The first step in successful property investment is to establish a strategy, setting out how you will achieve your goals and the rules you're going to follow. Ask yourself:
- What property market do I want to invest in?
- Who do I need to help me?
- What ownership structure will I use for my investment property(s)?
- How can I get the best return from my investment property(s)?
- What are my property investment goals?
Choosing a property market to invest in
The property market is made up of many smaller markets, defined by particular areas or types of property. You need to:
- decide on your geographic area
- identify some properties
- conduct a basic "rental income return on investment" analysis.
There are many ways to find investment properties that match your criteria, including newspapers, real estate publications, agents' lists and web sites. Aim for a reasonable list of properties that, at first glance, appear to fit your investment criteria. If you're looking in a city, your list may contain 30 or 40 potential investment properties. If you're looking in a small town you may only have five or six properties.
To do a basic analysis, you'll need to know the:
- assumed annual costs of managing and maintaining the investment property
- property's assumed purchase price
- income you expect to generate from renting the property
- approximate annual cost of the loan you'll need to buy the property (you can use our loan repayment calculator to calculate this).
Your property investment team is one of your greatest assets as you grow your property portfolio.
Think about your property investment team in the same way you'd consider any other team. You're the selector and coach - your aim is to select the best players who can work together to get the job done.
Your team will include permanent players and players you keep on the reserve bench for when they're needed. Research your team carefully before you start investing in property to save time and money in the long run.
The permanent players in your property investment team will include:
- your ANZ home loan specialist
- your accountant
- your lawyer.
Your team might also contain the following reserves:
- real estate agents
- registered valuers
- property managers
Your accountant and lawyer can help you to decide on the best structure for you. The ownership structure you choose for your residential property investments will depend on your own circumstances and goals. Things to consider include:
- flexibility over time
- simplicity – a complex ownership structure isn't always necessary
- the ability to introduce other participants
- the growth of your property investment portfolio
- the ability to exit your property investment if you need/want to.
It's important to buy investment property in a location where you expect higher than average capital gains (for reasons such as a good local economy, an increasing population or a low land supply for new development), unless you are primarily after yield (the return from your rental income).
To make money through investment property you need to buy wisely and choose a property:
- in a location with potential for improvement
- that provides a high yield
- that can be bought at a reduced price
- that has the potential for improvements that increase its value.
The best way to increase your investment property's value (and your income) is to add features that tenants desire and are willing to pay for (by an increase in rent). Examples are a garage or carport, an extra bedroom (adding to the building, reorganising existing rooms or adding a sleepout), carpets, fences, security alarms and whiteware. Even just making the place clean and tidy can give you a price advantage over other rental properties.
Improvements to your investment property are best considered (and budgeted for) before you buy it. When adding value, make sure the extra cost will achieve a high return on your investment.
Goal-setting is important in most aspects of life and it's true of property investment. Without a clear direction you'll find it difficult to co-ordinate your efforts in establishing an investment that matches your lifestyle, financial and life situation, skills and aspirations.
To begin with, ask yourself why you're investing in property. Is it to generate an income, is it to build wealth, is it a form of savings for retirement or is it a combination of all these?
- Do you have an investment period in mind? For example, you may want to retire in 20 years' time and provide a retirement income through investment property.
- What value of property do you want or need over this time? To answer this, consider the income you want from property.
- What type of investment property will you buy to meet your goal – e.g. five two-bedroom flats, three three-bedroom houses or something else?
Write your property investment goals down so you can measure them and review your progress towards achieving them. Remember, it's all about equity and cash flow, not necessarily the number of properties you own.
For more information on how ANZ can help you invest in property
Contact a Mobile Mortgage Managers
Call 0800 269 4663
Visit your nearest ANZ branch
For the ANZ First Home package, you need an ANZ everyday account with your salary, wages or business income direct credited and an ANZ Serious Saver account. ANZ lending criteria, terms and conditions and fees apply to all loans.
A copy of the Reserve Bank Disclosure Statement published by ANZ Bank New Zealand Limited may be obtained on request from any ANZ branch.
This material is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product. If you wish to consult one of ANZ's financial advisers, please contact us on 0800 269 296.
You need Adobe Reader to view PDF files. You can download Adobe Reader free of charge.