Starting Out Strategy
There are two key options for wannabe investors looking to buy their first investment property, writes Mark Honeybone.
1 August 2019
During the last couple of weeks, I’ve been speaking to two new investors. One of them is still at school and getting started in property with his father’s help. The other one is around 30 years old and has a partner. They both wanted to talk about ways they could get ahead or start with minimal risk and outlay.
This is one starting strategy I’d like to discuss further. It suits my kids who are in their early 20s. Your options are either buy, renovate and sell; or buy, renovate and hold.
Buy To Live In
The apparent benefit of buying to live in is loan-to-value ratios (LVRs) which are virtually always less than when you buy to rent or renovate. You can get 80% lending from banks, in fact, more than that from most. As this is your first home, you can get assistance from the Government through KiwiSaver and other grants, so you may not need to save up as much as you thought you’d need or get a massive loan from the “Mum and Dad” bank for a deposit. This is a great way to start.
Here you have choices. If you are young and have time on your side, you won’t need to rush to make your fortune in five years. It’s a long term game for you. You can now get a few flatmates to help you pay some of your mortgage or even all of it. Make sure to set up principal and interest payments, so debt is always reducing. If you can, put more money in to reduce debt quicker.
Now you have additional choices. Do you renovate, add rooms, or whatever you need to do to increase value? If you are in a hurry, you can do this to speed things up, but if you don’t have a lot of extra cash, then take time and do what needs doing as you go.
Five years down the track you can make your next decision to either sell, make a profit and do it all over again or use the equity made in this property to buy another property for yourself to live in. Again the new property can be purchased at the lower LVRs, and you repeat the process.
This is one simple but very effective strategy that can help younger people who have time on their side. Just imagine if you started this at 20 and only bought one property every five years, you would just be buying your 7th property at the age of 50 with four or five of them being debt-free homes and two on their way to being the same.
While this benefits younger people, remember that people with children who just left home or people with children who are still at home can also successfully use this strategy as long as they don’t mind moving often.
I often say that the property industry provides you with so many options depending on how you want to get involved.
This is one strategy of many. Of course, you’d still want to take into consideration all the other fundamentals of buying a property that you read in this article and magazine every month, such as buying well, in good locations and others.