Which property investment strategy is the best in New Zealand?


Why invest in property?

Investing in property is often considered a wise decision due to its potential for long-term returns, stability, and versatility. First, property investment offers the prospect of capital appreciation. Over time, real estate values typically increase, providing investors with significant gains when they sell. This appreciation is bolstered by consistent market demand, particularly in regions experiencing population growth or economic development.

In addition to appreciation, property investment generates regular income through rental yields. Owning rental properties provides a steady cash flow, making it an attractive option for investors seeking passive income. Moreover, real estate is a tangible asset with intrinsic value, offering a sense of security that intangible investments like stocks may not provide.

Another key advantage of property investment is its diversification potential. Adding real estate to an investment portfolio can reduce overall risk, as property values often do not align with other asset classes like equities or bonds. This helps mitigate losses during market downturns.

Real estate investment also comes with tax benefits. Many jurisdictions offer tax incentives for property investors, including deductions for mortgage interest, property taxes, and depreciation. These benefits can significantly improve a property investor's net returns.

Finally, property provides investors with a level of control. Unlike other investments where one relies on market performance or management decisions, property investors can directly influence their investment's value through renovations, strategic marketing, and rental management.

Overall, property investment is a promising avenue for wealth generation, offering a combination of appreciation, income, tax advantages, and portfolio diversification.

Residential property investors are navigating a landscape transformed by regulatory changes, such as extending the bright-line test to 10 years and removing mortgage interest deductibility.

It is anticipated that there will be a significant shift among residential property investors, who currently supply over 80% of all rental properties to the market. We consider this the "new norm," and our focus now centres on pivoting towards the next opportunity.

These shifts signal a "new norm" where over 80% of rental properties are supplied by residential investors, prompting a pivot towards new opportunities.

Selecting property investment locations in NZ

In this context, property investors must reassess their strategies, particularly when considering the type of property to invest in. We've previously discussed the difference between investing in residential property over commercial types. One notable advantage is the higher yields in provincial towns, typically 7% to 15%, influenced by local infrastructure developments.

These areas are becoming increasingly attractive due to proactive local councils that support growth and economic prosperity. For instance, business parks outside city centres, like those in Waharoa and Tauranga, are emerging as economic powerhouses. This shift is partly driven by the COVID-19 pandemic, forcing businesses to rethink their operational models and embrace remote working, reducing the demand for large urban office spaces.

Given these dynamics, let's delve into several key property investment strategies and tips particularly relevant to the New Zealand market. Find residential properties for sale across NZ for your property investment portfolio.

Top tips for buying investment properties in NZ

Conducting thorough market research is crucial. Focus on areas with prospective infrastructural developments which might signal upcoming growth, increasing the potential for substantial returns.

Key areas of focus should include:

  • Assessing rental yields: Understanding the potential rental income of the property is crucial. High-yield properties often translate into better cash flow, but they might come with higher risks or management demands.
  • Evaluating capital growth potential: Consider the long-term value increase of the property based on location, future area developments, and economic forecasts.
  • Managing property expenses: A realistic view of ongoing costs such as maintenance, property management fees, and taxes will help in calculating the net investment return. Using tools like an investment property calculator can provide a comprehensive expense overview.

It's also wise to engage with property investment agents who specialise in the regions you are considering. These professionals can offer valuable insights into local market trends and help identify properties with the best growth potential. Discover skilled Property Brokers' real estate agents to help you find the right property for your investment goals.

How to leverage equity in investment property?

If you own property already, you might consider using the equity you've accumulated to finance additional investments. This strategy involves the equity in your current property as security for new loans, potentially allowing you to expand your portfolio without immediate cash outlays. 

Here’s how you can leverage your equity:

  • Financing additional properties: You can use the equity from your current property as collateral to secure additional loans. This approach can help you purchase more investment properties without needing immediate liquid cash.
  • Funding property improvements: Another strategic use of home equity is to fund renovations. Improvements can significantly increase a property's rental yield and market value, making it a more attractive option for both renters and future buyers.

Utilising an investment property calculator can aid in estimating potential returns and expenses, helping to refine your investment strategy.  

Property Investment Strategies

Diverse investment strategies can cater to different financial goals and risk profiles.

Here are some effective approaches:

  • Buy-and-Hold: This long-term investment strategy involves purchasing properties and holding them to benefit from rental income and capital appreciation. It’s particularly effective in stable markets with consistent growth.
  • Renovation: Enhancing a property through strategic renovations can boost its value quickly, making it a lucrative strategy for investors looking to increase rental yields or sell the property at a profit.
  • Development: For those with more capital, property development—whether constructing new buildings or subdividing land—offers substantial returns but comes with higher risks and management requirements.

What deposit do you need for an investment property in NZ? The typical deposit needed is at least 20% of the property's purchase price. This requirement can vary, however, with some investors potentially needing more to mitigate lender risk. Find the latest property listings across NZ if you are looking to buy residential property for investment.

So, is it a good time to invest in property? Well with current high yields in provincial areas contrasted by shifts in urban centers, assessing whether it's a good time to invest requires consideration of market conditions, interest rates, and your financial readiness.

As we continue to observe how these changes reshape the investment landscape, adapting and strategically positioning your investments where growth potential is most substantial remains key.

Thus, provincial towns and business-centric areas outside major cities present compelling opportunities for forward-thinking investors. These considerations and tools are essential for anyone looking to refine their rental property investment strategy in today's market.

Commercial Sales & Leasing, Property Management & Building Compliance Services. We do it all!

Property Brokers Commercial property division offer a full spectrum commercial real estate, business broking and exit strategy service. Our commercial salespeople come from extensive business backgrounds in many different industries, and they take pride in the expert knowledge they have of the local property markets.

For more information, please visit: pb.co.nz/commercial or contact us today. 



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