Buying and selling property is a medium to long term investment, proven to build wealth in New Zealand for smart investors. There are two main ways that property investment increases wealth; through capital gain, meaning the property’s value increases between the time you buy and the time you sell; and through rental income.
Focus on Capital Gains Returns
Buying low and selling high will earn you much more than a moderate rental income that covers your mortgage expenses. Though it may be a bigger investment in the first place – and you may even be operating at a loss for the first few years – finding a property that appreciates at a compound rate of 10% over ten years will gain you much more than one with a cash surplus but only 2% growth over the same period of time.
Manage Your Risks
Planning for a property investment and taking out a mortgage means you are committing to paying a large amount of money that you won’t see for a while. Unlike other types of investments like shares, you cannot simply sell part of your property to gain cash fast. Make sure you are able to afford payments for a while even without a rental income profit before taking on an investment mortgage. You may run into risks such as needing to sell the property when values have decreased and still owing money to the mortgage lender, or facing increased interest rates with a variable rate structure that reduce your profits. Putting into place adequate insurances is a must.
Use Equity You Already Have
One of the great things about building a property portfolio is that you can use equity you already have to fund the next property investment. Equity make it easier to get started without needing the cash up front.
Making the Most From Your Taxes
Property investment has many tax code advantages but utilising these requires specialised knowledge. Using a good accountant’s services is recommended to make the most out of your investment property.
Get the Right Mortgage
iLender can help you determine what mortgage and interest rate structure is right for your investment goals. We offer great rates and low deposits, making your property investment more achievable.