Property investors are, effectively, going into business for themselves - a business that provides rental accommodation.

Now, the reason residential property is an attractive asset is because you can earn money in two different ways because you are operating in two separate markets.

Simultaneously you can achieve:

• Capital gain through increases in property prices, because you operate in the market for buying houses
• Regular, weekly income from the rental market, which covers the majority of the costs of owning the asset.

Because your property investing business will operate in these two separate markets, you need to ensure the property you choose (your product) can work in both.
 

For this your property needs to achieve:

• Longterm equity gain
• A reasonable yield (return) from the tenant to cover your costs

Both of these are market-led. This means you need to start, not by looking at a specific property, but finding the market you want to operate in.

Since each region’s property market operates somewhat independently, you need to choose a city.
 

Why is each city’s property market so unique?

If you choose to live and work in one city, you usually can’t live in a property in another city.

For instance, if you want to live in Auckland because you've got a job, or want to be close to your kids, you're going to buy or rent in Auckland – maybe Hamilton at a stretch. But there’s no way to practically live in Christchurch.

In economic terms, properties in different cities are not good substitutes for one another. A house in Gisborne is not a good substitute for a house in Auckland, especially if you’re someone who wants to live in Auckland.

So, the property market is very closely tied to the long-term prospects of a city. Do people want to live there? Do people want to move there? Is the population increasing or decreasing? Are enough houses being built to keep up with demand, or is there a supply shortage forming?

This is why before choosing a property to invest in, you must decide which region or city you want to target.

 

Why choosing the right city is more important than the right property

When it comes to capital growth, it’s often more important to pick the right city, rather than the right property.

Let’s take another example to illustrate this.

Say you find a great property. It’s well-built, has 3 bedrooms, 1 bathroom and a large section, and it only costs $221,250.

The question now is: Should you invest? The answer: It depends … where is it?

If that property is in a tiny town like Patea (in South Taranaki) where the average house is worth only $221,250 – then the answer is likely to be “no”.

This is because you’re not likely to achieve stable increases in the value of your property over the long term.

Patea as a town has:

• Limited population growth – the town’s population grew by a measly 43 people between 2006 and 2018. South Taranaki’s population (where Patea is located) is expected to decrease by 1.8% between 2018 - 2043
• High unemployment (7.1% compared with 4.0% nationally), and few people work full time (31.5%, compared to 50.1% nationally) as at the last census date (2018)
• Few prospects for an economic rebound

This isn’t to disparage or put down Patea as a place to live. It’s a great little town and Ed – one of this guide’s authors – grew up playing squash at the local club. However, it doesn’t have the fundamental factors most property investors are looking for.
 

Will property prices ever increase in a small town like this? Yes, there is likely to still be some growth but it will be driven by external factors. For example, low-interest rates and the bump the whole of New Zealand saw after the Covid-19 pandemic.

But, which would give you the greater confidence to invest:

1. A town where long-term house prices will be driven solely by external factors (interest rates; growth of neighbouring cities pushing people to move to towns where housing is cheaper; a nationwide property boom)
2. Or a town/city where long-term house prices are driven both by external factors and factors relating to the city itself (more jobs leading to higher incomes, population growth leading to higher demand for housing, tight land supply leading to people moving further from the city centre)

The bottom line is you must find the right town or city to invest in first, before you start looking for the right property within that city.

So, how do you do that?

Below we outline the 6 factors to look for when choosing a city or town to buy an investment property in.

Note: All the data shared below is available free elsewhere on this website. So be sure to check out our property market pages to dig further into the data.

6 Factors to analyse when choosing a city for property investment

1. Is the region overvalued or undervalued?

It’s often said all assets (including property) move through economic cycles. Sometimes prices are booming and there is confidence in property. Other times that confidence wanes and prices start to droop.
 

But, as we said above, because properties in each city aren’t good substitutes for one another, each region operates within its own property cycle. To say this in another way, property prices in Auckland might be going berserk, while those in Wellington are relatively flat. This happened between 2012 and 2016.

However, between 2016 and 2020, Wellington property prices increased quickly while Auckland remained stagnant.

So, it’s imperative we as property investors locate regions that are in an attractive part of their property cycle.

The way we do this is by asking:

• In the long-term, where have a region’s property prices sat compared with New Zealand house prices as a whole?
• Where does that particular region’s property prices sit compared with New Zealand’s property prices right now?

Let’s go through an example to talk through the theory of those two points.

Over the last 30 years (1992 - 2022), Southland’s median house price has been 47% of the New Zealand median price.

So on average if the New Zealand median house price was $500,000, Southland’s would be $235,000.

But markets go through different cycles and sometimes a region’s property prices will be above that average. For instance, right now Southland’s median house price is 50.8% of New Zealand’s median price.

So house prices are 7.19% above their long-term average in this model.

Does this mean Southland’s property prices will crash? No.

Does this mean house prices in the region might not increase in the future? No.

But, it means there may be better opportunities in other parts of the country to find a good investment property if we are looking for healthy medium-term capital growth.

So you may wonder, where are the most undervalued and overvalued regions in New Zealand right now?

Here’s a list of NZ’s 15 most populous regions with where they sit under this model:

If you’re looking for the most up-to-date data, you can find it in the property markets’ section of this website. Here’s a list of the regions we cover:

• Auckland property market
• Bay of Plenty property market
• Canterbury property market
• Gisborne property market
• Hawke’s Bay property market
• Manawatu Whanganui property market
• Marlborough property market
• Nelson property market
• Northland property market
• Otago property market
• Southland property market
• Taranaki property market
• Tasman property market
• Waikato property market
• Wellington property market

2. Which part of each region is most undervalued?

It’s all very well finding an undervalued region, but some parts of that region may be more undervalued than others.

Let’s not forget, some of New Zealand’s regions are massive. The Waikato region, for instance, goes all the way from the top of the Coromandel Peninsula down to the bottom of Turangi in the Taupo District. That’s over a 4-hour drive.

So, we need to break the larger regions down into council areas to better target our search for investment properties.

For instance, here is the Canterbury region broken down into each council area. The map then shows where each council area is within its property cycle.

You can see the most undervalued region as at July 2022 was Waimakariri, which is 26.55% below its long-term average.

Whereas the MacKenzie District is 25.28% above its long-term average.

Both districts are in Canterbury, which is seen as undervalued by this model. However, right now, one district appears to be more attractive for property investment compared with the other.

3. Population growth – check the size of your future market

The next step is to look closely at population projections.

When you eventually come to sell your investment property, you want to ensure it will have increased in price.

One indicator of this is population growth. More people = more demand for housing = higher house prices. You can see that trend in the data when we graph annual population growth with annual house price growth.

So, it is important to look at the projected population for the city you are analysing.

Take the Auckland property market over the 19 years between 2000 - 2019.

