Making Property Investment Work for You

Investing in property is often seen as a game for the wealthy, but it doesn’t have to be. With interest rates trending down and a stable property market, now is a great time to consider unlocking equity in your existing property and investing in your future.

In New Zealand’s ever-evolving property market, there are opportunities for investors to get a foothold without needing a large budget. By focusing on affordable entry points, such as apartments, townhouses, or properties in the regions or up-and-coming neighbourhoods, first-time investors can gradually build their portfolios and achieve substantial long-term gains. Here’s how starting small can pave the way for big returns and a sustainable investment journey.

Affordable Entry Points: Getting Started with Smaller Investments

For many prospective investors, the biggest barrier to entry is the cost. House prices in popular areas like Auckland and Wellington can seem out of reach, especially for those just starting out. However, there are alternatives that make property investment more accessible, even on a smaller budget.

• Apartments: Compact and often located in high-demand urban areas, studio or one-bed apartments present a lower-cost entry point into the market. These properties tend to have lower purchase prices, making them more manageable for first-time investors. Additionally, studio or one-bedroom apartments can offer attractive rental yields, as city dwellers, students, and young professionals often seek affordable rental options close to work or university. It’s important to research body corporate fees and any limitations on short-term rentals, which may impact rental income.
• Townhouses: As medium-density housing options, townhouses sit between apartments and standalone houses in terms of affordability. They are particularly popular in suburban areas undergoing growth or regeneration. With a higher rental return potential than traditional houses (due to lower maintenance costs and more efficient use of land), townhouses can be a smart choice for investors looking for something with a balance of price, rental yield, and capital growth potential.
• Regional Properties: While established cities like Auckland and Wellington may have higher price tags, considering emerging neighbourhoods or regional centres can be a good strategy for new investors. Locations such as Hamilton, Tauranga, or Dunedin offer more affordable property prices while still experiencing growth in demand for housing. Investing in these areas can also diversify your portfolio and reduce exposure to any one local market. However, investors should research local economic trends, infrastructure developments, and population growth to ensure the market has long-term potential.

The Benefits of Starting Small

Starting small will allow you to enter the market without overextending yourself financially. By choosing more affordable properties, you can reduce your initial debt burden and minimise the risks associated with property ownership. Here are some key benefits:

• Lower Financial Risk: Smaller properties come with lower upfront costs and smaller mortgage repayments, making it easier to manage cash flow and financial commitments. This approach reduces the risk if the property market experiences a downturn or if interest rates increase.
• Quicker Savings Accumulation for Deposits: With lower purchase prices, it’s faster to save for a deposit, allowing you to start building an investment portfolio sooner rather than later. The sooner you get into the market, the quicker you can start benefiting from capital growth and rental income.
• Opportunity for Stepping Up: As the value of your family home or initial investment property grows, you can use the equity built-up here to fund the deposit for a second, larger investment. This “stepping up” approach allows for gradual portfolio expansion and makes it easier to manage finances as your investments grow.

The Power of Compounding Growth

Starting with a small property doesn’t mean your returns will be insignificant. Over time, even modest investments can appreciate significantly, especially if you choose a location with strong growth potential. Compounding growth means that the value of your property, along with the rental income, can build upon itself over the years, creating a snowball effect. The earlier you start, the more time your investment has to grow.

Moreover, small properties that generate solid rental yields can help cover mortgage repayments and other expenses, making it easier to hold the property over the long term. If rental income exceeds your costs, you can reinvest the surplus into renovations or saving for another property, further accelerating your investment growth.

Considerations for New Investors

While starting small has its advantages, it’s important for investors to carefully assess each opportunity. Evaluate factors such as rental demand, vacancy rates, potential rental income, and any associated fees or restrictions that could affect your investment’s profitability. Additionally, understanding New Zealand’s regulatory environment for landlords, including Healthy Homes Standards and tenancy laws, is crucial to ensure compliance and protect your investment.

Ready to Start Your Property Journey?

If you’re thinking about getting into the property market but feel overwhelmed by high prices, remember that starting small can be a strategic move. Investing in studio apartments, townhouses, or properties in emerging markets can offer accessible entry points that still pave the way for significant long-term growth.

With several decades of experience helping ‘mum and dad’ investors start building a property portfolio, we are here to help.

For personalised advice on how to start your property investment journey, contact Threefold for a free consultation to discuss how we can help you leverage your resources and plan a strategy tailored to your goals.

The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.