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Understanding Investment Properties A-Z

A woman thinking about property investment

Most of us understand that real estate can offer great opportunities but not many of us know exactly what’s involved in owning an investment property. If you’re looking to step onto the property ladder, or even if you’re looking to diversify your portfolio, it pays to know investment properties as thoroughly as you know your alphabet.

With that in mind, we’ve put together a guide on what you need to know about investment properties.

Getting Started in Property Investment

While investment properties can be massively rewarding, it’s essential to take stock of your overall financial situation before committing to a rental property.

Generally speaking, you will need a 10% deposit for investment properties, while Lenders Mortgage Insurance costs will apply if you are borrowing more than 80% of the property’s value. New Zealand’s nationwide loan-to-value (LVR) restrictions may also affect how much money you can borrow from the bank.

Either way, if you can secure investment loan pre-approval, you can get a head-start on other investors and find the perfect asset for your needs.

Investment Strategies and Finding the Best Property

What your ideal investment property looks like will depend on your investment strategy and your overall goals. There are several strategies you may wish to employ for your rental property:

  • Capital growth: with investment properties historically growing in value, capital growth strategies rely on selling your property for a profit in the future.
  • Rental income: an income-generating asset can be extremely valuable for investors, especially if your property becomes cash-flow positive, which means it makes more money than it costs to upkeep.
  • Buy low, sell high: buying a property at lower than market rates and selling it for a profit, often after cost-effective renovations, is another investment strategy.
  • Subdividing: this involves splitting an existing block of land into several properties, which you can then build on and rent out individually, or sell individually
  • Off-the-plan: this refers to buying a property while it’s still under construction, a strategy that may come with the advantage of lower prices for a new, high-value asset.

Investors will often implement several of these strategies with one investment; for example, renting out a property and renovating it in order to generate cash flow now and sell for greater capital gains in the future. Regardless of your approach, all investment properties should prioritise:

  • Location – look for a location with good tenant demand and historic property growth
  • Infrastructure – schools, transport, entertainment and ongoing development plans are all important to a property’s desirability
  • Demographics – an excellent property can still struggle if it’s demographically in the wrong area. Make sure your investment suits the area socially and economically.

Owning an Investment Property – What’s next?

Owning an investment property is just the beginning of your journey. It’s also important to consider the ongoing costs and responsibilities you will have as a property owner. This includes property maintenance, renovations, legal costs and loan expenses.

If you’re renting out your property for income – a very common investment strategy – you will also become a landlord, which comes with extra maintenance responsibilities as well as selecting and regularly liaising with tenants.

For this reason and more, it’s important to have a team of experts on your side to assist with the management of your property. Based in Auckland, Walker Weir Property Management is the friendly, expert management team who can help with the day-to-day care of your investment property. From tenant selection to regular property inspections, we will maximise your income.

To learn more about investing in property and how Walker Weir can help you, contact us online or call 09 972 1212 today!

December 1st, 2017