Between those years, the city’s population grew by 389,000 people – that's 25%, or the size of Christchurch. Over those 19 years property prices increased from $240,000 to $860,000 – which is 250%.

It took 19 years for Auckland to add the size of Christchurch to its population. But the same level of population growth (around 390,000) is expected to be added to the city over the next 9 years.

What is that going to do to the demand for housing? How will that impact house prices? What will higher numbers of people in the city do to rents?

Well, it’s likely to have a positive impact on property investors who already own property in the city.

By now you are probably also picking up population growth is often distributed around a region. What do we mean by that?

Well, over the next 25 years (2018 - 2043), Canterbury’s population is expected to grow by about 19%. But that doesn’t mean the population in every part of Canterbury is going to increase by that amount.

Take a look at the breakdown of population growth by council area.

Here you can see some areas are expected to see enormous population growth. Selwyn District’s population is projected to grow 60%+ over this period, while Kaikoura’s population is projected to shrink 4.36% over that time.

What’s the lesson here?

As well as looking for a good region to invest in, you also want to dig deeper to consider what’s happening in each council area.

4. Economic strength – can people afford increased property prices?

The other side of having more people in the city is ensuring they have the income to support higher house prices.

You might have a large population base, but if houses are unaffordable to buyers then there won’t be much room for growth in property prices.

There are two factors to consider:

• Is there space for interest rates to decrease (which makes borrowing more affordable and means there is more room for property prices to increase.
• Are there signs of continued job and economic growth (which makes incomes increase over time.

There are a couple of ways economists try to track economic strength. GDP, which is growth per person (per capita), is something you’ll often read about in the papers.

But what you really care about isn’t how much businesses are doing in a region. What you do really care about is the income real families are earning. This where you might consider average (mean) household income growth.

Let’s talk about the Bay of Plenty region, since they haven’t got a mention so far in this guide.

Over the 21 years between 1998 and 2019 (the years we have current data for) the average household income in Tauranga increased 4.14% per year.

Over that same time-frame, household incomes in the Kawerau District (a small district also in the Bay of Plenty) grew by only 2.99%. That’s the slowest in all of New Zealand.

So, if you were considering an investment property in the Bay of Plenty region, putting all other factors aside, which would you rather invest in? Which area is going to be able to support higher rents? Which area will have the income to support higher house prices? Which area is likely to be more prosperous in the future?

If you’re like most property investors, you’ll probably gravitate towards Tauranga in this instance.

5. Rental yields vs house prices – making sure you can hold the property over time

There’s a joke in property investment circles, which is: “You can’t use capital gains to pay your mortgage”.

It’s true, even if your property is increasing in value, you still need to be able to pay the mortgage. You’ll really feel the pain if you purchase a property where the rental yield is so poor you have to pay tens of thousands of dollars a year to top up the bank account.

So, a big part of becoming a successful residential property investor is ensuring you can hold the property over the long-term so you can achieve capital gains over time.

This is why when analysing a target city, you should compare rents with house prices to ensure they meet your investment appetite.

For instance, Auckland currently has an average rent every week of $611 for three bedroom homes, according to Barfoot and Thompson (August 2021). But the average sale price for that type of property was $1,060,000. That is a 3.0% gross yield (accounting for no vacancy).

Whereas Rolleston has an average rent every week of around $490 for 3 bedroom homes, and the average sale price for 3-bed homes is $675,000. This is a 3.77% gross yield.

This means it is much more affordable to Buy-and-Hold in Rolleston over the long-term. Not only is there a cheaper entry price, but there is relatively more income achieved each week to pay for expenses. Some expenses, like interest payments to the bank, are often proportional to the price of the property bought.

But this doesn’t mean you shouldn’t buy in Auckland. It just means if you do invest in Auckland, you need to be aware it will require more investment to get the capital gains.

Although gross yield isn’t always the most useful calculation when looking at a particular property (as we will discuss below), it is still useful when analysing a city or suburb to invest in.

6. Affordability – where can you actually afford to buy an investment property?

So, finally, you’ve found a good city with good fundamentals. Now you need to make sure you can actually afford to purchase there.

The affordability of housing changes drastically around the country, and even within a region.

For example, take a look at the Waikato region to see how affordability can vary.

The average property in the Waikato region sold for $711,000 in July 2021, according to REINZ.

But the average property value in the Thames-Coromandel District is $1,085,000 (the most expensive council area in the Waikato), and the average property in the Waitomo District is only $300,389, according to propertyvalue.co.nz.

So, property investors will find some areas very affordable, but other areas more expensive. It’s important to keep this in mind as you’re searching for rental properties.

What’s next?

On your quest to look for high-quality investment properties, it’s important to note: Not every city or region is going to tick every box on this list.

After looking at the data, you’ll need to make a judgement call about where you believe is the best place for you to invest. That will be different for each individual.

For instance, if you have lots of money to invest, you might choose to purchase in Auckland. Property prices there are high and yields relatively low. But it’s got high population growth, good incomes and abundant industry.

If your affordability is low, on the other hand, you might only be able to purchase in a region where both prices, income and population growth are lower.

But, armed with these tools, you should be able to analyse a region and then make an informed decision.

If you would like extra credit, your next step might be to start digging into suburb level data, which means identifying specific areas where you want to look for investment properties.

That’s where you might look at a pair of maps, like the ones below, to identify suburbs that have had high capital growth in the past, and also relatively high yields.

For instance, here is a map of Auckland showing the suburbs that have achieved the highest capital growth between January 2000 and today.

And here is a map showing the current gross yields broken down by suburb.

This suburb level data is broken down for each of the four main cities in New Zealand– Auckland suburbs by price, Wellington suburbs by price, Christchurch suburbs by price, and Hamilton suburbs by price.

Step 4 – Choose the right type of investment property

Before you jump onto Trade Me to go shopping for an investment property, you need to know what you’re actually looking for.

Investment properties can look similar on the outside. But they can perform very differently.

A townhouse, a house, an apartment and a piece of land can all be “investment properties”.

But they usually suit different investors, budgets and strategies.

So in this step, we’ll break down properties in 3 ways:

Property type: House vs townhouse vs apartment vs land banking

The first way to categorise investment properties is by type. This means asking: What kind of property are you actually buying?

Each property type has different strengths, weaknesses and risks.

Standalone houses

A standalone house is a home that is not attached to another property.

It usually sits on its own section and often has more land than other property types.

This is the classic Kiwi home.

Standalone homes are easier to renovate. You might be able to add bedrooms, build a sleepout, or renovate the bathroom and kitchen. 

That makes them a better fit for investors using an active strategy, like renovating or adding value.

They can also be easier to sell, because many owner-occupiers prefer standalone houses. If more buyers want that type of property, you may have a larger resale market.

