27 August 2019
Join the hunt! Handy tips to kickstart your property portfolio
Are you looking to invest in property? Well, you’re in the right place. At Lugtons, we understand the residential property market and how to find what you’re looking for in an investment. To help you join the hunt for the perfect investment property, we’ve come up with our top five tips to kick-start your portfolio.
Tip 1: Financing your investment property
Before you put on your shoes and hit the pavement in search of your first investment property, it’s important to know what you can afford. Your budgeting shouldn’t just account for your deposit and repayments, ongoing costs such as maintenance and insurance need to be considered, so they don’t sneak up on you and make you an unsuspecting investor.
One way to finance an investment property is by using the equity from your existing owner-occupied property.
To use equity as an investor-borrower, you usually need to allow a loan-to-value ratio of 70:30. This means you can borrow up to 70% of the value on your investment property, and any shortfall must be secured by the equity in your owner-occupied property (or through a cash deposit).
However, every situation is different, and the Reserve Bank are consistently changing their rules and regulations for home lending criteria. We’d recommend contacting a mortgage broker, or your trusted lending provider to find out your individual requirements.
Tip 2: How to increase your borrowing for a second home
Although it isn’t necessary to have your first home loan paid off before buying an investment property, it is important to be comfortable with your current debt ratios.
The simplest way to increase you borrowing amount is to increase your equity, or your income, as we eluded to above. However, there are other opportunities.
Revolving credit, or revolving home loans, work much like an overdraft. The idea is to save on interest by keeping your overdraft balance as low as possible. With revolving credit, your home loan will act like your everyday account; money flows in and out of your (loan) balance as you spend. With interest calculated daily, this option is great for people who’re good at budgeting, have irregular income or are building and renovating over an extended period of time.
Refinancing your current mortgage and moving to a lower interest rate is one way to realise a higher valuation on your existing property, receiving cash back and allowing you to restructure or rebalance your mortgage at the same time. It’s a popular option to explore prior to investing, to adjust your equity levels based on an up-to-date valuation.
Tip 3: Yield or capital gain?
Property is a long-term investment, which is why it’s important to spend time researching and evaluating a property’s potential. Before you start searching for a rental investment, decide what type of return you’re looking for:
Purchasing for rental yield
Rental yield is the return you will receive from renting your investment property. You can investigate the rental prices and potential yield by looking into similar prices within the location you’re looking to buy, for example Trade Me or with a rental agency (like Lugtons).
Purchasing for capital gains
Capital gains are earned when you sell a property for more than what you paid for it. Capital gains have been a hot topic lately. We’d recommend speaking with a tax advisor to ensure you know your legal obligations prior to buying and selling a property for this purpose.
Tip 4: What to look for in a rental investment property
When you kick off your search for an investment property, it’s important to set realistic expectations; what’s best for you isn’t necessarily what’s best for an investment property. Look for longer-term renters, financially stable tenants, and for appreciation purposes, a property with ‘potential’, requiring a few cosmetic changes and minor renovations. This way, after a bit of DIY the property can be rented out for a higher yield.
- The neighbourhood
- School zones
- Crime rates
- Appreciation opportunities
Tip 5. Choose Lugtons
If you’re ready to step back on the market to search for an investment property, give the team at Lugtons a call. We’re ready to provide you with the tools and knowledge that will help you in your search, as well as supporting you through the purchasing process.
We also provide property management solutions to help you post sale.
Contact us today, to discuss your perfect investment property.