Having a ‘property portfolio’ could sound like a flashy pick-up line, but unless you’ve got clear control of your investment, your portfolio could be more of a turn-off than an attraction.
The biggest difference between an investment property and the place you live in is that you’re focused on earning money from the property – either through rent or by increasing the property’s value then selling it.
With property investment you need to know your numbers. How much rent is needed to cover the interest, insurance and rates payments? How much will you need to spend to do up the property, and how does that balance out with what you’re expecting to sell it for?
10 questions to ask yourself before you start:
Can you afford to buy it?
Work out how much equity you already have, along with any savings, then talk to your bank, finance company or mortgage broker about how much you might be able to borrow for an investment property. Remember, the more you pay over valuation, the less total equity you’ll have across your properties, so ideally you’d be wanting to buy a property below or at valuation.
Can you afford to rent it out?
Work out how much rent you’ll need to cover interest, insurance and rates costs. Is it realistic for the area the property is in? If not, can you afford to top up the payments and count on capital gain to eventually make it worthwhile? Have a scout around Trade Me Property rentals to get a feel for the area you’re looking at.
Can you cover the interest and renovation costs while you do it up?
You might want to live in the property while you’re renovating. Can you afford to do this? And can you convince your lender that you can?
How easy will it be to rent out?
How’s the rental market performing in the property’s area? Trade Me’s Property Price Index provides a monthly analysis of rent prices being sought in listings across the country
See what properties are already available to rent in the area and what rents are being asked.
Can you cover any length of time when it’s not being rented?
The reality of renting a property out is that unless you’re really lucky you won’t be fully rented every week. Set a buffer (say 48 weeks rented each year) and base your budgets around this.
Are you buying it for the right reasons?
Are you buying an investment property because you’d love to live there? Or are you basing it on the numbers? In saying that, you do need to ensure it is attractive to renters in one or more ways – this could be size of rooms, location or the look of the property.
Can you add value?
Look for ways you can easily add value to an investment property, such as landscaping, painting or upgrading a kitchen or bathroom.
How comfortable are you with more debt?
Although you’ll be earning rental income, your overall debt will be higher. Have a plan in case things go belly-up – you don’t want to lose your home if you’ve made a bad investment.
Are you aware of tax implications?
As with any investment, there may be tax implications to consider. Check with your accountant or financial advisor for advice on what you might be liable for.
Does the gain outweigh the risk?
Investment is all about weighing up risk vs potential gain. Do lots of research, talk to experts and make considered decisions and you’ll be in the best place to go forth and profit.
This information is not intended as a complete guide, as it doesn’t consider your individual needs or financial situation. Trade Me accepts no responsibility or liability for any inaccuracies or omissions in the content. Always obtain independent legal advice before buying or selling property.