So, you’re looking for something sensible to do with that hard-earned cash that’s slowly gathering dust in the bank. Or maybe you’ve been steadily chipping away at that mortgage on your own home and are ready to put your equity to good use.
Whatever your situation, property investment is often the first thing that comes to mind when thinking about setting yourself up for the long game.
It can be a safe bet for future cash flow and capital growth opportunities, with less risk than other investments.
In saying that, of course it’s not without risk - there are lots of variables and unknowns in the property investment market.
Although, if you’re buying for long-term investment, you can take comfort in looking at the history of rental properties in New Zealand, which shows pretty good, consistent growth.
BUT, is the time right?
(Especially given the unique situation we’re current facing).
Our current climate
Covid-19 (and its economic impacts) brings with it many unknowns. While some economic impacts have already been felt, it’ll take more time before we see its full effect on the property market.
On top of this, the government has recently made changes to the Residential Tenancies Act, which aims to strike a more appropriate balance between protecting a landlord’s interest in their property and ensuring tenants receive fair rights.
Plus, there are record low interest rates and record high median house prices to consider.
Let’s just say, there is quite a bit to think about before taking the leap into property investing.
Even the most knowledgeable of experts won’t have an ironclad answer as to whether the time is right. But what you can do is weigh up the pros and cons of the current situation and make an informed decision about what’s right for you at this moment.
What do Residential Tenancy Act changes mean for property investors?
You can read about the changes in detail here. But essentially, they give tenants more rights than they previously had.
Most of the changes revolve around how a landlord can evict a tenant – it’ll be harder to evict without specific reasons. Of course, that doesn’t mean that as a landlord you won’t be able to evict tenants if they’re causing problems for you, such as displaying anti-social behaviour or consistently running late on rent.
Other changes include things like only being able to increase rents once every 12 months, banning rental bidding (where landlords invite prospective tenants to pay more to secure a competitive spot) and making it easier for tenants to have fibre broadband installed (still no cost to the landlord).
Bad for landlords or just fairer for everyone?
Yes, the changes may mean a little more risk, administration (and possibly costs) to landlords than before.
There’s some commentary out there from landlords who’re against these changes. They believe it’ll drive up rents as they either pass costs on to tenants or pull their properties off the rental market. Whether this happens or not, we’ll have to wait and see.
But it’s important to remember, the purpose of the changes is to balance the rights for both landlords and tenants. And it doesn’t take away from the fact that property investment is still a solid option for future financial security.
Aside from increased protections for tenants, there are some for landlords too – for example, tenants will have to give a longer notice period to end a tenancy and face stricter rules on late rental payments.
What about these low interest rates?
You might find it hard to believe that interest rates were once up around the 20% mark, some 30 years ago.
The fact that interest rates are the lowest they’ve ever been (in the 2% range) is good news for a potential property investor.
Of course, we don’t know how long this will last, but there’s no immediate signs they’re set to increase.
Still, before you rush out and invest, you do need to consider whether you could continue to manage if interest rates jumped.
Possible drop in house prices
Many economists are forecasting a drop in house prices. Initially, it was projected to be around 12% (in the 12 months to March). Although now, they’re picking around 3%.
Removal of loan to value ratio restrictions
The removal of loan to value ratio restrictions (LVRs), until at least May 2021, means that most banks will let you borrow up to 80% on an investment property. So, if you’ve got secure finances, but haven’t been able to reach the previous threshold, you should have better chances now.
Supply is steady
New property listings on realestate.co.nz are tracking well above this time last year, showing the property market has bounced back since Level 4 lockdown.
In saying that, there’s no signs yet for a rise for spring/summer, which usually happens.
Still, this means that overall, there’s plenty of choice which is a good thing when looking for an investment property.
Before you dive in
Becoming a property investor takes commitment and work. It’s not just about saving up then taking the plunge.
Aside from doing your homework on whether you’re in the right position to become an investor, you need to be prepared. Know your risks and understand what’s involved.
You might find a previous blog I wrote helpful in getting yourself ready – 3 ESSENTIALS to purchasing rental properties in 2020.
So, taking all of this into account, what have we learned?
As always, it comes back to your situation, but I believe that so long as you’re reasonably confident in your income, becoming a property investor is still a solid option for setting yourself up for a successful and financially secure future.
To discuss whether becoming a property investor is right for you, get in touch.
The Finance Marshall
0508 543 627