Articles by Salesh Chand
With interest rates easing and the property market evolving, the next two years could be a window of opportunity for savvy property investors. If I were planning on investing in the market today, the strategy outlined below is what I’d be using to get ahead.
1. Sort out your finances
First things first: get your financial situation in order. With talk of interest rates potentially falling into the low 4% range, now’s a smart time to refinance any existing property loans you have. Free up your working capital by using tools like overdrafts, offset accounts, and lines of credit, and hold available cash in accessible accounts.
That capital can then be repurposed for deposits on new property purchases.
To reduce risk and increase flexibility, I’d use a split loan structure, i.e. refinancing through a different lender for the next deal. This approach avoids cross-collateralisation (which gives one bank control over the properties you’ve used as collateral), and keeps your portfolio structure clean.
Talk to your mortgage broker for help with this (not your bank – they won’t be inclined to encourage it because you are taking lending, and therefore some control, away from them).
2. Get pre-approval and be ready to act
Once you’ve sorted out your finances, apply for pre-approval with your preferred bank(s). This will clarify exactly how much you can borrow and enable you to move quickly when the right deal comes up.
With pre-approval in place, you can confidently make cash offers (i.e. not subject to finance and generally only including a due diligence clause) with shorter settlement periods, giving you stronger negotiating leverage and making your offers more attractive.
3. Target discounted or high-equity properties
Right now, there are some great buying opportunities – properties listed with solid discounts or equity potential (e.g. located in a high-growth area, or with the opportunity to add value with renovations). If you purchase wisely, you may be able to refinance in 6–12 months and pull out your initial deposit to reinvest.
This process, often referred to as deposit recycling or equity recycling, can be an excellent way to scale your portfolio. I’ve recently seen investors pick up sharply discounted properties, refinance within a short period of time, and reuse the same capital to purchase again. Using this approach they can grow their portfolio and therefore its potential for building wealth through capital growth (the way property increases in value over the long term).
4. Take a long-term view
As New Zealand opens its doors to more migrants and international students, demand for housing is set to increase. Combined with the continuing rise in the cost of construction, over time this added pressure will likely lift house prices, especially in urban areas and regions with strong infrastructure growth and good employment.
Investors who act now and buy in the right locations stand to benefit from future appreciation in value. In other words, today’s effort can translate into tomorrow’s gain.
5. Consider syndicate investing if funds are tight
Not everyone has the means to buy a property on their own, especially when starting out. If funding is a barrier, syndicate investing with family or friends can be a practical way forward. I personally began my journey by pooling funds with people I trust. This not only gave us more capital, but also made us more attractive to lenders.
The key to a successful syndicate is transparency. Have a clear agreement in place, align on values, define each person’s responsibilities from the outset, and be very clear about what happens if someone wants to leave the syndicate or if members don’t meet their obligations.
Summary
The next 24 months offer promising opportunities for investors who are prepared, flexible, and willing to act decisively. Whether you’re growing your portfolio or just getting started, in my opinion, now is the time to define your strategies, get ready to move, and then take action (don’t forget this last part!).
Just letting you know we got this house!! Super uber excited! Just wanted to say that there is no way in hell I could have got this over the line without your detailed and comprehensive help, you have been absolutely amazing. I have absorbed everything you’ve taken the time to teach me about analysing properties for development potential. Really amazing…. thank you!!
- Name withheld on request, November 2020
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If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.
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