Rental property is a popular and profitable form of investment. Buying the right investment property can provide strong capital gains and regular income, while being able to leverage real estate opens up new opportunities for creating wealth.
Thinking about investing in property? This article is for you. Read on to learn more about the benefits of property investing and find out what you need to do to get started.
What are the benefits of property investing?
1. Asset appreciation
One of the key advantages of property investing is asset appreciation. Historical trends show that the value of New Zealand real estate tends to go up over the long-term – and often quite dramatically. A good investment can lead to significant capital growth and substantial profits when the time comes to sell. Some areas have better capital growth than others, so it’s important to invest in an area that offers the right blend of capital growth and rental yield for your financial situation.
2. Rental income
Investment properties provide a source of income in the form of rent. In the short term, most of your rental income will probably go towards paying down the mortgage and other expenses. Depending on your strategy, your rental income may or may not be enough to cover the costs of ownership of the property. Your cash flow will strengthen as more of the property is paid off and you build up your equity.
3. Tax benefits
Many of the expenses involved with owning and managing a rental property are tax deductible, which can further increase your return on investment. Some expenses you can claim include:
- Repairs and maintenance that do not substantially improve the property’s value
- Rates and insurance
- Professional services fees
- Mortgage repayment insurance
- Travel expenses associated with property management
- Legal fees of less than $10,000
- Depreciation on capital expenses
4. You can use the equity in your home
If you’re an existing homeowner, you may be able to borrow against the equity in your current home and use it as a deposit for buying an investment property. This means you don’t have to save a deposit. iLender has a special 80/80 product that allows for 80% borrowing on both your home and investment property.
5. Control over your investment
A commonly overlooked advantage of purchasing a rental property is the level of control you retain over your investment. You have the freedom to choose a loan structure, the price you buy and sell at, the rent you charge, how much you spend on renovations, whether you personally manage the property and so on. While the value of your investment is still heavily influenced by market forces, you have a lot more authority over property than other types of investments.
How to get started
The first step is to think about why you want to invest in property. Are you saving for retirement? Do you want to use your property investment as a source of income? Are you interested in growing your equity for further investment opportunities? Being mindful of your reason for getting into property investing will guide many of your decisions further down the track.
During the early planning phase, it’s important to think about how much risk you are willing to take on. While real estate is widely regarded as relatively low risk, there is significant capital involved with purchasing an investment property and your choices can have a big impact on your finances. Be sure to talk to your mortgage adviser for more information on risk management strategies.
You’ll also need to consider which property investment strategy is right for you. Some common strategies include:
- Buy and hold: You make a long-term investment by purchasing the property and holding it as it increases in value over time. When the time is right, you sell for a profit.
- Renovate: You buy the property, add value to it through renovations, and sell it for a profit.
- Rent: You buy the property and use the rent as a source of passive or semi-passive income.
- Develop: You subdivide a property into multiple titles or develop new properties to be sold or leased.
How iLender can help
Investing in property can be a very effective wealth generation strategy. A well-chosen asset can provide predictable cash flow, strong capital gains and ultimately a stronger financial future.
Whether you’re a first time investor or looking to grow your property portfolio, iLender is here to help. As Auckland’s leading independent mortgage brokers, we have the experience and expertise to help you secure a competitive investment mortgage tailored to your circumstances and financial goals.