Successful Property Investment

The difference between a smart investment and a long-term regret often comes down to one thing: your strategy. With a merely average plan, it's easy to buy an average property at the wrong time, leaving you stressed and topping up the mortgage.

Successful investors are selective. They assess deals with a proven framework and understand the cost of emotion and the price of inaction. We know, because we help them do it every day. Our advice is based on what's working in the market right now, not years ago.

Before you throw your equity at the next 'maybe' deal, let's talk. Be picky. Be strategic. And end with an offer that wins :)

Where Does the Deposit Come From?

Your deposit for an investment property can come from several sources: equity in your home (the most common way investors fund deposits without cash savings), cash savings, gifted funds from family members (lenders require documentation), or equity in other investment properties through cross-securitisation.

Using Equity in Your Home

Equity is the value of your home less your mortgage — the amount you'd receive if you sold and paid off the mortgage. If you have enough equity, lenders may allow you to borrow against it to finance your deposit.

You'll usually need to leave 20% equity in your home, but you may be able to borrow against the rest. We call anything above 20% in your main home 'usable equity', while anything above 30% equity in an investment property is generally usable.

Usable Equity = Total Equity − 20% of Home Value

For example, if your main home is worth $1.2 million with a $700,000 mortgage, that's $500,000 equity in total. You'd need to leave 20% ($240,000) in the home, but you could use the rest — $260,000 in usable equity. That's almost enough for a 30% deposit on a $900,000 home and enough for a 20% deposit on a $1.3 million new build.

To unlock this equity you'll need to speak to a mortgage broker or lender who'll assess your financial position and serviceability, then look at increasing your mortgage to provide cash for your deposit.

Equity is the reason property investment is so accessible for many older New Zealanders. Many Kiwis have owned their home for years or even decades, and through paying off the mortgage or value increases, their equity has grown — some don't even know they have a deposit ready to go.

Buying with a Smaller Deposit

The Reserve Bank sets rules around how much deposit investors must have. A 30% deposit is required for existing homes and 20% for new builds from a developer. However, 5% of every bank's lending can be to borrowers with less than the required deposit.

The trick is finding the banks who have room in their quota and convincing them to lend to you. The mortgage advisors at Blueprint Finance have strong relationships with most lenders and can advise which bank is most likely to offer low-LVR lending at any given time.

Non-Bank Lenders

Non-bank lenders are financial institutions that aren't registered banks — they can't take deposits or offer transaction accounts, but they're legitimate businesses subject to similar legislation. Because they aren't governed by the Reserve Bank's LVR rules, they may be more willing to lend to borrowers with smaller deposits.

If the banks say no, non-bank lenders are worth considering — just keep in mind that you may be charged higher interest rates and fees.

The Bank of Mum and Dad

If you don't have enough equity or cash for your deposit, you may still be able to invest. If your parents own their own home, you may be able to use equity from their property to put together your deposit.

This works the same as topping up your own mortgage to access equity. We've seen some parents gift equity, but typically both parties create an agreement about how the money is repaid — often by repaying the topped-up section of the mortgage.

Structuring Your Investment Portfolio

How you structure your investment lending can make a significant difference to your tax position and flexibility. Most investors choose interest-only lending for investment properties — this maximises cash flow and keeps your tax-deductible interest expense high.

Be careful about cross-securitising properties. While it can help you access more lending, it also means the bank has a claim over multiple properties if things go wrong. Many investors choose to bank their investment properties separately from their family home for protection and flexibility.

Fixed or Floating for Investors?

We generally recommend fixed interest rates — they're usually lower, provide certainty, and you'll benefit if market rates rise. However, floating rates may be appropriate if you're planning to repay the loan quickly after a buy-and-flip, as you'll avoid break fees.

How Long Should I Fix For?

We often recommend interest rate averaging — splitting your mortgage into portions fixed for different periods. For example, with a $300,000 investment mortgage and strong indications rates were about to decrease, we might recommend:

• $75,000 fixed for six months
• $150,000 fixed for one year
• $75,000 fixed for 18 months

You'd have regular chances to refix at lower rates, but if rates increased the change to repayments would be gradual.

