Investing

How much can I borrow to fund my investment? Ideally, you should arrange your finances before you start searching for an investment property. This will let you kn...
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Looking to invest?

The following advice is of a general nature only and intended as a broad guide. The advice should not be regarded as legal, financial or real estate advice. You should make your own inquiries and obtain independent professional advice tailored to your specific circumstances before making any legal, financial or real estate decisions. Click here for full Terms of Use.

I’m interested in investing in commercial property. What are some of the benefits?

Commercial real estate can provide you with a solid return on investment (ROI), through steadily increasing rental returns, and improvements in the building's sale price over time.  The main benefits of investing in commercial property are:
  • Commercial property is usually a solid, long-term investment, as long as it is in locations or areas where businesses choose to locate.
 
  • Commercial property and commercial lease real estate market information is easily accessible, and it's easy to calculate market pricing and returns based on lease rates (which are typically worked out on a per square foot basis).
     
  • Commercial property often offers higher yields than residential property, with average yields ranging from 5-10%.  These yields depend on the type of business tenant and the terms of the tenancy.
     
  • Business owners can often take advantage of buying the commercial premises they need to occupy, leasing the spare capacity to cover costs.

I’m looking to buy an investment property. Is a holiday home a good choice?

When choosing between buying a standard residential property or a holiday home, you need to decide whether you're making a strictly financial investment, or a lifestyle choice. Ask yourself the following:
  • Will the investment property (bach) be used as a holiday home for your family with short term rentals, or will it be rented out to others long term?
  • Are you able to cover a large portion of the running costs out of your own funds, if you are unable to get rental income for much of the year?
  • What long or short-term financial goals do you have for the property?
  • Will the investment property offer you any New Zealand tax benefits?
  • Are you confident of your financial position if there is a downturn in the New Zealand holiday rental or sales market?
If you're investing in property for the first time, consider whether you'll require constant rental income to cover mortgage repayments.  If you do, a long-term residential property investment is probably more suitable for you.

I’m thinking of investing in property, where should I start?

Property remains New Zealand’s most popular form of investment. Property investment is generally easy to understand, and has traditionally offered solid investment returns. Before you invest, you should have a clear long-term real estate strategy. For example, you'll need to decide whether you're looking for high rental returns in the short term, or if you’re more interested in longer term capital growth.

Your First National Real Estate agent can help you to work out your best investment strategy and find you the properties to invest in.  If this is your first time investing in property, you should also seek professional investment and taxation advice. 

What are the benefits of investing in property?

The main benefits of investing in residential or commercial property include:
  • Capital gains – An increase in the value of your property over time thanks to a rising property market, or improvements you’ve made to the property.
  • Rental yield – The annual rental income you receive, less maintenance and mortgage servicing costs.
  • Tax advantage – In some cases, savvy investors can gain tax advantages through negative gearing, whereby they can deduct the costs associated with owning an investment property from their overall tax bill.  Please consult a taxation specialist for advice on your own situation.

What should I look for when buying a holiday home for investment?

Location is the most important consideration for holiday home investments. The property must be in the right area to attract regular rental opportunities, and to provide the potential for strong capital growth. Things to consider include: 
  • Surrounding infrastructure and amenities in your chosen location.
  • Future plans of local municipalities and / or developers for the area.
  • Tourist appeal, from kiwis and from overseas visitors. Will the property attract interest all year round, or only during peak seasons?
  • Accessibility of your property to major towns and / or airports.
  • How attractive is the property itself, and the street it’s sitting on?
  • Does the property enjoy good natural light, a quiet environment, and a good amount of accommodation space?
  • Will the property appeal to a broad range of tenants such as couples, singles and families?  Is the property near to restaurants and tourist attractions?
  • How is the property likely to hold its value? In a financial downturn, free-standing property tends to drop less in price than units or apartments. 
It's often wise to buy in an area that you personally enjoy taking holidays in.  That way, if rental income is difficult to get for any reason, of there is a downturn, you still have holiday accommodation that you can use personally and enjoy.

Is a commercial property investment more difficult to manage than a residential one?

The key to successful commercial property investment is to find good commercial tenants who can provide you with a reliable, steady source of income.  Businesses that are run well, with governance and good financial management, are more likely to be stable and rent your premises for longer periods.  Good commercial tenants move less often than residential tenants, as their livelihood is tied to the location.

