property investment wellington

Am I Ready to Buy for the First Time? Or Again?

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There is one constant in the ever-changing world of banking: the confusion as to what people can and can’t afford. Lance explores the murky waters of why some banks say yes and some say no.

 

Yeah? Nah.

 

I often find myself sitting with people who believed they were in no position to purchase but could and, conversely, people who believed they could but, at that time, could not. Beyond this, they may have been sabotaging their plans by putting together a strategy that was actually taking them even further away from their house-buying goal.

 

To help clear up some of the confusion, there are really only three things a bank is interested in:

1. Deposit (or equity)

2. Income

3. Debt

 

A scenario I have come across often is when people have strong income, some debt, but a low deposit. They believe their biggest hurdle is the debt, so set about reducing this. The truth is, while they have some debt, their earnings are at a level that the debt is easily managed, even with a mortgage. They need to increase their deposit, but unfortunately all their extra cash is being channelled inefficiently towards debt repayment and, so, unnecessarily delaying their timeframe for purchase.

 

To all those colour-coded Excel spread sheet lovers …

 

There can be times when people have been up all hours looking at properties or going to open homes for months when, unfortunately, they had no ability to purchase at their target price point. This can be frustrating as numbers can be based on correct “true-to-life” calculations. However, banks have their own rules of basic math.

 

When a bank calculates what we can afford to borrow, they use a far higher interest rate (to mitigate fluctuations), and they have a minimum average spend for cost of living for each scenario presented e.g. two adults, one child vs. one adult, no children etc. Furthermore, because each bank perceives risks in different ways, they each calculate a household’s scenario differently. They’ll give greater or less importance to things like the number of vehicles you own and whether child support is organised formally through the IRD, as well as a few other quirks.

 

“If I could turn back time.” — Cher

Time is our gift to you. Tell us your scenario, what you are hoping to do, and when you are hoping to do it. Let us sit down and come up with a clear strategy based on what you are truly able to do.

 

If it is not today, let us help you journey towards that “yes” sooner rather than later. Let’s unpack your plans beyond this next purchase and consider the ramifications of each step. Let’s reduce the uncertainty.

 

Lance Shearman 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.

Hope for First-Home Buyers?

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By Stevie Waring

As the newest member of Velocity Financial (I started with the company in April), I

quickly realised that I was the only person in the office who isn’t a homeowner. I

soon became determined to change that.

My partner and I had talked about home ownership a lot over the past year but

viewed it as something that could only occur in the future—maybe one or two

years away at the earliest.

We watched as the news reported rapid increases in house prices in New

Zealand and Wellington. We were faced with an epidemic. Who were we but

mere mortals? We couldn’t fight an epidemic. So we made peace with the ever

lengthening time between now and home ownership.

Coincidently, I had organised to come along to Lance’s Home Buyers Club that he

runs fortnightly at the office to see what it involved and, just mere days before

this, my partner and I found out that we were getting kicked out of our rental

property and we needed to move again this year.

At the Home Buyers Club it quickly became clear that things weren’t as grim as

we had once thought. There were still houses on the market, in our price range,

and the overdraft we ran into during our first years of university wouldn’t put us

on the bank’s black list after all. What a revelation!

What was to follow in the next four months was like your first relationship: an

emotional rollercoaster filled with checking your emails and TradeMe

obsessively—hoping that cute little three bedroom with insulation likes you as

much as you like it.

I hope our story can bring hope to those with seemingly far off home ownership

dreams. As time continues to go by and your friends and family are telling you

that the next one will be the one, it can be really easy to put pressure on yourself.

However, here are three tips that helped us stay sane and optimistic along the

way:

1. Take a Break

You will not miss out on a once-in-a-lifetime opportunity because you spent one

restful Sunday eating brunch and lying in the sun, I promise.

2. Don’t Shop for a Bargain

They don’t really exist. And hunting for these unicorns just takes up your energy

and time.

3. Make it a Team Sport

Build an amazing team of professionals around you who will reduce your stress

and encourage you to persevere during this process.

How do tiny houses stack up?

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By Stevie Waring

 

Is the tiny house the answer for the struggling first-home buyer? Definitely “yes” for some; definitely “no” for others.

 

In recent years, it has become more and more difficult to be a first-home buyer in New Zealand and renting has become more expensive in many parts of the country.

 

Naturally, many people have come up with alternative solutions. Some students have chosen the “go big” alternative where you live with 10 or more people in the hope of splitting costs. Or you may want a waterfront property without the price tag? Enter the houseboat life. Or you may be a young person, family or couple that wants a home but have no idea how to fund it.

 

This is exactly where the tiny home revolution has taken off. The idea being that you can live a minimalist lifestyle in a carefully designed bespoke small space that is both efficient in space and cost.

 

Apart from the creativity and innovation of it, the biggest bonus of a tiny house is the price. You essentially pay for a standard base plan, and then you pay per room after that. It is totally customisable. It allows you to be creative and unique with your space while giving you the financial freedom to spend your money on higher quality items that may have been unavailable to you with a regular home, such as full insulation, solar panels or beautiful hardwood floors, for example.

