Is Your Home Hiding a Secret Deposit? 5 Signs You’re Ready to Invest.

Investing in New Zealand is less about only starting when you’re in the perfect financial position and more about working with what you’ve got. With that being said, there are a few indicators that can show whether you are in a position to be able to get started.

Indicator 1: Useable equity (The Secret Deposit)

As mentioned before, often investors that I work with have equity sitting in their home that works as a perfect substitute for a traditional cash deposit. This allows you to get your first investment property without having to save for months/years to get that 10-20% (for a new build). This indicator only applies to those that have purchased a property before, so if you’re looking to purchase your first home, you can skip this step.

Calculating your useable equity is easy once you’ve done it a few times, but luckily, we have prepared some tools to help do that exact thing.

First, we get our current house’s capital value; we can use websites like https://www.qv.co.nz to do this. Simply enter your house address and get our current estimated capital value.

We then take this value and put it into our equity calculator.

And this will tell you your usable equity. Easy as that! So, if you have some usable equity sitting in there, you might be ready to use that for your new investment property!

Any questions on this step in the process? Feel free to reach out, and one of our team can guide you through the process.

Indicator 2: Income Stability & Serviceability

Serviceability is the tool that the bank uses to see if you can afford the repayments each week. This is the second part of the equation when looking at how much you can borrow. If equity is how much money the bank will let you access, serviceability is how much of that accessible money you can afford to take on. You might be able to afford a mortgage of $1,000,000 but only have accessibility to $800,000 due to equity.

When the bank is looking at your serviceability, they are looking at two things in particular. Firstly, they are looking at your weekly income and how much extra cash you have at the end of the week. Investment property in New Zealand almost always requires some form of top-up to the property, so the bank wants to make sure that this is a cost that you’re going to be able to cover.

The other thing that they’re checking is the likelihood of you continuing to pay the loan over the long term. For this they look at your credit history, which is essentially how good you’ve been at paying things you have needed to in the past, and the length of time you’ve been in your job. Someone who has been in an industry for 10 years is more likely to hold their job than someone who is 2 weeks in.

The key thing to remember now that you’re looking into investment property is that the bank will consider the rental income as part of your income when looking at your serviceability. This means that if your new mortgage is going to be $450 p/w, the bank isn’t expecting you to have this $450 extra every week, because this will get covered off by the rental income of the property.

Indicator 3: Low Consumer Debt

Consumer debt is money individuals borrow for personal, family, or household purchases, like credit cards, student loans, auto loans, overdrafts, etc.

Consumer debt modifies the other indicators, so it's important we talk about this only after covering off the last two.

Consumer debt affects your equity because your debt reduces the equity you’re allowed to use. If Person A has $150k in useable equity, and Person B has $175k but a $50k car loan, despite having more equity, Person B may very well be in a worse buying position, regardless of the term or minimum monthly payments on the car.

As well as the effect on equity, debt usually requires minimum monthly payments, meaning it also affects your income and serviceability.

If you have some consumer debt and you are going to meet with a mortgage advisor, don’t be surprised if the first recommendation is to get this paid off! It makes a big difference.

This calculator is for information purposes only (not advice) and provides results based on the limited details you enter. It does not take into account all relevant information (for example, other assets or debts you may have), and there may be additional costs associated with buying a property that are not included. Interest rates may change. The model assumes no penalties apply at any time and that loans are repayable on a [principal + interest] basis for the term of the loan. An actual loan application may require more detailed information and may produce a different result.

Indicator 4: Short-Term vs. Long-Term Mindset

Property is a marathon, not a sprint. Investment property is a focus on things like family legacy, passive income, and retirement, not earning enough for next year's trip to the Bahamas. The reality of property investing is that at some point in your time holding a property, in some way the property value will drop, and that’s totally fine.

There’s a huge difference between a theoretical loss and a realized loss, and the best property investors are those who can keep cool and calm when this happens. We invest in property not because it never goes down but because, on average, it has historically gone up over the long term.

Property is not a get-rich-quick scheme, but that’s ok because good things come to those who wait.

Indicator 5: The Right Team Around You

You don’t need to be an expert if you have access to the right team. It's key to have the right team around you when looking at property investment. Things like the right builder, accountant, solicitor, and more. If you’re willing to listen to the professionals, then you’re ready to start!

So all in all…

If you tick these boxes, the only thing you’re missing is a plan! We would love if you booked a no-obligation consultation with an Investr consultant to look at where to start!

Disclaimer:
Investr by Mike Greer is a real estate investment service. Investr Limited is not a licensed financial advice provider and does not provide regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. We do not provide a holistic investment planning service or financial advice based on your financial situation or investment goals. We help you buy property that suits your needs. We do not guarantee any returns. All investments carry a risk of loss.