Revolving Credit for Investors

Revolving credit is especially useful for investors completing renovations. It turns part of your mortgage into a large overdraft — you can progressively withdraw funds for renovations, repairs or construction as needed, and you won't pay interest on funds you haven't used. This is often better than a personal loan, with a lower interest rate.

Interest-Only Lending

We generally recommend principal and interest repayments, but interest-only may be appropriate when:

• You need cashflow to purchase more property
• During renovations or construction
• You only plan to hold a property briefly before selling for a capital gain

Choosing an Investment Strategy

Investing in property without a strategy is a bit like driving in the dark with your lights off — it probably won't end well. During your strategy meetings with Blueprint Finance, we'll work to understand what you want to achieve, whether that's being mortgage-free, retiring early, or funding a better lifestyle. Then we'll reverse-engineer a strategy to help you get there.

A Note on Tax

As a property investor you'll be subject to taxes on rental income and potentially capital gains. It's always best to understand your tax obligations before you buy and sell property.

• You may be subject to the Bright Line Rule if you sell within a certain period (see below)
• If you buy with the intention of trading properties for a capital gain, you may need to pay income tax on your profit at your top marginal tax rate
• From April 2025, you can deduct 100% of your interest expenses from taxable property income

Tax on investment property can be complex. We always recommend that property investors speak to an experienced chartered accountant to optimise the tax efficiency of their investments. We know several great accountants — talk to us and we'll recommend someone who can help.

Buying the Right Property

You might be a property investor for 10, 20 or even 30 years, but a great deal of your returns will be determined the moment you buy. The property you choose will most likely be the difference between success and mediocre results.

Over the years we've seen that successful property investments often share a few things in common:

• They're in larger centres with populations exceeding 100,000
• They're in areas with growing populations
• Properties ideal for flipping are often in areas where demand is very high
• Good buy-and-hold investments tend to be low maintenance — an old villa may be great to flip but expensive to hold long term
• Good investments are often in areas where new infrastructure is being planned, such as new highways or train lines

With all that said, you should only ever buy a property that suits your investment strategy and your financial circumstances.

Rental Yield versus Capital Gains

Rental yield is the income your property generates, calculated as a percentage of its value. Net Rental Yield (%) = (Annual Income − Property Costs) ÷ Property Value.

The ideal property has high potential for capital gains and a high rental yield, but one often comes at the expense of the other. For example, the highest rental yields in the country are in the Grey District and Kawerau — areas not known for capital gains. Properties in Herne Bay have experienced incredible capital growth but rental yields can be as low as 2%.

The trick is to think about your strategy and circumstances when you buy. If you've got plenty of cash to top up the mortgage, focus on potential capital gains. If you don't, yield will be the priority.

Buying Below Market

Our team has been involved in thousands of transactions and we know the NZ property market well. We can help you assess a property's value during the offer phase, because buying well is the quickest way to gain equity as an investor.

Tips for buying below market:

• Be prepared to make low offers and have them declined
• Look for urgent sales and mortgagee sales
• Keep an eye out for properties that don't sell at deadline
• Build relationships with real estate agents for early heads-up on off-market sales — less competition often means lower prices
• Look for properties marketed poorly — bad photos and descriptions mean less competition, and the property could be a hidden gem
• Keep an eye out for vendors selling directly without an agent

Most importantly, always take your time. Don't get fixated on one property — the deal of the century comes around once a week, and there'll always be another.

Build Your Professional Team

As a property investor, you'll want to surround yourself with a team of professionals to help you make the hard decisions. At Blueprint Finance we've been in the industry for many years and have a huge network of professionals we can recommend, including:

• Conveyancers and solicitors
• Buyers agents and real estate agents
• Accountants
• Experienced building inspectors
• Insurance brokers and experts
• Property managers for rental properties
• Quantity surveyors if you plan to subdivide or build
• A good builder or project manager for renovations

Last but not least, it's a great idea to speak to a financial advisor and mortgage broker to make sure you're getting a competitive interest rate and that your mortgage is structured correctly.