 

So how do you pay for it?

 

In Wellington, the average house price is $639,112 (as of June 2018, QV.co.nz) but basic tiny houses are less than $100,000. That’s a no-brainer, right?

 

The short answer is that you can do it, but a bank won’t necessarily give you a mortgage for it.

 

If you see a tiny home in your future, here are a few things to consider:

·         Where will you put it?

o   If you’re planning to buy land, you may be able to use your KiwiSaver.

o   If you have friends or family with some land, it’s probably easiest to put it there.

·         Do you or family have an existing mortgage?

o   If you or your family have existing equity in your property, you may be able to refinance it to access that cash to put towards your new tiny home.

 

Long story short: If you are looking to lead a simpler, more efficient lifestyle that is cheaper in the long-term, then this may well be the solution for you.

 

If you are looking for an alternative to buying a first home because you may not have the funds for a deposit yet, this may not be the solution for you.

 

As with everyone situation, there is often more than one answer, so give us a ring and we can talk through your options—big or small.

Should I Refinance my Home Loan?

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By Kylie Cassidy and Brendon Ojala

 

With the banks competing for new customers and offering cash incentives, the temptation to switch banks can be rife. Brendon and Kylie ask if the switch is really worth it.

 

The first thing to note if you’re considering refinancing is that you should consider much more than just interest rates. The actual costs can vary depending on whether you have existing loans that are still fixed. There are also the non-monetary factors like finding a bank that better suits your needs or has a superior service level. These are all things to consider.

 

Turning to your mortgage broker for advice should be your first step as they can help you work out the pros and cons, in the meantime, here are four factors to get you thinking:

 

1. Does the bank suit my needs?

 

Consider the bank’s products and whether they will suit your current needs. Do you want to be able to make lump sum payments without penalty? Do you want a large revolving credit account? Or perhaps an offset product where you can use the funds across savings accounts to offset the interest on your mortgage?

 

2. Don’t get hung up on lower interest rates

 

Lower interest rates aren’t the be-all-and-end all, and often some smart budgeting coupled with the right mortgage structure can give you more than then a 0.2 per cent decrease in interest rates. We will of course, work hard to get a competitive rate from the bank, but it’s in this finer detail where your mortgage broker can add real value.

 

3. Making the switch can be messy

 

If you’re offered a cash incentive to move banks, chances are you’ll need to move your banking across to them. This means changing your APs, direct debits, salary and so on. Some banks do offer a “switching service” to make the process easier, but you may need to keep your existing account open with some cash in it, to cover any repayments or direct debits you may have forgotten about.

 

4. Costs of switching

 

Below are some costs to consider:

 

·         Potential break costs at your current bank (anywhere from zero to tens of thousands!)

·         Lawyers fees (approx. $1000-$1500)

·         Cash contribution claw backs (if your current bank offered you a cash contribution, if you move banks within a certain time frame—between two and four years—they reserve the right to ask for this cash back.

·         Discharge fees ($100-$150)

 

The new bank may offer you some cash to offset the above costs, however, it’s important to consider all of the above. The “best bank” offering the lowest rates changes all the time, so it’s important to consider your needs long term. 

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Kylie Cassidy and Brendon Ojala are Registered Financial Advisers 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.

 

Letters to Tully #7: Why Invest in Property?

 Listen in as Graham “educates” his eldest child on the ins and outs of buying investment property. Lesson #7: Why Invest in Property?

Hey, there.

Happy New Year and strange that as yet I haven’t received your Christmas Present!  You could buy me the after shave I like, you know the one as you seem to like it as well!

 Its 2016 and obviously a time for reminding yourself as to what the year is going to look like and what you are going to achieve. Investing is the same as much as its important to remind yourself why you are doing it and what you are trying to achieve.  There are many reasons why people invest and your goals need to be your goals, real and alive to you not some body else. Obviously being your Father I have very strong opinions around what I think you could do but history has shown us that you are only going to do what you want to do anyway (remember your year 12 exam results!)  

We invest to make our money do as much as possible for us in an investment option that we are comfortable with. We also tend to invest for future benefits, people my age (50) tend to invest so they have money for their retirement whereas people you age tend not to invest at all.  You starting early is a brilliant idea and sticking to it will give you a future lifestyle that at the moment is a little difficult for you to imagine. It will, all things going to plan, give you options around travel, work and study. The list is endless around what you are trying to achieve.

Whypeople invest in property is a long list as well:

 

  1. You can improve and add value to some properties
  2. You can subdivide
  3. You can leverage off the increases values
  4. Banks love to lend against houses
  5. Property investment can give funds for other business efforts
  6. Property is saleable
  7. You can control how its managed
  8. You can drive past it and feel good (or bad) about it.
  9. Other people pay for your borrowing
  10. Tax breaks help …..

I’ll talk about theses in more detail as we go on but my point today is just to remind yourself why you’re doing this and what the goal looks like.

 Your Loving Father.