Investing in property can be incredibly exciting and incredibly terrifying all at the same time. On one hand, the potential return on your investment can be enough income to allow you to live a comfortable and satisfying life. But, on the other hand, the property you invest in may go down in value, or you might not be able to keep property full of tenants.
Unfortunately, this is just one of the risks of property investment, and an especially scary one if this is your first time buying property. But, with a lot of planning, a little luck, and some property savvy, getting started in property investment can be one of the best financial decisions of your life. To help you get started and to see if you’re ready to jump into property investment, read on.
Set a budget
Like with any type of investment, you always need to start with a budget. Since there is heaps of information on the internet that goes into much more explicit detail than we ever could, we won’t bore you with a “how to” section on setting up a budget. Instead, here’s a great article about setting up a start up budget, and another one with some tips on small business budgeting. You might also want to look into setting up a monthly financial report with a reputable accounting company, which will help do some of the work of budgeting for you.
What we can tell you here and now, is that investment loans are a bit more high risk for lenders to give out, making it a little more difficult to obtain an investment property loan. This is because it’s not quite as easy or simple to sell an investment property. If something goes wrong with the property, the lender would have a harder time retrieving their money than a regular home loan situation.
Just like with any property, it can go up or down in value, which makes it a bit risky to buy. Your long term budget would need to include the unknowns, like if you aren’t able get tenants in right away, or if the value of the property goes down when you’re looking to sell. We’ll go into a bit more on the risk of property investment below.
Decide how risky you want to be
The location of your investment property is one of the most important decisions you’ll have to make. That decision is also a bit of a risk depending on where you want to purchase property. The main risk comes with gambling on the area’s future and potential. Since the property is an investment, you probably want the purchase area to be a growing one, with lots of potential and plenty of new residents coming that way. That would mean that your property will be highly sought after for years to come, and less risk when/if it comes time to sell the property. It would also keep tenants in your property more consistently. The downside is that the property may come at a much higher price.
If you don’t know how to determine if an area is growing, take a look at these tips to start. Then, make sure you’re working closely with your real estate agent as well to help you determine a growing area. If you don’t have a real estate agent yet, check to see if you can get recommendations in NZ from your finance company. Financial companies can be a great help to you with breaking you into the network of people who know things, from real estate gurus to financial brokers who specialise in property investment.
Decide how you will be using the property
Choosing a property and buying it doesn’t mean that your decisions and hard work are over. On the contrary, unless you bought a perfectly renovated and ready to move in building, which is highly unlikely, you’ll need to put at least a little work into the property. You’ll need to make a decision on if you will be hiring someone to come in and renovate and/or get the property ready for tenants, or if you can do the work yourself.
There are other ways to use investment property that don’t require tenants, like flipping the property and selling for profit, or turning the property into an office building. Depending on what you want to use the property for, you might be eligible for business lending in NZ, so make sure your decision of how you’ll be using the property is one of your first decisions.
Find a network of other investors
The best source of knowledge will be other investors in your area. Finding like minded people who are doing the same thing as you will help you greatly in making these big decisions. But, more importantly, they’ll be able to help you learn from their mistakes. Especially if they are experienced investors, they probably have a network of their own of good and bad people to work for, or the best way to flip property.
After you’ve put all that work and time and sweat into an investment property, you absolutely need to make sure you have a backup plan for the property. If something goes wrong, you don’t want to be left with a giant loan and no way to pay it off. House insurance in NZ is a vital investment to your property, but you might also want to look into content insurance, which can protect any of the furnishings or anything else you lend the tenants, or landlord insurance as well.
When all is said and done, a good property investor needs to understand the inherent risks of investment properties, and stay on top of them. The key is to have a solid understanding of the process, of the risks involved, and have a strong backup plan when or if something doesn’t go according to plan. If you can succeed at all of this, then you have a great future ahead of you in property investing!