Mastering Property Investment – GOOD PROPERTY HUB

Key concepts & Strategies

Harnessing the Power of Leverage with property investment

What makes property an exceptional investment isn’t solely about the property itself. The true power lies in the ability to use leverage to borrow funds, allowing you to purchase the property and enjoy gains on its entire value.

Here’s an example: If you invested $100,000 in a managed fund with an average annual return of 5%, you would earn $5,000 (before fees and taxes).

However, if you used that $100,000 as a 20% deposit and borrowed $400,000 to buy a $500,000 property, you’d earn returns on the full $500,000. With the same 5% return rate, this would amount to $25,000. This is what makes property investment so powerful.

The Property Cycle

Four Key Stages:

Peak:
- Highest house prices due to high demand.
Downturn:
- Demand drops, prices fall, and market confidence decreases.
Trough:
- Prices stabilize; neither dropping nor rising significantly.
Upturn:
- Confidence returns, demand increases, and prices rise again.

Market Influences:

Property cycles are affected by interest rates, government policies, consumer confidence, and immigration.

During the Downturn:

Falling real estate and share prices
Tighter bank lending and rising interest rates
Lower sales volume and construction
Oversupply of property

During Recovery:

Rising real estate and commodity prices
Lower interest rates and more relaxed bank lending
Increasing sales volume and construction
Higher auction clearance rates

Impact on Purchasing:

Peak:

Houses are expensive due to high demand.
Requires higher deposits but benefits from lower interest rates.
Lower short-term yields as rent lags behind prices.

Trough:

Houses are cheapest but interest rates are higher, making it costlier to hold.
Harder to obtain lending with stricter criteria.
Beneficial for those who can hold through the tough times as the market recovers.

What factors contribute to the growth of investment properties?

Regional Factors:

Local Economic Development: Strategies and plans tailored to boost the local economy.
Population Growth: A steady increase in the number of residents.
Job Creation: New employment opportunities attracting people to the region.
Infrastructure and Planning: Local government projects to support population growth and enhance livability.
Council Investments: Financial commitments by local councils to improve the area.
Rental Demand: Limited availability of rental properties, ensuring high demand as new units become available.

Microeconomic and Political Factors:

Mortgage Interest Rates: The cost of borrowing money to purchase property.
Market Timing: The current phase of the property market cycle.
Immigration Policies: Regulations affecting the inflow of new residents.
Business Sentiment: The overall confidence level among local businesses.

Property-Specific Factors:

Property Type: Classification such as standalone homes, townhouses, or apartments.
Rental Yield: The rental income relative to the property’s value.

Buying for growth or yield

When purchasing an investment property, you typically have two primary objectives: long-term capital appreciation or passive income through rental yield.

Investing for capital growth:
Opting for capital growth means anticipating increased property value over time. While this strategy may involve higher holding costs due to lower rental yields, it offers potential for substantial returns upon property sale.

Auckland exemplifies an area conducive to capital growth investment.

Investing for rental yield:
Choosing rental yield focuses on generating ongoing passive income. Properties with high rental yields relative to their purchase price are often cash-flow positive from the outset or become so in a relatively short period.

However, these properties may see limited appreciation in value over time.

Gisborne serves as an example of a region suitable for yield-oriented investment.

When acquiring a single investment property, it’s crucial to clarify your primary objective. For those expanding their portfolio, a diversified approach encompassing both strategies may prove beneficial, addressing both immediate income needs and long-term financial goals.

Good Property Hub

At Good Property Hub, our ethos revolves around honesty, integrity, and delivering fair value to our clients. We understand that investing in property is a significant decision, which is why we prioritize these values above all else.

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