property investment

Reserve Bank to ease LVR restrictions

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You may well have heard that the Reserve Bank announced some changes to their LVR (Loan-to-Value Ratio). 

They have announced that as of the 1st January, the amount of funds banks can lend with less than 20% deposit is increasing from 10% to 15%. Banks are also able to lend to investors with a 35% deposit compared to the current 40%. 
So what does this mean? 
If you are a first home buyer, it's going to be slightly easier for you to purchase if you haven't got a 20% deposit. (Note, however that the banks will still decide how generous to be with these applications). 

For investors, we predict that the banks will loosen up their policies in line with the reserve banks rules of needing a 35% deposit compared to 40%. This will make some difference particularly to new investors. We don't think these changes are going to be dramatic, but it will have a small effect. 

If you think this will impact you, free to get in touch with your friendly Velocity Financial broker. We are always happy to help.

Until next time.. 

The team at Velocity Financial

 

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

Property market watch: The election, winter and a downturn

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With the election and spring fast approaching, change is in the air … or is it? Graham shares what this all means for the property market.

On 23 September 2017, we’ll discover who we can blame for the next three years. It's also the end of winter, the start of daylight savings, and it’s been eight years since 23 September 2009. 

 

So, what do we make of all those things? Well, they all have some part to play in what’s going on with the housing market at the moment, and what’s going to happen in the near future.  

 

Apparently, during every election cycle, Wellingtonians put their plans to buy and sell on hold. It makes sense when you think that the largest Wellington employer, the Government, is in a period of sustained breath-holding while public servants wait to find out who their new boss is. The traditional thought that National makes for a smaller public service and Labour for a larger team obviously impacts public servant’s enthusiasm to change houses and so on.

 

That’s the election, but let’s combine that with winter and the slowdown that comes with sellers wanting to list in spring when there is more sun. And how about we garnish this discussion by adding in a property cycle that traditionally lasts eight years (and yes, it’s exactly eight years since 2009)—and we find ourselves in a perfect storm.   

 

But is any of this true? 

 

Well, on one hand, listings are low but, on the other hand, there are buyers. Well-presented properties continue to sell with good prices, but, at the same time, many buyers remain frustrated. So, much of it becomes a self-fulfilling cycle/prophecy. 

 

It’s certainly a great time to buy; the banks are a little hard work at the moment but most borrowers are being put off by the negative media spin as opposed to banks saying no. If you know someone who is waiting for the great property price slump tell them to wake up. It isn't about to happen. 

 

The lead up to 23 September is certainly going to be a great watch. 

 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

 

Is Property Investment the Answer for Retirement?

There are many options when saving for retirement. So, what happens if we go down the property investment route? What are the risks? And does it guarantee an income for retirement? Debra Halton explores with her top five tips

1) What goes up must go up … or can it also go down?

Property investors seeking capital gains can get tripped up by their belief that prices only ever go up. Historically, property prices typically experience net gains over time, but they also move through cycles. For example, for a long period, the Wellington market has sat in a kind of stagnate position. Wellington homeowners will see that the majority of growth in their homes over the past decade has taken place in the most-recent 12 months. 


2) Make the most of leveraging

The beauty of investing in property is the ability to leverage borrowed funds in order to boost returns. For example, suppose I buy a $500k house with a $100k deposit. If the value of that house were to go up by five per cent in a year, my equity in the house becomes $125k at year-end.

 

Over time, this ability to increase equity as a result of borrowed funds builds up, meaning you can then take equity out and choose to re-invest in another property.

 

3) Play the long game

Property investment is not about short-term gain. For reliable results, you need to be in it for the long haul. Historically, over a 10-year period, property prices may double, but there is always the risk of the market realigning and values dropping. We are seeing this right now in Auckland where prices seem to be dropping slightly, with stories of people selling under their listed sale prices. 
 

4) Recruit your dream team

Property investors can avoid mistakes by getting good advice. This means teaming up with an accountant who has experience in property investment, a lawyer who sets up the right ownership structure (i.e. you may need a trust, a look-through company or a partnership—trusts are great for assets protection but can be bad for tax efficiency), and a mortgage broker. 