That said, standalone houses are usually more expensive and tend to have lower yields.

That doesn’t make them bad investments. It just means they are often more focused on long-term capital growth than short-term cashflow.

Townhouses

Townhouses are usually attached homes.

They often share one or two walls with neighbouring properties and may be part of a larger development.

They commonly have:

• 1–3 storeys
• a small outdoor area
• a shared driveway or common area
• off-street parking or a garage
• a residents’ association or body corporate-style rules

Townhouses are common in New Zealand’s main cities and are often bought by investors.

Townhouses can be a good middle ground – cheaper than standalone houses. But they often grow in value faster than apartments.

They are also commonly built as new builds, which can make them more accessible for investors using a Buy and Hold strategy.

The downside is that you have less control owning a townhouse.

A Residents' Association (the group that manages shared areas and sets rules for the development) may tell you what you can and can’t do to the outside of your property. 

There is often less land, so it’s harder to add value through landscaping, extensions or minor dwellings.

New townhouse developments can also create tenant competition if many similar properties are completed at the same time.

That’s why location and rental demand matter.

Apartments

An apartment is a home inside a larger building.

You usually own the inside of your unit, while sharing common areas with other owners.

That can include lifts, lobbies, gyms and pools. 

Most apartments have a body corporate. This is a group that manages the shared parts of the building and charges owners fees for maintenance and upkeep.

Common apartment types can be:

• Standard apartment: A single unit inside a larger building
• Walk-up: An apartment in a smaller building with stairs instead of a lift

Dual-key apartment: Two separate rentable spaces under one legal title. 

Apartments can be more affordable. So, they may help some investors get into the market sooner.

They can also produce higher rental yields because the purchase price is lower, while rent can still be relatively strong.

That can make apartments attractive for investors who care more about income than long-term capital growth.

The downside is, that apartments have historically grown in value more slowly than houses and townhouses.

They can also have high body corporate fees, especially if the building has lifts, gyms, pools or other expensive shared services.

Some apartments can also be harder to finance. Banks may ask for a larger deposit if the apartment is small, unusual or has a limited buyer market.

Land banking

Land banking means buying land and holding it for several years, hoping it becomes more valuable in the future.

Some investors buy land and hold it. Others buy land to develop.

The cool thing about buying land is it can increase in value quickly when developers want it or if it gets rezoned.

If house prices rise faster than building costs, developers may be willing to pay more for land because development becomes more profitable.

Land also gives you the option to build and add value.

The downside is that land usually has no income.

So, you still pay the mortgage, rates and other holding costs, but there is no tenant paying rent.

This can make land banking hard for everyday investors.

It can also be risky. If the land doesn’t increase in value quickly, you may be left paying costs for years without any cashflow.

Growth vs yield

The next way to compare properties is by growth and yield.

• Growth means the property increases in value over time.
• Yield means the rent is high compared with the purchase price.

Unfortunately, in most cases, there is a trade-off between growth and yield. 

Higher-growth properties often have lower rental income, while higher-yield properties often grow in value more slowly.

Most properties lean one way or the other.

Growth properties

Growth properties are usually bought because they are expected to increase in value.

They often appeal to owner-occupiers, which can help push up resale prices.

The trade-off is cashflow.

Growth properties often have lower rental yields, so you may need to contribute more money each week to hold them.

Yield properties

Yield properties are bought because they produce stronger rent.

These properties may produce better cashflow, but they often have a smaller market when you sell.

That’s because the next buyer is more likely to be another investor, not an owner-occupier.

The benefits of investing in townhouses

Townhouses are a good option for passive buy-and-hold investors. They are very popular among the investors we work with here at Opes Partners.

In fact, 76% of the properties investors bought through us between January – June 2022 were townhouses.

So, let’s go through the benefits of townhouses and who they tend to be the right fit for.

We’ll also talk about the other side of this, which is the drawbacks of townhouses.

New Build vs existing property

The final way to categorise properties is by age: Is it a New Build or are you buying an existing property?

In simple terms:

Both can be good investments, but they suit different strategies.

So, neither option is automatically better.

The better question is: “Which one suits your strategy?”

New Build properties

A New Build is a brand new property. This means you are usually the first owner.

You might buy it:

• off the plans
• while it is under construction
• after it has just been completed
• directly from a developer
• through a property adviser

New builds are often townhouses, but they can also be standalone houses or apartments.

New Builds are often easier for investors to buy.

You often only need a 20% deposit to buy a New Build, compared to a 30% deposit for an existing property. That’s according to the Reserve Bank’s LVR rules.

They can also have lower maintenance because everything is new. That means fewer unexpected costs, like replacing an old roof, hot water cylinder or major chattels.

New builds can also attract good tenants because they are warm, dry and modern.

The downside is, New Builds don’t usually give you many ways to add value.

The kitchen is already new. The landscaping is usually done.

That means you generally can’t manufacture quick equity through a renovation.

New Builds are usually a better fit for investors who want to buy and hold, not investors who want to actively renovate.

Existing properties

Existing properties are homes that have already been owned or lived in.

Most properties listed on Trade Me or realestate.co.nz are existing properties.

Existing properties give you more opportunity to add value.

You might repaint, replace the carpet, renovate the bathroom or add bedrooms. 

All these things can increase both the value of the property and the rent you can charge.

This is why existing properties often suit investors using renovation, flipping or BRRRR-style strategies.

The downside is that existing properties can cost more to maintain.

Older homes are more likely to need repairs. Chattels wear out. Roofs get older. Plumbing, wiring and insulation may need attention.

For investors, they also require a 30% deposit, compared to a 20% deposit for New Builds.

That makes them harder for some first-time investors to buy.

Where do you find investment properties?

Once you know the type of property you want, you can start looking.

There are 3 main places to find investment properties.

Property websites

Many investors start with websites like:

• Trade Me
• realestate.co.nz
• OneRoof
• Homes.co.nz
• agency websites like Ray White, Harcourts, Bayleys or Barfoot & Thompson

These websites give you a wide range of properties. But that is also the problem.

There are a lot of listings, and most are not designed to be investment properties.

Property investment company

Rather than finding a property yourself, a property investment company helps you build a strategy and recommends properties that fit it.

This is what we do at Opes Partners.

For example, our financial advisers can help you understand your goals, help you build an investment strategy, and recommend properties that fit your plan. 

They’ll also run the numbers for you and hold your hand throughout the buying process. 

Some people will love this hands-on approach, others … not so much. 

Developers

You can also buy a New Build directly from a developer.

This can work well if you already know where you want to invest and what type of property you're looking for.

The benefit being you go straight to the source.

The downside is that the developer has their own product to sell. So, they usually won’t compare their property with every other option in the market.

If you go direct to a developer, it is still worth getting independent financial advice before you buy.