Investing in commercial property doesn’t have to be more time-consuming than investing in residential property. A good commercial real estate agent or property manager, like the commercial property team at your local First National Real Estate office, can take care of most of the day-to-day issues experienced by commercial tenants, and help you grow your commercial investment.

I’m new to commercial property investing. What do I need to know?

As with any property purchase, you’ll need to do your research before buying a commercial retail, office or industrial property.  Unlike residential property, a commercial property is often one that you will not personally occupy. You should consider the property you want to invest in from the viewpoint of a potential tenant.

Tenants tend to assess commercial properties on their location, price per square foot to rent, quality of the environment, and any shared amenities such as gymnasiums, food areas, toilets that staff will have access to.  The following points should be considered: 
  • Location - Commercial property near transport hubs or with good access and parking facilities will be in greater demand than less accessible locations.
     
  • Property Type – What are the area’s typical commercial requirements? Will the building be a suitable shape and size for retail? Restaurants? Office space?
     
  • Building Quality – How much maintenance is the building going to require? Are there any major structural issues that could be costly in the future?
     
  • Building Age – Generally, newer buildings require less upkeep and have better options for wiring, plumbing, heating and air conditioning, making them more desirable to tenants. However, older buildings with significant character will always be in demand from certain tenants so should not be disregarded.
     
  • Health & Safety - Commercial buildings must comply with strict health and safety requirements for their occupants. Make sure any property you consider meets these requirements or be prepared to invest in their upgrade.

Are there any hidden costs associated with buying a holiday home?

Make sure you don’t underestimate the ongoing expenses and outgoings involved with the ownership of an investment property. These costs can include:
  • Body corporate levies and costs.
  • Letting and property management fees.
  • Insurance costs.
  • Caretaker, cleaning and maintenance costs.
  • Electricity, gas, water and council rates.
Consistent advertising to find tenants to rent the property, regular property maintenance, furniture replacement, and linen hire are other expenses to consider.

Expenses you may choose to incur in order to make the property more appealing to potential renters could include the provision of high quality furnishings, Sky TV, modern kitchens and appliances, air conditioning or heating units, barbeques and outdoor dining areas and even broadband internet connections.

Holiday homes can sit vacant for long periods.  As an investor, you should ensure that you have funds in reserve to cover mortgage repayments and fixed costs.   

What do I need to look out for when investing in property?

Choosing an investment property is very different to choosing a home to live in.  Keep our tips in mind when considering properties to invest in:
  • Match the property to your long term real estate strategy.  Consider whether you want to buy commercial, industrial, or residential real estate.  Decide whether you want properties that are ready to move into, or would prefer cheaper properties that require improvements. 
  • Understand all the costs of property ownership. Aside from buying the property, there will be other expenses such as real estate fees, Council rates, property inspections and property management fees.
  • Think about protecting yourself with Landlord Insurance. This will cover things like unexpected repairs, lost income if you need to evict your tenants, or damage if your tenants turn out to be the wrong type for your property.
  • Calculate how long you will be able to cover the mortgage repayments for if the property is vacant, and factor this into your overall budget.
  • Shop around for the right loan, and make sure the one you select suits your strategy. For example, if you’re looking for short term capital gains, an interest only loan may help as this will lower repayments and increase your cash flow.
  • Keep up to date on the latest property trends. Contact First National to receive our Property Market Outlook, which includes tips, trends and predictions.

Should I invest in an apartment or a house?

  • Research the local real estate market and find out whether houses or apartments are in higher demand.  Market conditions change regularly.
  • Talk to a First National Real Estate agent to find out what’s popular in different regions and different parts of the city you wish to invest in.
  • If you already know where you plan to invest, focus your research there and determine which type of property is in demand and which is in shortest supply.
  • If you’re aiming for a portfolio of properties, then a mixture of houses and apartments is a good way to diversify and minimise risk.
  • Apartments are usually less expensive so the answer may lie in affordability.
    However, houses tend to maintain and improve their value more consistently.
  • Some property investors believe apartments are too similar to one another and that houses offer more potential to differentiate and add value.
  • With a house, you’ll be bearing 100% of the costs of maintenance whereas in some apartments, body corporate fees may cover certain expenses.
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