Every year hundreds of Kiwis turn to property investment as a way of building wealth and achieving financial freedom. While property investment can be simple, it’s not always easy and those who are unprepared fail to achieve their goals.
No matter how good the conditions of the market are, you can’t expect to make a lot of money with a little planning and no work. Follow the tips below to ensure your investment property doesn’t turn into a financial disaster.
Conduct Due Diligence
Buying an investment property is an expensive decision. It’s essential to thoroughly analyse the deal to ensure you’ll benefit in the long run. Too many first time investors don’t think about cash flow, extra costs, and what the deal will do to their financial position.
You should have a good understanding of property investment yield, including the difference between gross yield – a basic calculation of rent as a percentage of the purchase price – and net yield – income after costs are taken into account. The costs can be the difference between a good investment opportunity and a drain on your finances.
Conducting due diligence with expert assistance ensures you’re aware of any property damage, other potential problems and additional costs involved with the investment property. Find a mortgage broker you can trust and ask for a pre-approval letter. This tells you how much you can spend on a property before you search, minimising the financial risk.
Understand the Risks
Investors can get carried away with the belief that property prices only go up, forgetting there are always risks you should consider and prepare for. Most of these risks can be reduced by making well-informed decisions and avoiding financial over-commitment.
Over-commitment of capital means your property assets can’t support your debt. If your property depreciates while you are financially over-committed, you may be forced to sell, losing significant amounts of money.
Many property investors leverage equity to purchase more investments, resulting in better overall returns. But it’s important to remember that leveraging also intensifies the risk if house prices drop.
The best way for property investors to avoid disaster is to learn from those who have seen others make major mistakes. Have a plan and review it regularly with help from an accountant, a financial manager and a mortgage broker.
Reviewing your investment portfolio helps you predict and prevent potential problems. It can also maximise your returns by creating the right ownership structure. This structure can prioritise asset protection or tax efficiency depending on what is appropriate for your situation and current market conditions.
Get the Right Home Loan
Not enough property investors are thinking about how to structure their mortgages. Finding the right mortgage structure for your personal circumstances is essential, whether it’s principal and interest, interest only, or revolving credit. Consult an expert mortgage broker to determine the right option for you.
If you need assistance with home loans or any other aspect of your investment property in New Zealand, iLender is here to help. Our mortgage brokers have the knowledge and experience to help property owners avoid disaster and achieve their financial goals.
Call us today on 0800 LENDER (0800-536-337) or contact us online with any questions you have about property investment.