Before you buy don’t forget to run the numbers

Once you find a property you like, don’t buy it just because it looks pretty. 

Run the numbers first.

At minimum, you’ll want to understand:

If you’re working with a property adviser or accountant, they may do this for you.

If not, use a spreadsheet or calculator so you can compare properties properly. For instance, you might use Opes+, a free software that helps you analyse your property’s potential returns. 

What’s next?

By the end of Step 4, you should know what type of property suits your strategy.

Maybe it’s a standalone house, if you want to renovate and chase growth

It could be a townhouse if you want a more hands-off investment with less maintenance involved.

Either way, the order matters:

1. Choose your strategy
2. Work out what you can afford
3. Choose the city or region
4. Choose the type of property
5. Find the right property
6. Run the numbers before you buy

That way, you’re not just scrolling listings and hoping something stands out.

You’re shopping with a plan.

Step 5: assemble a team of professionals to help you

New Zealand has a culture of Do It Yourself (DIY), and we don’t always like to seek or pay for help.

We’d rather stumble, figure it out, and do it on our own.

Purchasing an investment property is one of the largest financial decisions you may make in your life.

You don’t want to mess this up or get it wrong.

Because that will cost you … a lot.

That’s why there are several advisors and professionals you should use when getting into investment property. This chapter will walk through all the advisors you might need, along with how they get paid and the benefits of using them.

Mortgage broker

What a mortgage broker does

Mortgage Brokers act as your representative to the banks.

They study the bank’s policies and rules and aim to understand which banks will lend to what types of people (and on what properties).

They’ll also negotiate with the banks to ensure you get the lending and the best interest rate possible.

The cost of not using a mortgage broker

Sure, you could go and use the bank's mortgage calculator and try to figure it out yourself.

However, if you don’t use a (good) mortgage broker, you may end up talking to banks who won’t lend to you. This might be because you don’t fit within the types of people or properties they like to lend on.

If you do this and get rejected by multiple banks, some other banks may also not lend to you. They’ll see you’ve been denied finance and think: “Well, maybe we won’t lend to them either”.

The end result is that by trying to do it themselves some investors aren’t able to secure finance for their investment property.

The other main cost is around how you set up your mortgages. Banks are “order takers” – they’ll give you what you ask for.

So, if you ask for a 30-year principal and interest mortgage for an investment property – and you’re approved – that’s what they’ll give you.

But, paying P+I on the investment mortgage may not be the right fit for you.

Let’s say you’ve got your own personal mortgage already. In this case having an interest-only loan on the investment often means paying less tax to the IRD – compared with paying P+I on both properties.

Good mortgage brokers will not just ask you which type of mortgage you want – they’ll ask what you want your portfolio to do for you. Then it’s a matter of finding the type of loans that will best suit your goals.

So, the cost of not using a mortgage broker could land you with loans:

• Costing too much
• Resulting in you paying more tax
• Holding you back from growing your portfolio further.

What a mortgage broker costs and how they get paid

Generally, mortgage brokers don’t cost you anything.

This is because brokers are typically paid by banks. The banks generally want your mortgage, so if the broker secures your lending, the bank pays the broker a commission.

Insurance advisers

What an insurance adviser does

Insurance Advisers are very similar to mortgage brokers as they act as your representative to insurance companies.

They learn about each company’s products and rules and can recommend the right product and level of cover for you.
 

The cost of not using an insurance adviser

If you don’t use a (good) insurance adviser, you may end up buying the wrong insurance.

Or worse, you may end up purchasing an insurance product that has prohibitive terms and conditions (i.e. fine print). This can make it hard for you to claim on that insurance when you need it.

It’s important to note, not all insurance policies are created equal. The quality of the policy, which is what you can claim on, is determined by the specific wording within the insurance agreement.

And because these policy documents are complicated, it takes someone dealing with them day-in day-out to really understand the differences.

An insurance adviser will also help when it comes to claim time, working with the insurance company to make sure your claim is paid out.

What an insurance adviser costs and how they get paid

Like mortgage brokers, insurance advisers typically get paid a commission from the insurance company when they help you purchase the right type of cover for you.

This means they don’t cost you anything to use or to get advice from.

So, it’s more than worth it to have them on your side.

Solicitor

What a solicitor does

Your Solicitor will make sure you are sorted from a legal perspective.

They’ll look over:

• The sale and purchase agreement (the contract you use to purchase the property)
• The LIM (Land Information Memorandum) Report (complex document from your local council with everything they have on record about the property)
• All the clauses within your contracts to make sure you are protected.

The cost of not using a solicitor

It is highly risky not to use a solicitor.

You may end up investing in a property you don’t fully understand. For example, legally what happens if there is a shared driveway.

You may also accidentally agree to clauses which aren’t in your best interests.

For instance, let’s say you want to purchase a new-build. During negotiation you agree to a Sunset Clause that allows the developer to cancel the contract if the build takes too long.

Now, let’s say during the construction of the property, house prices go up and your property is now worth more. The developer may allow the build to drag on, which allows them to cancel your contract. Now, they can sell the property to another purchaser at a higher price.

This wouldn’t happen if your lawyer negotiated the Sunset Clause solely for the benefit of the purchaser (i.e. you), preventing the developer from cancelling your contract under this clause.

In another scenario, let’s say you want to buy a cross-lease property. It all looks good so you go unconditional (i.e. you commit to buying the property) without consulting a lawyer.

Just before settlement you later discover the conservatory at the back of the house isn’t on the ‘flats plan’. For a cross-lease property, this could mean the conservatory is illegal. So, the property has a defective title and the bank won’t lend you the money.

It’s 2 days from settlement (i.e. paying the money for the property), and the bank has withdrawn their offer of finance. This means getting hit with penalty interest.

This is an extreme – but not uncommon – example of what can happen if you’re not working with your lawyer.

A good property solicitor will check the flats plan and the LIM to make sure all the buildings on your property are legal. If they’re not, then you can use that information to negotiate a better price with the current owner.

What a solicitor costs and how they get paid

Solicitors charge a direct fee for their services, so when buying a property you can expect to factor this in.

Different lawyers will charge different amounts, so it’s best to ask.

But we would usually budget for between $2,000 and $3,500 (including GST).

Property accountant

What a property accountant does

With the recent introduction of interest deductibility rules from the IRD, property accountants are more important than ever.

Not only will they file your tax returns with the government and IRD, ensuring the numbers behind your investment stack up … they’ll also make sure you are paying the correct amount of tax.

This is because many property investors pay more tax than they need to. This often happens when investors aren’t using companies or family trusts correctly, or they’re not claiming all of the taxable expenses they could.

Remember, succeeding in property investment is less about the property and more about the investment (numbers).

The cost of not using a property accountant

If you try and do your own property accounting you will need to:

• Free up a lot of your own time after work and on the weekends
• Try and learn how to file the paperwork yourself
• Find the right tools to track all the financial data you’ll need to analyse.

