Looking at getting started with property investment? What should you do first?
Take your time. This is always very important. Property is a large investment and not something you should rush into. It’s important to understand how it is going to work for you.
Gain information and knowledge -
Start looking for free webinars or property events that you can attend. Try to attend ones that aren’t put on by developers or sales people – They are generally trying to sell you a property, which might not be right for you. Always consider, what is the presenter trying to sell you
NZPIF – www.nzpif.org.nz 19 local property investor associations through out NZ. Great way to mix and mingle with other property investors, and get good property information without the sales pitch.
There are also some great Facebook groups, we have a new one on our Link Tree and another is Property Investors Chat Group NZ, https://www.facebook.com/groups/nzpropertychat/
I always suggest talking to a Mortgage Broker as they work for you, whereas a banker works for the Bank. A Mortgage Broker works out which bank is best for you and your situation. They can help you improve your situation so that you can move from not being able to get a loan, to getting a loan.
Ideally you would get preapproval from a bank for a certain loan amount, so that you then could make unconditional offers. Most investors don’t have any cash, and are borrowing against the equity in their own home
Our partners at Lifetime are great Mortgage Brokers and can help you get a loan, whether for an investment property or for a buffer if times get hard.
Establish a strategy for you -
What do you want to achieve from property? Why do you want to buy an investment property?
Really important to think hard about these two questions and to have a clear goal of why you are investing in property. Then you need to make sure you have a strategy that helps you achieve your goals and is also attainable.
For example, if you have really poor cashflow and just get by, then buying a really negative investment property wouldn’t work, and you would most likely need a high cashflow rental.
Understand numbers and the cost to you -
It’s important to work through what income you will receive and what expenses from the rental. Is the income more than expenses?
What about over the next 5-10 years, and if interest rates rise?
What tax will you have to pay? Will the newish interest limitation rules affect you?
What happens if you have to go on Principal and Interest. It is great to pay down the mortgage, but what does this do to your cashflow and can you afford it?
In my very biased opinion it is worth having a Property Advisory Meeting with me (Ross Barnett), to go through a couple of properties that you might be glancing at (because you are not rushing
We go through the numbers, now and estimated numbers for the next 10 years. We look at New Builds vs existing, interest only vs P&I, what structure (entity such as LTC, Trust etc) is best for you, tax due and when, and are the properties good for you in your situation? We also provide written notes, recording, spreadsheets and other useful property information.
Getting the right structure to protect your assets and minimise tax -
First we look at whether you need asset protection and what this means to you. Generally if you are in business, or have high health and safety risk, or have high risk, then you would look at a Trust for asset protection.
Then we look at your overall situation. There is no one perfect structure for everyone, and it depends on your specific situation. Some things to consider
- Ideally want the least number of entities. So only add an entity if it is required and serves a purpose. More entities = more costs.
- Profit going to lowest tax payer if possible
- Losses being able to offset against profits
- Asset protection
- Flexibility long term
- Future income changes
Once you have done these 5 basics, then you can start looking at properties.
In my opinion, a stock standard rental doesn’t work for most investors, and most investors need to buy something better. Something either with really good cashflow or added value potential.
Disclaimer: This article has been prepared for the purpose of providing general information, without taking into consideration any particular person's objectives, financial situation or needs. Any opinions contained in it are held by the author as at the report date and are subject to change without notice.
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