Understanding how to invest in property can be complex, because each investor will have their own buying rules, unique journey to follow and goals they would like to achieve.

Within this article you will find practical tips to help you get started and access free resources to assist you along the way.

Why invest in property?

There are many different reasons why New Zealanders invest in property.
Perhaps the most stand-out feature of real estate investment in terms of creating wealth is the ability for long term capital growth.


Purchase a property for $200,000. After 10 years, it will be worth:

• 5% Capital Growth $326,000
• 10% Capital Growth $519,000
• 15% Capital Growth $810,000

During this period of wealth creation your property investment portfolio can also be continually earning you income in the form of rental yields too, it is easy to see that real estate can be a great way to implement a wealth creation plan and give you excellent, long term outcomes.

So if you are ready to start your property investing journey, here are six tips you can consider.

1. Check your finances

Investing in property is going to take some capital investment, so you need to take stock of all your assets, your income and outgoings and work out how much you have available to invest.

Speak to your accountant so you can get an accurate picture of your current financial situation. If you don't have an accountant, choose one who already owns investment property and understands the journey you want to take.

You can also talk to a bank or mortgage broker and get pre-approval on how much you are able to borrow given your current situation and circumstances. This will help you set a realistic budget and get some buying rules in place.

You can also discuss whether you have any equity available in your home that you may be able to use to kick start your property investment portfolio.

2. Set your goals

Have a clear strategic goal of why you want to invest in property.
For example, you may intend to buy high cash flow properties and replace or supplement your current income.

Or perhaps you have a plan for retirement which involves buying investment property with good, long term capital growth prospects.

It would be fair to say that many of the most successful property investors start out with a definitive plan in place which states the outcomes they want property investment to deliver for them.

3. Understand your attitude to risk

As with all forms of investment, property investment carries inherent risk. The principles of working out your level of comfort with property investment risk are the same no matter what type of investment you are considering.

Your acceptance of risk will usually depend on your current financial situation and time of life.

For example, investors close to retirement may look to limit their level of risk, and work on a strategy that gives shorter term returns.

However, property investors forecasting out for retirement in their 30s may have a 20-year plan to meet their desired outcome.

These investors may be more open to speculative investments and therefore may consider buying property in need of renovations in order to cash in on decent capital growth - these investors don't mind the thought of a long-term project to get them towards their investment goals.

To determine your level of comfort with investment risks consider your level of income, the needs of your dependents and current debt repayments that need to be met.
Can you afford to keep an investment property that may take three months to tenant? Is your income enough to secure you a mortgage loan?

If you are concerned about the level of risk in real estate investment - start simple, don't over borrow or over commit and don't panic if capital growth stalls for a couple of years.
Start safe and manage your level of risk with as much accurate research as you are able to do, combined with solid financial backing

4. Choose your property investing strategy

Having goals in place is a great start, but what is your strategy for achieving them?
There are many different property investing strategies you can follow, which include:
• Purchasing at a discount

This strategy involves purchasing investment properties below valuation. The valuation is the amount the bank and lenders see as the property's value. If purchased below valuation you immediately create equity - the difference between the current market value of the property and the amount owing on the mortgage.

• Positive cash flow.

Positive cash flow investing is contrasted with negative gearing, this is when the income returns do not offset holding costs, and the investor uses the tax treatment of loses to their advantage.

Proponents of the positive cash flow strategy point to the advantages of owning income-generating assets. Some benefits of the cash flow strategy include:

• Having access to a monthly income stream.
• Cash flow properties can balance your portfolio as the extra cash can be used to pay the shortfall that may be associated with holding properties with high capital growth potential.

• Positive cash flow properties can increase your serviceability and can make you more attractive to lenders.

You can download a free pack of suburb reports, from the team at Real Estate Investar, which can help you target high growth and cash flow areas in New Zealand.

• Sub-division.

Sub-division is dividing an existing area of land into more segments with individual titles, allowing separate properties to be built on the new segments. This works on the principle the split pieces of land are worth more than the single lot.

• Off-the-plan.

Purchasing property off-the-plan means entering a contract to buy the property before or during its construction. However, you won't be able to inspect the finished property until construction is complete.

Property investors can put down a deposit and speculate that the market will rise before they actually need to settle on the property - meaning there is potential to obtain capital growth over the settlement period.

• Renovation.

The renovation strategy is adding value by improving a property's condition or adding new features. The key is targeting properties with potential that you make improvements and add value to, for the type of buyer or tenant looking to reside in that area.

Look for poorly presented investment property below the suburb median price that you can add value to.

5. Property investing research

With thousands of properties on the market in New Zealand, finding the right one that matches your strategy and buying rules can be a massive impediment for many potential investors.

Make sure you have conducted thorough research of the property and its location which includes:

• How long the property has been on the market for.
• Its on-the-market history; any changes in advertised price since it was placed on the market.
• Its sales history i.e. how much the previous owners bought it for.
• The median sale price and historical capital growth rates of the location.
• How much comparable properties are selling and renting for.
• An estimated market value of the property.

6. Stay focused and avoid common mistakes

Treat your property as a business and bear in mind it's a long term journey. Keep on top of the goals you want to achieve and the milestones you need along the way.
Don't assume you can do it all by yourself. Form a property investing team of people around you that can help.

• Don't lose sight of the big picture. Regularly review your goals and when you have started investing, check on your portfolio's fundamentals regularly. E.g. your equity, available depreciation, cash flow, rents, interest rates etc. to make sure you optimise your portfolio to its maximum potential.

• Don't neglect your property. You may have what it takes to manage your own investment property, but consider using a professional property manager.

• Create a realistic budget that factors in the running costs, repayments, rates, insurance etc of owning investment property and ensure you can meet them.

• Factor in a scenario of what would happen if the property is vacant for 2 - 3 months and ensure you have a contingency plan that can meet this cost.

• Falling in love with property, not the numbers. Always crunch the numbers before you invest, and treat your property investment as a business, don't get sentimental about an investment property.

7. Build a team around you

As a general rule for getting started in property investment, you should choose a property investing team of experts whose help you can call upon.

This team will include: accountant, lawyer/conveyancer, bank/mortgage broker, independent valuer, contractors (trades) and property manager.

Property investment is a complex subject, but we hope this article will help you get to grips with some of the fundamentals and can go some way to help you decide whether it is a wealth creation strategy that is right for you.

Ready to take the next step?

You can take a free 21-day trial of Real Estate Investar, which gives you immediate access to powerful real estate software to help you start your property investing journey with confidence.

You can take a free 21-day trial of Real Estate Investar, just click here.