Also, you may find you are owning your properties in the wrong entity.

Maybe you are holding them in your own name, when a trust would be more efficient.

For instance, let’s say you earn $200,000 a year – a big income. Your tax rate is 39%. If your property makes $10,000 in pre-tax profit – you then have to pay $3,900 in tax.

Now, let’s say you move that property into a trust. The tax rate falls to 33%, which means the amount of tax you have to pay for your property falls to $3,300. You’ve saved $600 per year because you moved your property into a different entity.

This is the sort of advice a good property accountant should give you.

What a property accountant costs and how they get paid

Like solicitors, property accountants charge fees for their services so investors pay them directly.

While the fees charged by property accountants differ from firm to firm, it is safe to budget $1200 - $2000 (including GST) per year.

Property manager

What a property manager does

Property managers manage your investment on your behalf.

They will:

• Find a tenant for you
• Make sure the tenant pays their rent on time
• Ensure the tenant looks after the property
• Organise any maintenance for you
• Regularly inspect the property.

The cost of not using a property manager

Every property investor should use a property manager.

If you don’t, you will have a lot more worries about your properties and tenants. You’ll spend a lot more time dealing with your investment properties, which causes stress and may make you limit the size of your property portfolio.

For instance, most property investors know they need to do regular property inspections, but fail to do so.

If you don’t inspect your property every 3 months you will have broken the terms of your insurance, and if something goes wrong you may not be able to make a claim.

Tenancy regulations are also becoming more complex and investors who accidentally break the rules can find themselves on the receiving end of a fine.

If you would like more evidence on why you need a property manager, join the Property Investors Chat Group NZ on Facebook. You will see the distress and worry investors have when they try to manage a property themselves, because they’re not fully across the detail of tenancy regulation. Just take a look at a few screenshots below.

What a property manager costs and how they get paid

Property managers generally charge two types of fees.

The first is a percentage of the rent you get paid.

This is typically somewhere between 7% (+GST) and 10% (+GST).

For a property charging rent at $500, that’s about $40 - $57.70 per week, or $2,000 - $2,820 a year (factoring in three weeks for the property being empty).

They then also charge a letting fee every time the property is vacant, which is to cover advertising, finding a tenant, and getting that tenant to move in.

This is a relatively new fee, as letting fees were previously charged directly to tenants before a recent law change. This cost is now typically passed on to landlords.

Letting fees are typically one week’s rent + GST, which for a $500-a-week property is $575.

Types of tenancy

There are two main types of tenancy agreements in New Zealand: Fixed term and Periodic.
 

It’s particularly important to know the difference because (after changes to the Residential Tenancy Act in February 2021) any fixed-term tenancy agreement automatically rolls into a periodic tenancy … unless a new fixed-term contract is signed.

Fixed term

As already stated, a fixed-term tenancy agreement means a tenant and a landlord are locked in for a certain amount of time (12 months is the norm).

So, let’s say Bob and Simon sign a 12-month fixed-term tenancy agreement in July 2022.

This means before July 2023 Bob and Simon can’t just hand in their 4-weeks’ notice and leave without breaking the contract. If they do, the landlord can charge them for the remaining tenancy. More on this below.

Periodic tenancy

Whereas, a periodic tenancy is a rolling tenancy that has no end date – unless the landlord or the tenant gives notice to end the tenancy.

Having said that, in a periodic tenancy a tenant can give notice for any reason. And while the landlord can end the tenancy in some situations (and ask the tenants to leave) they have to give a legally-approved reason.

And the main reasons now allowed for giving notice are:

• If the landlord is doing extensive renovations on the property
• If either the landlord or a family member is moving into the property
• If the landlord is selling the property.

There are a few more. But, importantly, there is now no ability for the landlord to ask a tenant to leave “just because”.

So, if your tenant is on a periodic tenancy they are pretty much setting up camp for good (if they want). They can live there indefinitely, which does mean it is rather difficult to give your unruly tenant the boot.

Property adviser

What a property adviser does

Property Advisers find and source property investment opportunities for you to purchase. They typically fall into two categories – property finders, and property advisers.

Property finders search for properties that meet your buying criteria, or that fit within your existing strategy (and charge you a fee to do so).

Property advisers also find properties for your requirements and strategy, but they also help you create that strategy.

Typically, property advisers do not charge for their service (Opes Partners fall into this category).

The cost of not using a property adviser

If you choose not to use a property adviser you will need to find the property on your own. The risk here is the property you choose may not make a good investment.

You may end up purchasing property that doesn’t fit with the long-term objectives you are trying to achieve (especially if you are purchasing property without a written-down strategy).

What a property adviser costs and how they get paid

Property finders (who follow your existing strategy) typically charge a fee. This is generally 2% of the property price + GST, or a fixed fee (somewhere between $10,000 - $15,000 + GST).

Property advisers, on the other hand, are paid like a stockbroker – they are paid by the existing owner of the property they recommend. This means that most property advisers (like Opes) don’t charge you a fee when you use their service.

Step 6 – run the numbers and sort the finance

We’re into the final steps. Here’s everything you’ve achieved so far:

• You’ve decided on your property investment strategy
• You’ve set your budget for how much you can spend
• You’ve chosen a city to invest in
• You’ve gone out and looked at properties
• You’ve found a team of professionals to help you

The final hurdle is getting the funds for the investment and making the numbers work (but you may not have to worry about this if you’ve found the right mortgage broker).

This chapter is broken into 3 sections:

• Securing the initial funds for your investment property (ensuring you can buy the property)
• Selecting the property that gives the highest return
• Making the numbers work week-to-week (ensuring you can hold the property over time)

Get funds for the investment
 

The most important part of investing in property is securing the funds from the bank to buy the investment.

Some investors are surprised to learn there are different types of mortgages they can use to secure the loans, and that the most common loan property investors use is not the same one they use for their home.

The two types of loans are:

Principal and interest mortgage

The most common type of loan is a Principal and Interest loan (also called a table loan). This type of loan is mostly used by people for their own homes.

Each payment you make to the bank includes the interest payment – the banks charge for giving you the loan – (e.g. 4%), and also some amount that pays down the loan’s ‘principal’.

Paying that extra ‘principal’ part means the size of the loan goes down each month.

Interest-only mortgage

The other type of loan, which is much more common in property investment, is the interest-only loan.

With this loan you only pay interest to the bank each month, and make no principal payment.

This means the size of the loan never decreases.

You might wonder two things:

• “How do I ever make money from the property if I’ve always got a mortgage?”
• “Why would anyone use this type of loan if it never goes away?”

Reason #1 investors use interest-only loans – capital growth

If your property investment strategy includes holding the property, then the primary way you’re going to make money is through the property increasing in value over time.

