For many New Zealanders, a ‘nest egg’ usually comes in the form of a rental property or holiday home. And there’s no question it can be a practical investment to provide long term financial security.

From regular rental payments, to capital gains, buying a second home offers a number of ways in which to achieve extra income. And because you don’t have to have any specific experience to enter the investment market, it’s accessible to almost everyone.

But it’s important to take the time to ‘dot your i’s’ and ‘cross your t’s’ before embarking on your goal of purchasing an investment property or holiday home. In other words, do your due diligence.

So whether you’re thinking about buying a second home for renting, or want to know where you should buy an investment property in New Zealand, here’s where to get started.

Understand your investment goals

It is important you don’t get into property investment ‘just because’. So before you get too far ahead of yourself, get clear on why you want to buy an investment property - along with the goals you want to realise in both the short and long term.

Rental income will start coming in as soon as the property has a tenant, and most investors use this to cover mortgage repayments and ongoing maintenance. Any surplus could be kept in a savings account to earn interest or to reinvest in the future - depending on what you want to do with the earnings.

With a holiday home, it may be more about periodically allowing short stays to cover rates and any maintenance or upkeep.

With any property, there’s also the potential for capital gains to be realised long term - this is where the property increases in value over time.

Put a plan in place for what you want to achieve from buying a second home, as it will provide you with a purpose for taking this step.

Know your comfort level when it comes to risk

Someone with a family to support is probably more risk averse than a single individual with no dependents. While this is a simple way of looking at it, everyone needs to know what their risk profile is before getting into investment.

Understanding your risk profile is a good indicator of the type of investment that will work for you and your financial goals. This is gauging your willingness and ability to take risks. And while there’s no right or wrong answer, being honest about your appetite for risk will offer a certain amount of insight into what kind of investment into property you should make.

Sort your finances with an expert

Once you’ve locked in your ‘why’, now is the time to schedule a call with your local mortgage broker or advisor - and preferably someone who is knowledgeable in the area of property investment.

This is where you will ask questions such as ‘can I use house equity as a deposit?’ and ‘how much can I borrow for an investment property?’. Before you can even begin looking for property, you need to know what you can afford.

Alongside the deposit required and what weekly rent you’ll need to cover the mortgage, you also need to consider all of the costs associated with an investment. And be sure you can manage these expenses when they arise.

Location, location, location

As cliche as it sounds, location is absolutely essential if you’re going to find the right rental home.

From understanding high rental areas, to where you should start your residential property search for an investment, it’s a good idea to create a portfolio of the type of properties you’re going to pay particular attention to. Family homes? Apartments? Units on the city fringe?

By knowing exactly what you’re looking for, you can stay focused on seeking those particular ones out, and it will save you time from trying to keep up with every listing that comes to market.

Of course, if you’re wanting to buy a property that is mainly used as a holiday home for you and your friends and family, then ‘where it is’ will be more about where you like to spend your time while on vacation.

But to achieve a good rental yield (the yearly revenue your rental property generates), it will be desirable to secure a property that is in the right location and within budget. So don’t rush - it is vital that you understand as much as you can about the market you are buying into, as well as having a good grasp on the rental environment of each suburb you put on your short list. Here’s a few key points to consider:

• The suburb or town is gaining popularity or,
• It’s next to a suburb that has seen exponential growth.
• Rental supply is limited (so you can minimise vacancy periods).
• Who your target market is - professional couples and/or families - and what they are looking for in rental accommodation.
• What transport links and/or amenities are close by. And are there future developments in the planning stages?
• Analysing property trends for the region and specific location.

Let the experts do what they do best

The good news is that even if you don’t have any experience in property investment, there’s plenty of people who do, and they are there to help.

Choose an accountant who specialises in property, a lawyer who knows the ins and outs of property law, a banking consultant who can help with providing the best finance options, and a property manager who looks after the day-to-day responsibilities of a rental property.

The best chance of success comes from keeping an open mind on your investment journey and partnering with experts. And if you’re looking for the right property to purchase, then we recommend speaking to an experienced salesperson from PGG Wrightson Real Estate.

No matter where you’re looking across New Zealand, our team of local, professional agents are working hard to get the best results for their clients. And because our salespeople live in their communities too, it enables them to provide buyers (and sellers) with knowledge and advice they simply won’t find anywhere else.

Check out our latest listings or contact us now - we’re waiting for your call.

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