessibility, construction material, etc, and then rank them to determine what is more important, and which areas you are willing to compromise on.
Start your property search
It is important to do your own research, after all, it is your money and knowing about the specific market you are investing in is a good idea.
At this point, you should talk to a local LJ Hooker agent to find out about the local market you are considering buying in. What are properties selling for, how long are they on the market, and gather information about the suburb, such as important amenities like transport, shops, schools.
Keep an eye on real estate portals, such as realestate.co.nz, oneroof.co.nz, trademe.co.nz and ljhooker.co.nz to see what properties are for sale. It is important not to become emotionally attached to the property as it is an investment and your focus should be on maximising capital and rental returns.
Utilise a property manager
Once you have purchased your investment property, the next decision you need to make is whether you employ a property manager to help you, or whether you will manage it yourself.
Although many investors are financially-savvy, when it comes to finding tenants, dealing with day-to-day property issues or legal jargon they are left in the dark. LJ Hooker’s team of experienced property managers can help make sure you receive a reliable income stream, excellent capital growth and the best returns possible - as well as a guarantee of exceptional customer service. You will receive regular and thorough property inspection reports, copies of all important documents and regularly reviewed rent rates and the local market to help you achieve the best outcome.
The key roles of an LJ Hooker Property Manager:
- Advertising your property for rent
- Open your rental property for viewings
- Screening tenants including reference checks, rental history review
- Manage the condition report process
- Manage the tenancy agreement signing process and handling questions
- Manage your financial accounts for the investment property and provide regular reports
- Inspect the property on a regular basis
- Organise tradespeople for repairs and maintenance
Manage your property investment compliance and accounting
If everything is going right, your property will be well managed and you will have reliable tenants paying their rent on time. Now is the time to revisit your accountant and provide detail of the rent you receive, interest you pay the bank and any depreciation benefits so they can amend your taxes.
Your property manager will keep a record of your monthly income and expenses and will be able to provide you with a report for your end of year accounting. There are a few other accounting implications and requirements so make sure you discuss these with your accountant.
It is important you seek professional advice to determine whether property investing is a good idea for you and your individual needs.
Stay informed
Whether you are buying or selling a home or an investment property, asking your real estate agent the right questions gives you a good idea of the agent’s approach and knowledge. It can also provide you with useful information about the property and the local market.
At LJ Hooker, our team is waiting to assist you. Our experienced real estate agents offer you experience alongside excellent market knowledge that helps make the buying or selling process as smooth as possible.
So, if you would like to find out the rental value of an investment property, contact us for a free rental appraisal. Alternatively, if you would like to speak to one of our real estate agents, we invite you to use our agent locator to find an LJ Hooker expert in your local area.
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