Let’s say you purchased a property for $490,000 in 2016, and financed that property on an interest-only loan.

Because the median New Zealand house price increased 73.47% over that period (August 2016 - August 2021) then you will have still made $360,000 in capital gain even though you still have a mortgage.

In other words, investors can build wealth without paying down debt.

Interest-only loans – cashflow

The other reason investors use
Reason #2 investors use this type of loan is that properties on principal and interest mortgages are often heavily negatively-geared.

This means the investor needs to make a significant ‘top-up’ to the property’s bank account each week – since the rent doesn’t cover all expenses.

This makes interest-only loans attractive since they are cheaper in the short term, compared with a principal and interest loan.

Let’s go through an example to see what we mean.

Typically, a property set up on principal and interest may be negatively geared by $250 a week.

The same property on an interest-only mortgage may only be negatively geared by $50 a week.

Most Kiwi investors might say “I can afford $50 a week to buy a property … especially if it’s going up in value”. But paying $250 might be a bit more of a stretch, especially if you’ve already got a personal mortgage.

So using an interest-only loan can allow more New Zealanders to become property investors, or grow their portfolios in the short term.

Why do you keep saying: “in the short term”?

When you use an interest-only loan you are holding onto your debt for longer because you’re not paying down any of the loan.

Over time this means you’ll pay more interest.

So, in the short term you’ll save on cashflow, since your repayments are lower, but you will end up paying more money to the bank in terms of interest payments.

Our view, here at Opes Partners, is that paying more interest over time is an acceptable trade-off for many investors.

The reason is you’ll often be able to build a larger portfolio than is otherwise the case.

Interest-only loans are especially useful during renovations

Renovations-focused investors will also use these types of loans, especially during renovations.

Because, while an investor is renovating a property, they typically can’t tenant it. So no money is coming in.

This means decreasing their contributions to the bank (through an interest-only loan) is going to give them more funds to spend on the renovation, while limiting outgoings.

What does a mortgage broker think?

Ella Dromgool, a mortgage broker from Opes Mortgages, is in favour of interest-only loans, especially if the investor has their own home mortgage as well.

Ella says the aim of the game is to pay down your debt on your owner-occupier. So, if you have one, make that your focus.

Investors utilise interest-only loans to increase cashflow, which can be spent to invest elsewhere.

But while you aren’t paying down debt, at least not immediately, the investor is relying on the premise the property is going to increase in capital gain. This historically has always been true over the long term.

So, what is the right choice for me?

Generally speaking, a switch to a principal and interest loan can be the right decision for older Kiwi investors, especially for those who have already paid off personal mortgages on their own homes.

This way you can start paying down your debt as you approach your retirement goals.

Compare interest-only loans vs principle and interest loans.

However, if you are an early-mid career investor and you have a sizeable mortgage on your own property, it could be a great idea to go for an interest-only loan on your investment properties.

Generally, this is what we see here at Opes, which is investors paying interest-only on their investments while paying down their personal mortgage first.

Interest-only loans aren’t the right fit for everyone. But if you think it might be an option you want to consider, have a chat with your mortgage broker.

Selecting the property that gives the highest return

In Chapter 4 we talked about how to start looking for investment properties, and we put it in the context of moving through a Briscoes store to find what you need.

Let’s now say you walk into Briscoes and you are looking for a toaster.

Once you find the shelf with the toasters, you will be confronted with more toasters than you could ever imagine.

Different colours, different features, different brands. And the question is, which one should I get?

Now, searching for a property is not too dissimilar. Let’s say you’re looking for new-build townhouses with 3 bedrooms in the South Auckland area.

You’ll be able to find hundreds of options.

So, how do we narrow it down to find the one that we want to purchase?

This is where we start to use formulae and financial-metrics to see which is the better investment.

That sounds complex, but we’re going to keep it really simple.

What are the metrics we can use to compare properties?

Go to a property investors’ event and you’ll hear everyone talking about gross yields when comparing properties. This is the amount of money a property generates compared to its purchase price.

But, as we’ll see in a moment, there are different types of yields and some give a better comparison than others.

So, in this section we’ll discuss the different types of yields, what they each mean, and the other (sometimes better) metrics you can use to compare properties.
 

Gross yield

Your gross yield is the most common term you will generally hear from property investors when they talk about yields.

This is calculated by dividing the rent the property earns over a year by the purchase price.

Case study – calculating gross rental yield

Jamie has just bought a property for $500,000. After speaking to his property manager he believes the property will rent for $500 per week.

Jamie multiplies $500 by 52 (the number of weeks in the year), which gives him rental income of $26,000 per annum.

He then divides $26,000 by $500,000, to calculate that his gross rental yield is 5.2%.

The pros and cons of gross yields

The best thing about gross yields is they are incredibly easy to calculate. Because of this they are often the most talked about in property circles.

However, they are of limited use.

However, they are of limited use.

That’s because gross yields don’t factor in things like expenses, or the time a property spends without a tenant paying rent (vacancy), or any capital growth over time.

So, while they are useful for a first look at a property to see whether it’s worth investigating further … the gross yield on its own shouldn’t be the metric to use to determine if you’ll buy one property over another.

Net yield

Net Yield is a much more useful metric than gross yield.

It tells you how much the property earns (or costs you) each year after operational expenses have been taken out.

Operational expenses include things like vacancy (how long the property is without a tenant), rates, insurance, accountants fees, property management, letting fees and maintenance.

But this does not include your mortgage costs.

This is calculated by taking the rent received each year and deducting the annual expenses. You then divide that number by the property’s purchase price.

Case study – net yield

Hannah bought a similar property to Jamie's. It was $500,000 and earns $500 per week.

It has operational expenses of $10,565 per year. This is made up of:

• $1500 of vacancy (3 weeks rent at $500 per week)
• $500 in maintenance
• $2,815 of property management (9.99% + GST of collected rent)
• $1300 in accountant fees
• $2700 rates
• $1750 insurance

This means that Hannah’s property makes an operational profit of $15,435 per year ($26,000 - $10,565).

Dividing that by $500,000 – the purchase price of the property – Hannah calculates that her net yield is 3.1%.

However, this is not profit that Hannah can keep.

That’s because in order to buy the property, Hannah got a mortgage from the bank, which means she also has interest costs.

Note: Mortgage expenses are not operational costs, and therefore are not used to calculate net rental yield. Leaving mortgage expenses out of net yield is also useful as you can more easily compare different investment opportunities.

The pros and cons of net yields

Net yields are a little bit better than gross yields, since they take into account expenses.

Let’s say you have two properties earning the same amount of rent, but one has really high body corporate fees.

The net yield will show us the high body corporate property will likely provide a lower return.

