Property investing 101 - everything you need to know to get started
It's all in our free guide
Read about the do's and don'ts of investing in property, how to choose what type of property to invest in, managing the financial side of owning multiple properties, and a whole heap more.
There's a reason why property is one of the most common forms of investment in New Zealand
For a huge number of New Zealanders – more than 130,000, in fact – owning an investment property is a key part of their wealth creation plans.
Whether it’s a single property bought with the aim of creating a secondary passive income to help in retirement, or a growing portfolio that expands year by year, investing in homes just makes sense to many of us.
Why invest in property?
New Zealand needs rental properties. The number of households renting is increasing each year and the bulk of those are living in homes provided by private landlords. This creates plenty of opportunity to use property as a way of building your own wealth.
An investment you can touch
For many investors, the appeal is that, when you’re buying a rental property, it’s an asset that you can see and feel.
If you want to know how your investment is faring, you can pop over and have a look (with adequate warning to the tenant, of course). Because we all understand how a rental property works, it can be easier to relate to investing in a home than in something less tangible such as shares.
Leverage your way to gains
Property investment is one of the few investment vehicles in which you can use other people’s money (in this case, your lender’s) to get to your goals.
Choosing a place to invest
You know you want to be a property investor. But where do you want to invest?
Some people choose to buy investment properties in their own neighbourhoods because they know them well. They know which sorts of properties are popular, understand what tenants are looking for and know the things to watch out for when selecting a place to purchase. Buying an investment near your home can be helpful if you’re planning to manage the property yourself, too.
But other people look further afield, particularly if they are investing in several properties. Diversification gives you broader exposure to the market and you may identify opportunities in areas that are a little further from home.
There are a few things to consider if you’re deciding where you want to buy.
Get all this information in one PDF guide
We've put together a guide jam-packed with information, answers to your questions, and the do's and don'ts, to help you get started with your property investing journey. What are you waiting for?
What to ask yourself when deciding where to buy:
Eligibility for buying property in New Zealand
In 2018, the New Zealand Government passed legislation to prevent most overseas buyers from buying real estate in New Zealand. The legislation was designed to slow down foreign capital pouring into an already overheated housing market.
If you’re a New Zealand citizen living overseas, or a permanent resident residing in New Zealand, then the new law doesn’t apply to you and you’re free to buy property. The same is true for Australian and Singaporean citizens who can purchase in New Zealand due to free-trade agreements with both countries.
If you’re overseas and need to borrow money, the property will be deemed an investment property.
That means there will usually be a maximum LVR of 65 per cent, meaning you need a 35 per cent deposit – although this may vary, as the individual banks sometimes set their own LVR thresholds.
Developers can apply for an exemption for their developments that will allow foreigners to buy into these developments.
Mortgage finance for overseas buyers is hard
As far as borrowing goes, banks typically aren’t big fans of foreign-based income. They will only accept PAYE income and from reputable employers in reputable countries. If you’re self-employed or a contractor, then it becomes very difficult to satisfy bank criteria even if you are a New Zealand citizen.
Rents in New Zealand will be too low to demonstrate servicing purely off that income so there will be reliance on offshore income to meet bank criteria.
Banks will shave foreign income by 20 to 40 per cent, and use that figure to calculate servicing whether you can afford your mortgage. In New Zealand, affordability testing will be done using those test rates 2 to 3 per cent above advertised rates – which right now is up near 9 per cent.
On the LVR front, overseas purchasers are deemed higher risk than investors living in New Zealand. Many banks require a minimum 40 per cent deposit for overseas buyers, compared to the current 35 per cent for investors.
Banks will be difficult to arrange finance through, so foreign buyers who are not citizens and that need to borrow some of the purchase price will need to get funding through non-bank lenders.
This is typically at mortgage rates of 8.5 per cent to 11 per cent.
Tips to help grow your portfolio
Some of our advisers are seasoned property investors too, so they know what they're talking about. Here are a few of our top tips.
10 mistakes to avoid
- Don’t buy because its cheap.
- Don’t rely on lender-provided reports and disclosure; do your own research and due diligence.
- Don't be pressured into moving too fast. The deal of the century comes around once a week.
- Don’t take interest-only because it’s more affordable. Aim to pay a property off and have a loan strategy.
- Don’t fix on the lowest interest rate if your own household income has potential to change and put you at risk.
- View in person or have a trusted person view if buying remotely and get an external opinion.
- When buying an ex-rental to rent out, ensure you are fully informed of insurance requirements. If it’s compliant, do a toxicology report if it’s an ex-rental. Not knowing is not an excuse in a tenancy tribunal if a neighbour tells your new tenant that drugs were manufactured there.
- Don’t buy and sell too quickly.
- Don’t rely solely on the property market to increase your rental property’s value.
- Don’t jump in without having a considered property investment strategy.
Common questions
Before you start launching up the property ladder, here are a few questions to ask yourself:
Property investor's checklist
- Have you got a strategy? If not, talk to an experienced Mortgage Adviser who can help.
- Start small
- Ditch non-standard properties that can restrict your lending
- Check you’ve got the best tax structure
- Are you all over the latest town planning rules?
- Make improvements to your properties to increase rental yield
- Use multiple lenders
- Get the balance between income and equity
- Don’t fall in love with your investment property
- Invest for the long-term
Do the research now, thank yourself later
We've made it easy by putting our expertise onto paper. Everything you need is in one PDF guide.
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Bede
We were very happy with our experience dealing with Sudam, he was very professional and did a lot of work applying with different banks. He went over and above hustling to get things sorted out when we had some unexpected complications and needed to get more documentation. We would definitely recommend Squirrel and especially Sudam.
Pip
Bianca was awesome to work with! She was super professional and happy to answer all my questions, explaining everything clearly. As a first-time home buyer, I really appreciated her help. I'd definitely recommend using Squirrel in the future!
Fraser Worthington
Aatish is excellent to deal with. Gave great advice and guidance through the process. A++, would trade again.
Mario
We dealt with Emma Wallace for our first home purchase and she was excellent. Emma is knowledgeable and very sensible, she gives the necessary information and makes things easy to understand. I would highly recommend Emma to anyone who looking to buy a property.