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Buying An Investment Property

Check out the dedicated property investment calculators to crunch critical numbers for buying an investment property. Then talk to an experienced mortgage broker.

Whether you are a regular property investor or buying a house for the kids, this page is dedicated to helping all investors in real estate. 

Crunching the numbers can be critical, and structuring the ownership and funding to your advantage is very important.

 

Owing property is a good way to build wealth

Real estate is a popular investment product, for lots of reasons, and we think it has a long future in New Zealander's investment portfolios. 

Residential real estate is a prolific and widely understood asset and is the largest single investment product, by value, in New Zealand.  It is widely covered by the media and enjoys a well informed market of buyers and sellers.  Independent research is readily available and is very cost effective. Residential property is a highly sought after investment and few, if any, financially successful people avoid owning real estate. 

We believe that real estate is a great investment choice for a lot of New Zealanders, and this is likely to continue.  We hope that some of our tools and the services we offer to property investors continue to assist this popular investment choice. 

 

Some of the situations we often deal with

  • Buying a house for the kids to live in.  This has been fairly common for families with children who attend University or other educational or training facilities.  Often the kids will have flat-mates so it just makes sense that they all pay the mortgage rather than another investor's rent (and mortgage).  
  • Expatriate New Zealanders who want to retain an interest in the New Zealand property market while living offshore.  
  • International property investors who invest in New Zealand's real estate for its yield and stability as in investment product. 
  • Regular property investors who may be starting out, or may own large portfolios of real estate. 

 

Using the equity in one property to buy another

Whether it's your home or another property you own, it is common to access the equity in one property to purchase another property.  There are 2 common ways to do this;

  1. Stand-alone: you 'release your equity' as cash with a loan top up over the property you own (say 20%) to buy the rental property with a stand-alone loan at (say 80%) LVR. 
  2. Cross collateral: you 'access your equity' and buy the rental property with a cross collateral 100% LVR loan.

 

The implications of each method are different and your tax adviser and lawyer are best to advise you on the respective taxation and legal obligations as these apply to your circumstances and your intentions.

 

Below we outline some of the financing considerations

The stand-alone method: 

Releasing equity as cash from one property (say your home) to contribute to the purchase of another (your rental) and keeping both properties independent, by using different lenders, has the advantage of separation. 

The cross collateral method:

This can appear simpler because your current lender provides 100% of the cost of buying the rental and is secured by two properties.  However, this method ties the two properties together such that, if you want to sell one (say the rental) then the lender will also review your home loan. 

 

Why separate my portfolio?

Separating properties by using different lenders, and therefore different mortgagees, can avoid the need to endure a 'portfolio' review. 

If your lender has a mortgage over more than one property, securing its loan(s) and you sell one property, the lender may require a full review of your portfolio.  The review will be based on the lender's prevailing credit criteria.  If its credit criteria has 'retreated' from that which applied when you first got your loan, as is the current trend, then the lender is likely to demand a greater repayment from the sale proceeds than it may have required under its original credit criteria. This situation can be both unexpected and cause a great deal of stress which may have been avoided. 

 

Some tools to help

If you haven't checked out the calculators folder and found these tools already, here are some that will help you to uncover some of the real numbers behind any investment property. 

We've built these because we know it can be daunting to sit down and crunch the numbers - but we also know that it's invaluable knowledge and we think knowledge is good.  Take the guesswork out of your investment decisions (or at least reduce the guesswork) by having a quick look at these models. 

Using CalculatorQuick guide for property investors

You just enter one figure (rent) and our model will calculate how much debt can be serviced by a series of rents and using a series of indicative interest rates. The model calculates results for both table loans and interest only loans. The results are a rounded up to the nearest $1,000.

Using CalculatorNegative gearing model

Assess the viability of an investment property based upon a range of variables, including a tax rate. Like our property investment model this simple calculator makes short work of complex calculations. The end result is an estimate of a tax adjusted annual cash surplus, or cash loss. The calculation illustrates a point, it does not convey tax advice or any other advice. The viability of an investment could depend on many factors which may not be included here.

Using CalculatorProperty investment model

By you entering just two or three simple figures, we can tell you perhaps the most critical factors about an investment property. The model will calculate; how much cash flow is left after debt servicing and; how much debt the property's cash flow will service. These facts are essential knowledge when considering investment property.

Using CalculatorHow much debt will this rent repay?

This calculator tells you what size loan you could repay with your rent. It's perfect if you are considering buying a house and you want to know what size loan you should aim for based on repayments that you are comfortable with.