But the net yield still has some limitations. It doesn’t tell us anything about capital growth, and it doesn’t give us a sense of the actual cashflow we’ll take out of the property, since mortgage costs aren’t included.

This is where the cash yield starts to come in.

Cash yield

Your cash yield includes your payments towards your mortgage.

This is typically the metric most property investors are interested in, as it shows the real money the investor is either putting into the property each week or able to take out of the property each week.

There are two possible ways to calculate your cash yield:

First way to calculate yield

The first is to simply take your net yield and minus the interest rate.

This assumes you plan to borrow 100% of the money to purchase a property and that you’ll put it on interest-only.

Case study
 

Hannah has already calculated her net yield is 3.1%. She goes to her mortgage broker and is able to secure an interest-only loan at 3.5%, which will cover the entire purchase price (100% lending).

By subtracting 3.5% from 3.1%, she sees that her annual cash yield is -0.4%.

Multiplying this yield by the purchase price ($500,000), Hannah sees that her property will be cashflow negative by $2,000 in the first year.

Second way to calculate cash yield

The second way takes a little more arithmetic to calculate, but it doesn’t include the 100% lending or interest-only assumption. So, it’s a little more flexible.

To calculate this, take the Net Yield (expressed in dollar terms), and minus the mortgage repayments. Then divide that number by the purchase price of the property.

Case study

Let’s stick with Hannah and her $500,000 property.

She goes to her mortgage broker and secures that interest-only loan at 3.5%. However, this time she uses a 20% cash deposit.

This means that instead of paying interest on $500,000 she now only has to pay interest on $400,000.

So, her interest costs are $14,000, rather than $17,500 like they were in the first example.

Hannah calculates she’ll receive $26,000 in rent. She’ll then have $10,565 of operating costs and $14,000 of interest costs. This means the property will have positive cashflow of $1,435 in the first year.

When Hannah divides that cashflow by the property’s $500,000 purchase price, she sees her property will earn a cash yield of 0.29%.

When to use this second method

It’s important to use this second method if you are not purchasing the property with 100% bank lending or are using a principal and interest (P+I) mortgage.

Using a deposit or going P+I will impact your mortgage payments and therefore change your cashflow.

The same investment property can be ‘positively geared’ or ‘negatively geared' depending on how you structure it

In this example, when Hannah purchased the property without a cash deposit, the property costs her $2,000 a year.

But when she uses a cash deposit, the property then makes her cashflow – since the interest expenses are lower.

The first scenario is what we call a ‘negatively-geared’ property (or a cashflow negative property). That’s because once the expenses are taken out the property earns a cash loss each week.

The second scenario is what we’d call a ‘positively geared’ property (or a cashflow positive property), because once its expenses are taken out it earns money.

You may be wondering why anybody would invest in a property that is negatively geared and incurs a cost to the investor each week.

I can hear you saying: “It’s an investment – shouldn’t it be earning me money?”

This is how many investors felt a few decades ago when yields were higher and cashflow positive properties were aplenty.

As property prices have risen faster than rents, negatively geared properties are more popular.

Because while a property may cost $50 a week in cashflow (on average) it may make hundreds of dollars a week as the value of the property increases.

But those potential capital gains haven’t been factored into any of the metrics we’ve discussed so far.

This is why, here at Opes Partners, we’ve had to create a way of calculating a property’s return, that is both simple – and factors in all the possible returns.
 

Return on investment

The Return on Investment is a calculation Opes uses to help investors understand the total gain the property earns an investor over a 15-year period.

This is a more realistic metric for investors to consider because:

• It measures the entire return of the property each year (both in cash and equity terms)
• It projects the cashflow of a property into the future
• It accounts for higher future costs, such as rising interest rates
• It calculates the return, not on the purchase price, but the equity and cash an investor actually puts into the property

Because these are much more complex calculations, we’ve built a Return on Investment spreadsheet, which you can download for free in order to run the numbers for any investment property you’re considering.

But to simplify this, the spreadsheet looks at all the potential returns over time:
 

• Capital gains
• Debt repayments (from principal and interest repayments)
• Rental cashflow

It then divides this by all of the potential investment an investor has put in:

• The initial deposit – whether in cash or equity from another house
• Cashflow if the property is negatively geared

This gives the investor one metric to look at to accurately compare rental properties over time.

Case study

Let’s come back to Hannah with her $500k rental property. In this case we’ll keep all the assumptions the same as the above.

Once we plug those numbers into the Return on Investment calculator, we see that Hannah is expected to receive a 444% return on the money she has invested into the property over the long term.

That’s because the property is expected to earn about $440,000 over the next 15 years, whereas she has only invested $100,000 of her own equity.

Just over 90% of those gains are expected to come from capital gains – the property increasing in value. And the other 10% from rental cashflow.

Using this spreadsheet, Hannah can also track the expected cashflow of her property, even as interest rates rise.

The pros and cons of return on investment

The benefit of a return on investment calculation when running the numbers on an investment property is you get a much fuller picture of your investment.

This is because it takes many more real-world factors into account, and includes all the ways you might make money from a property.

This makes it a good way to compare two different properties you are seriously considering.

1) Interest costs

The most expensive part of owning a property is the interest costs you pay to the bank because they lent you the money to buy the asset.

Interest rates are very low right now, so say you negotiate a 3% interest rate, on a 100% interest-only mortgage, you would pay $15,000 in interest every year ($500,000 x 0.03).

That’s the bad news.

But the good news is:

• Because you pay these interest costs you’re able to afford an investment property to sort your retirement, and while the other costs (below) will go up by around 2% each year, due to inflation, the interest cost will stay the same each year. That’s because loans aren’t impacted by inflation (assuming interest rates don’t change).
• This is why many properties might start negatively-geared and eventually turn into positively-geared properties – because the rent increases, but the biggest expense stays the same.

2) Property management

Property management is the cost to have your property looked after by a professional.

It is safe to assume a 8.99% + GST rate per year. On this $500/week property, that is $2,533 in the first year.

You will often also pay a tenant sourcing fee every time you need to find a new tenant. This is typically 1 week + GST.

Here at Opes, when we create a cashflow we budget for this every single year – even though in practice you may not actually have to pay this cost. After all, your tenant probably won’t leave every single year like clockwork.

3) Insurance

Landlords need to have insurance in case there is any damage to the property.

Many landlords couldn’t afford to cover any significant amount of accidental damage to their property, so this must be accounted for.

For a back-of-the-envelope calculation, this can usually be estimated at 0.3% - 0.4% of the property’s value. In this case we’ll assume the midpoint – $1750 annually.

But it’s important to note the cost of insurance varies around the country. Insurance in Wellington tends to be the most expensive. Areas like Auckland and Hamilton tend to be cheaper.

4) Maintenance

Maintenance can be hard to predict if the property was built more than 20 years ago, because you don’t know when chattels will break and need replacing.

