Question from Kiri updated on 14th March 2013:
We are looking to purchase a home and possibly a rental property but are unsure of what strategy to take. We have about $300,000 and live in Auckland. Should we buy a high-priced central city family home and leverage off it as its value rises or should we buy a family home further out and then take the extra cash to buy perhaps two other rentals. What is the better approach over a 15 to 20 year period?
Our expert Ron Hoy Fong responded:
Massive wealth is achieved through capital growth properties. We are currently entering into a boom market phase and prices are rising in Auckland. Depending on how fast prices increase I anticipate this continuing to happen for the next two to three years. I suggest you use the $300,000 and purchase your first home in a capital growth area. Your home will not give you cashflow so it may as well be in the capital growth areas such as areas in central Auckland and coastal North Shore. Depending on your serviceability I suggest you use all of the $300,000 as a 35% to 50% deposit to purchase a $600,000 to $900,000 home. Once you’ve purchased your first home, refinance it immediately or top the mortgage via a revolving credit facility to raise deposit funds for purchasing investment properties. The interest paid on the revolving credit now becomes tax deductible and is serviced from rental incomes of property investments. Continue buying under-valued or distressed properties in the central Auckland area that have the potential to add value through renovations. By adding value and increasing your equity, you can continue refinancing and raising funds to buy more properties. However, make sure you keep your LVR to 80% or below unless you have expert advice.
Ron loves to share his passion for property and his coaching course provides one-on-one mentoring and support that will empower you with tools, strategies and valuable insights so you can achieve investment success and become a property master.