On the last point, getting money from a bank can be relatively straightforward, but finding the best lender for your needs and structuring the mortgage in a way that pays down the debt as fast as possible and suits your situation is where mortgage brokers really come in to their own. Plus, the mortgage broker will help you review things regularly in response to changes in the market and your own circumstances.
 

5) Let the managers manage

Increasingly, few landlords are able to manage their own properties. Aside from the demands of modern life, the ever-changing regulative rules surrounding rentals can be daunting to get your head around and keep on top of.

 

We suggest employing a property manager. They charge approximately eight per cent of the rent. It's a small price to pay for peace of mind. And, for some landlords, not having the stress of dealing with tenants is worth the drop in rent returns. Besides, how often do we, figuratively speaking, “do a drive by” or “unblock the drains” of our KiwiSaver accounts? We leave that for the financial investors to manage. So, why do we try to “do it all” with property?
 

In summary …

To improve your chances of living off property in your retirement, get advice, surround yourself with experts, play the long game, leverage, and be aware of short-term cycles.

 

Will you have enough money to live off? Well, no one has a crystal ball and most agree that doing something towards retirement is better than nothing. 

 

Debra Halton is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

Are you a Landlord or an Investor?

Property investment. It can start as passive income—your money working for you—then suddenly become weekends spent painting, unblocking drains and chasing unpaid rent. Graham shares his tips on balancing the roles of property investor and landlord.

 

Many people are excited at the prospect of being a property investor and not so much at the prospect of also being a landlord. You’d expect this to be the case, but I think over time more and more investors will become even less enthusiastic about the landlord experience. Here’s why …

 

Like most industries, there are an increasing number of standards and regulations that landlords must comply with. The expectation is that landlords will supply habitable properties for tenants (who would have thought!). These properties need to be insulated, up to a certain standard, be safe and, soon, will need a warrant of fitness. The latter is not yet law but it seems that in time it will be (I think it is a good idea). 

 

There is also an increasing obligation on landlords to supply heating (again a good idea) and also proof that the house is ‘meth free’.

 

The change in health and safety laws also means that the directors of companies have an obligation for the safety of those in and around their company. If you own rental property in a company then you fall under this obligation. Again, the intent of this law is good, if not the bureaucracy attached to it.

 

What’s the key take-home from this? Well, if you’d prefer to focus on the investing, not so much the landlording, a good property manager could save a lot of stress.

 

It may be time for the professionals to do what they are good at!

 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

 

Letters to Tully#6: Going the Full 80 Minutes

Listen in as Graham “educates” his eldest child on the ins and outs of buying investment property. Lesson #6: Playing the Long Game.

 

Dear Tully,

 

No complaints this month, other than someone has been drinking my vodka!

 

Okay, back to property investing, remember how rugby became more enjoyable once you committed to being in the game and looking for things to do during the full 80 minutes rather than just being a spectator? Investing is the same. 

 

Studies on successful sports people have shown that they all acknowledged the journey was not always easy. They each had their ups and downs and bumps along the way. Property is the same.

 

Being in the game means you will at times feel like you have been in the game. What do I mean by this? Well, sometimes you are going to have to write out some cheques (as you should). This month I’ve put in a new stove top, new door handles and new lawn mower (whole other story) all into the same property. The bank account has suffered this month. I don’t like that, but it does happen. Even though I budget for it, I still don’t like it.

 

But just like a successful sports person who expects those bumps along the way, it’s really important to remind yourself that these bumps are what the game is all about. If you can stay strong in the short term you’ll be in it for the long game and this is where the gains are made.

 

Many of my clients forget that the game has some ups and downs. They then sell quickly and miss out on the benefits of being around for a long time. The house with the new stove is worth more today than what I paid for it. The growth hasn’t always been constant (nothing for the last six years) but now it has started to move and I’m benefiting from being in the game and all it brings.

 

Actually, to be fair, son, you are benefiting as well. Which is the point for me!

 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.