'Stepping out' - first investment advice

Question from Otto updated on 16th August 2013:

I am just stepping out into the investment property scene and would like a little bit of guidance/advice. I live in my own home in Auckland, it's worth $450,000 and I own $250,00. I have been pre-approved upto $750,000 but I dont really want to spend that on an investment. My plan was to buy something in lower $200,000 region for a start to get my feet wet and get a grip on how it all works. Then I would like to buy a new home for myself and rent the current house out. What are your thoughts/advice? What would be a good area to invest in? Auckland suburbs? Rural towns? Would a property like the following one listed on this site be an okay investment for a starting property?http://www.landlords.co.nz/property/8-300-pre-tax-cashflow-for-under-270-000-1217 Thanks in advance.

Our expert Kris Pedersen responded:

Firstly look to get a revolving credit facility against your home so you have access to deposit funds and renovation funds if you need them. You want the facility size to be sufficient to provide a 20% deposit based on the high end of your purchasing range plus a bit more to cover renovation/contingency funds. In regards to where you should invest it comes down to what you are after. Auckland looks solid from a capital growth perspective but it is hard to find properties with a good return. In the smaller towns you will be able to find better returns but make sure you take all of the numbers into account. I spoke to a customer recently who had thought he had purchased really well as he had bought a property for $60,000 that rented for $180 per week or a 15% gross yield. What he didn't take into consideration however was that the rates were $2,000 a year and with other similar costs taken into consideration the net return was only about 5% which he could have got in a better area for growth.

Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer