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Owning investment property isn’t like winning lotto. The not-so-secret truth is that successful investors put quite a lot of energy into making their investments work for them.
If you’re into property investing you’re probably already pretty financially savvy right, so what can we offer? Quite a bit actually. Plus, we can support you when things don’t go your way.
Staying on top of the credit rules
It’s hard to play a game where the rules change as often as the weather, so keeping up with any credit condition changes is crucial. If you haven't had your head buried in the sand lately, you'll know there have been plenty of changes to make your life as an investor a little trickier.
Luckily we keep our paw on the pulse so we can keep you informed and give you up-to-date advice on your best options. Whether you're just starting out in the investment game or looking to expand your empire (evil or otherwise), we can help you line all your ducks in a row and make sure you don't get stuck.
Starting out
Everyone has to start somewhere, so rather than launching straight into building a 5-storey apartment block complete with underground parking and tennis courts, it's smarter to start out a bit smaller and closer to home.
Will your house make a good rental?
Making this decision should be based on some goals and a good strategy. Ask yourself honestly: does my house fit the bill? Is it likely to yield good results or go up in value? If the answer is no, then you’re better off selling up and using the money to buy a better investment.
Converting your home into an investment property
When you buy a new home, you might want to keep your old place as a rental. Since there are significant costs to buying and selling, this can make good sense – but only after you’ve answered a couple of key questions.
Home and Income
A granny flat under your house can be an easy way into property investment. They make sense on so many levels and can also help you buy in an area you might not otherwise afford. It’s a great idea to look for actual grannies to live in your granny flat. They tend to value the security of having a family close by, are reliable and quiet and much more tolerant of family noise than other types of tenants. Good old nan.
Work towards strong capital growth
Don’t rely on the market to push the value of your properties up. You need to add value to your properties so you have more equity to borrow against.
Choose equity over rent
Sacrificing higher rents in the short term can be a hard decision, but it’s much smarter to invest in a lower quality property where you can own more equity.
Get rid of non-standard properties
These are apartments of less than 45sqm and properties with more than 3 incomes. Get rid of them, even if they’re cheap and give you good rents; banks will typically only lend up to 70% of their value, so they’ll hold you back from borrowing what you need.
Do I have the right tax structure?
The debt on a rental is tax deductible so you’ll want to put as much into your investment property as possible. The way to do this is to sell your existing home to a Look Through Company or an LTC, which you own. The LTC buys the home at a fair market price and then borrows 100% against it. You then provide a personal guarantee to the lender using your new property as additional security.
You use the proceeds of the sale to clear the mortgage on the old property and put any extra into your new home. In this way you can move the equity from your old property to your new home.
Land values – keep note of town planning rules
Town planning rules artificially drive land values, so it’s worth understanding them and keeping up to date. For example, under the current Auckland plan, land that has changed from commercial or residential to mixed-use can significantly change the value of land.
Check out the Auckland Unitary Plan Operative.
Property Development - doing a subdivision
The most logical place to start when dipping your toes into the property development space is subdividing a property. But although it might be a logical place to start, it’s not going to be easy or cheap. We share our tips and valuable lessons from the University of Life below.
Subdividing a property is a great way to instantly add value, but it’s expensive.
Councils will see you as a way to cover their budget shortfall with a “development contribution.” These fees average around $20,000 per dwelling. Councils will also sting you with a bunch of compliance-related costs. In Auckland, for example, you’ll pay about $7,000 per dwelling just to connect the water.
What’s involved in subdividing a property?
To subdivide a property, first you need to:
- understand what you can and cannot do according to council zoning rules
- do a land survey.
When looking at a property you could subdivide, consider:
- How steep is the section?
- Is the section in the front or back? If it’s on a back section, how long is the drive?
- Is the place you’ll have to dig on rock or soil?
- Is there already drainage, water, storm water and power nearby?
Learn from our experience
We don't just sit here and tell other people what they should do; there are a few seasoned investors within Squirrel, the obvious one being the chief, JB. Watch this 5 part series about his experience of moving a house (literally picking it up and moving it to another location), why he did what he did and what he learnt.
Chapter 1: Why Hendon Ave?
Chapter 2: About the Site:
Chapter 3: Building vs relocating
Chapter 4: The Ideal Tenant
Chapter 5: Where and what kind of subdivision?
We happen to know a thing or two about property investing
Before you get carried away with visions of taking over the world, soak up all the knowledge you can (and impress your friends with how clever you are).
Lessons on relocatable houses and subdividing land
I've been buying and developing a lot of properties this year either as an investor, or as part of First Home Makeovers. One of our current projects is a property we bought on Hendon Avenue in Mt Albert.
How to lift yield on your rental property
With the Reserve Bank LVR changes (and generally below par rental yields) now is the time for investors to be looking at ways to maximise their existing portfolio and increasing its return where buying more properties is not an option.
I'm building up my portfolio; should I pay off my mortgage?
The answer to that question will come out of what you’re planning to achieve in the long run. JB explains in a quick video:
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