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Six ways to get into property investment - 12th Jan 2018

Six ways to get into property investment

New Zealand's property market looks to have turned, but would-be property investors are being told that does not mean they've missed their chance.

Financial trainer Hannah McQueen said investors could make money in all parts of the property price cycle.

"It doesn't have to just be going up," she said. "When things come off, you can buy at a discount and make your money upfront, not over time. You pocket it straight away."

There are a number of ways you can get started.

Buying for capital gain

This is where you buy a property, expecting the price to rise.

Bayleys Real Estate managing director Mike Bayley said this strategy was most successful during the "up" phase of a property cycle. "Most recently 2012-2016, where, in Auckland at least, values have risen year after year by approximately 10 per cent annually."

It can also pay off when investors buy a property in an area that is becoming more popular - either due to population growth or the development of new infrastructure in the area.

But Auckland Property Investors Association president Andrew Bruce said buying for capital gain was one of the more expensive ways to start.

Buying for yield

Yield-seeking investors are looking for the income they can make from rent.

At the moment, it's hard to get a high rate of yield in the bigger centres. Across Auckland, yields of between 3 per cent and 4 per cent are normal, and from that you have to cover all your expenses.

Cheaper areas usually offer better yield, because rents are higher compared to property sale prices.

Bayley said Massey University analysis showed 22 per cent or 23 per cent of the rental income of a property should be kept to cover its costs.

Auckland Property Investors Association president Andrew Bruce said everyone talked about capital gains but it was investors with strong yields, who focused on what they were earning from their properties, who did well over the long term.

"It's not sexy to say I made $20 passive income a week this month. It's not going to get a stirring conversation going."

Owner/occupier landlording

This is one of the cheaper ways to start making money from property. Bayley said it was usually an option for younger homeowners who had bought a property with multiple bedrooms and rent some of them out, getting help to pay off the mortgage and some of the household bills.

"With a marked rise in the number of international students now studying at New Zealand high schools and tertiary education centres, more and more Kiwi families have taken to hosting foreign students in the homes.

"This arrangement generates gross weekly income of $220 to $250 per student. From this, costs such as feeding the student, along with their portion of power and water usage can be removed to calculate a net income figure."

Read about the other 3 ways here.

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