A few good ballparks to use, based on the age of the property are:

• $500 in the first year for a brand new property
• $1,000 for a property built between 10-20 years ago
• $2,000 for a property built over 20 years ago.

We’re going to assume that this is a brand new house, so maintenance would be $500 per year.

5) Rates

Rates are a property tax that is charged by the local council to pay for local services e.g. sewage, water and public amenities.

For a standard calculation, you can generally estimate these at 0.5 - 0.6% of the property’s value. In this case $2,500 - $3000 for the $500,000 property, depending on council area.

6) Accounting

A good property accountant will save you thousands. They’ll file your tax returns and make sure you aren’t overpaying your tax obligations.

Although the cost of a property accountant varies from firm to firm, a good estimate is $1,200 a year + GST ($1,380 total), + $200 + GST per extra property.

7) Body corporate or residents’ association

This is usually only charged if you have purchased a townhouse or apartment because these property types tend to share services.

These are usually between $500 - $4,000 per year.

The lower end of that range would be for a group of townhouses where insurance is not included.

The higher end of that range will usually include insurance and long-term maintenance costs.

In this example we are assuming this property is a stand-alone house, which means there would be no body corporate fees.

8) Tax

The last major expense to consider is tax. Previously we wouldn’t have included this as an expense item – since historically you would only pay tax if you made a profit.

With the government’s new interest deductibility rules, this is no longer the case. Your property can be negatively geared and you will still have to pay a significant amount of tax.

This is because investors purchasing existing properties will need to pay tax on their net yield (minus any other taxable costs), rather than their cash yield.

Because tax won’t be calculated on your end profit position, investors purchasing an existing property will need to factor this in as an expense.

New-builds, however, will not be impacted for the first 20 years. For the example below, we’re going to assume that this property is a new-build, and additional tax won’t apply.

Adding it all up

Let’s see where we’ve landed

Income

• Rent – $24,500

Operational Expenses

• Property Management – $2533
• Tenant Sourcing Fee – $575
• Insurance – $1750
• Maintenance – $500
• Rates – $2500
• Accounting – $1380
• Body Corporate – $0

Total Operational Expenses – $9,238

• Interest – $15,000

Total Expenses – $24,238

Cashflow = $262 / year

In this case, the property is positively geared and makes $262 each year.

This equates to $5 per week.

Now let’s say that the property is expected to grow by 5% in the first year. That equates to $25,000 in capital gain in the first year ($481 per week).

This means it has a Gross Yield of 5.2%, a Net Yield of 3.1%, a cashflow yield of 0.05% and in the first year the property made 5.05% (cashflow + capital gain).

That’s a total gain of $25,252.

But, because the owner of this property invested no cash when purchasing the property (i.e. they secured the deposit for this property from their home), they are making that projected $25,252 gain without putting any cash into the purchase.

This is the power of property.

Step 7 – make like nike, and just do it

At this point, you will have:

• an idea of what you can afford to invest
• the city you want to invest in
• the sort of properties you want to invest in
• the types of property you want to invest in (and where to find them)
• perhaps you’ve started to pull together the team that will support you on your investment journey

... And you’ll also know how the numbers behind the property work.

If you’ve read this far, you’ve got the knowledge. And as long as you’ve got the finances, you’re ready.

The next step is to take some action, get in contact with a property adviser – like us here at Opes – or a real estate agent or developer, and view some properties.

The next steps are simple:

• View the properties that make sense for you
• Make an offer
• Sign a sale and purchase agreement

…. And go from there.

Believe it or not, this is the step where most people stumble and fail in property investment.

They learn and learn ... and learn some more, but never get started.

Let me tell you a little story about my journey – and where I made this exact mistake.

Through studying economics and analysing the property market, I had a fair idea what was going on with property. But I didn’t own anything; no property whatsoever.

I’d built it up where it was always: “One day, I’ll do it … at some point I’ll be ready.”

Then one evening I was out for dinner with a friend – Vinny – and he started quizzing me on my numbers. He then pronounced: “That’s sweet, you can do something with that … let’s go look at properties tomorrow.”

In less than 24 hours I looked at an apartment, signed the sale and purchase agreement, and started working with a broker to get finance.

At the time I had about $25K in my KiwiSaver and not a lot else. Today, that property has made over $200k.

What’s the moral of the story?

No, it’s not saying go and buy a property tomorrow (unless you want to).

What its saying is:

A) You might be ready to invest, even if you don’t think you are

B) Sometimes you need someone else to look at your situation, put the puzzle pieces together, and ask the right questions to get you on your way.

So, if you are looking for a helping hand, or need a kick to get started, then you can always come and talk to us, here at Opes.

Step 8 – build a property investment portfolio

This brings us to the final chapter of this guide.

At this stage, you might be wondering: “How do I go about building a portfolio of investment properties?”

Let me tell you, it’s a lot harder to build a portfolio today than the good old days when it was easy.

Back then you could buy an investment property with a 10% deposit and the yield was so high the bank didn’t look too hard at your personal income.

Today, tighter lending restrictions and higher house prices mean building a portfolio of 10 rental properties requires a sizeable personal income.

However, it is still possible for an average couple who are both working to build up to a portfolio of around 5 properties, potentially over several years.

As this happens, one important thing to think about is the portfolio’s cashflow position. This is where two properties can be used to “offset” each other.

For instance, if you invest in a positively-geared property (like a dual key apartment might be) then you can also invest in a negatively-geared property, like a standalone house.

Put simply, we’re talking about using the positive cashflow from one property to pay for another.

In practice, one high-yield property might cover the cost of owning two or three growth properties.

There are a lot of different property investment portfolio strategies you could choose to adopt (which is where the real fun starts).

In fact, this specific topic deserves an Epic guide of its own. So, if you’d like to dig into this more, we’d encourage you to check out some of the property investment webinar training.

These 1 hour+ sessions dive even deeper into portfolio planning.

So, there you have it. Here ends our Epic Guide to Property Investment. But, we’ve got one final note for you –

A quick note on the future of this property investment guide

This is the second version of this guide – not the forever version. (That sentence used to say “first version”).

Over time we will update this with more information, links, photos, videos and calculators. The last major update was written in October 2021, which added over 6,000 words to the article.

If you have any other ideas or suggestions on how to make this property investment guide even better, please contact Ed, the co-author of this article, at ed@opespartners.co.nz.

We’re interested in hearing your comments, feedback, ideas and suggestions.

If you’d like to learn more about property investment, check out the Property Academy Podcast.

This is our daily show, where we teach you something new about property investment in 10-15 minutes every single day. You can tune in on Apple, Spotify or your favourite podcast listening app.

Also, make sure you follow us on Youtube and Instagram, where we put out educational videos and posts to help you learn while you’re on social media.

Write your questions or thoughts in the comments section below.