Investing Q & A

Commercial real estate can provide you with a solid return on investment (ROI), through steadily increasing rental returns, and improvements in the building's sale price over time. The main benefits of investing in commercial property are:

• Commercial property is usually a solid, long-term investment, as long as it is in locations or areas where businesses choose to locate.
• Commercial property and commercial lease real estate market information is easily accessible, and it's easy to calculate market pricing and returns based on lease rates (which are typically worked out on a per square foot basis).
• Commercial property often offers higher yields than residential property, with average yields ranging from 5-10%. These yields depend on the type of business tenant and the terms of the tenancy.
• Business owners can often take advantage of buying the commercial premises they need to occupy, leasing the spare capacity to cover costs.

The key to successful commercial property investment is to find good commercial tenants who can provide you with a reliable, steady source of income. Businesses that are run well, with governance and good financial management, are more likely to be stable and rent your premises for longer periods. Good commercial tenants move less often than residential tenants, as their livelihood is tied to the location.

Investing in commercial property doesn’t have to be more time-consuming than investing in residential property. A good commercial real estate agent or property manager, like the commercial property team at your local First National Real Estate office, can take care of most of the day-to-day issues experienced by commercial tenants, and help you grow your commercial investment.

As with any property purchase, you’ll need to do your research before buying a commercial retail, office or industrial property. Unlike residential property, a commercial property is often one that you will not personally occupy. You should consider the property you want to invest in from the viewpoint of a potential tenant.

Tenants tend to assess commercial properties on their location, price per square foot to rent, quality of the environment, and any shared amenities such as gymnasiums, food areas, toilets that staff will have access to. The following points should be considered:

• Location - Commercial property near transport hubs or with good access and parking facilities will be in greater demand than less accessible locations.
• Property Type – What are the area’s typical commercial requirements? Will the building be a suitable shape and size for retail? Restaurants? Office space?
• Building Quality – How much maintenance is the building going to require? Are there any major structural issues that could be costly in the future?
• Building Age – Generally, newer buildings require less upkeep and have better options for wiring, plumbing, heating and air conditioning, making them more desirable to tenants. However, older buildings with significant character will always be in demand from certain tenants so should not be disregarded.
• Health & Safety- Commercial buildings must comply with strict health and safety requirements for their occupants. Make sure any property you consider meets these requirements or be prepared to invest in their upgrade.

Most major New Zealand banks and specialist lending institutions are willing to provide loans for commercial real estate investment. Typically they will lend up to 75% of the purchase price, based on Loan to Asset Value ratios (and the debt servicing abilities of the buyer).

These lenders will consider a number of things when approving finance, including a review of the quality and length of existing (and upcoming) commercial leases. This review will confirm the amount of rent you are likely to receive and local market factors such as property vacancy rates and property yields. Lenders will also consider personal factors, such as other sources of income you might have to help you service the loan.

First National Real Estate has affiliations and relationships with many major New Zealand banks and lending institutions. Contact your nearest First National branch for assistance with finding a commercial property, and the finance to buy it.

Negative gearing occurs when an investor borrows money and buys commercial property, but the rental income from the property does not cover the interest charged on the loan. Whilst this sounds a little crazy at first, there can be some positive tax benefits for the buyer due to the ability to claim losses against taxed income.

As the property is owned, it can benefit from the passive rental income generated, and any capital gains the property may make during the period of ownership.

Negative gearing is a risky investment strategy, because commercial property values are not guaranteed to increase. Unexpected interruptions in the flow of rental income, or interest rate increases, can put negatively geared investors under extreme financial pressure. For these reasons, negative gearing should only be undertaken by buyers who have the ability to absorb losses in the event of adverse financial conditions.

Consult your Accountant or financial advisor for more advice on whether negative gearing is a suitable investment strategy for you.

It is always wise to take out commercial property insurance. Insurance packages are available that will typically cover:

• Damage from natural disasters, fire, flooding and accidental damage.
• Damage from break-ins and vandalism.
• Loss of rental income (and protection against tenant rent defaults).

Contact your local First National Commercial real estate agent or insurance company for further information about commercial real estate insurance.

Commercial real estate requires ongoing maintenance and management. Some landlords choose to manage their own property. Other owners engage the services of a commercial real estate agent or property manager to take care of their investment. Investors who choose to manage their own commercial property must be prepared to take on all responsibilities involved, such as organising and overseeing maintenance and repairs, regular cleaning, property inspections and rent collection.

While standard commercial property lease agreements are used in New Zealand (such as one prepared by the Auckland District Law Society), variations to these leases are also common. The lease agreement will set out the obligations of the tenant and the landlord for rental payments and frequencies, and items such as maintenance and repairs. Typically, a landlord does not have to repair anything unless it is specifically stated in the lease agreement. Tenants are not usually liable for standard wear and tear, but they may be liable for certain regular maintenance expenses (such as redecorating).

It is vital that all landlords who manage their own commercial real estate are completely familiar with the legislation governing commercial real estate lease tenancies. Contact your local First National Commercial real estate agent for independent advice, or to engage one of our commercial property managers.

The costs associated with buying commercial property in New Zealand are relatively low due to the absence of stamp duty. There are some costs to be considered in addition to the purchase price and ongoing maintenance costs, such as:

• Loan application fee
• Conveyancing costs and other legal fees
• Building inspection costs
• Land Information Memorandum (LIM) report
• Registered valuation report
• Council rates
• Property management fees
• Real estate agents’ fees

Your First National Commercial real estate agent can help you calculate these costs.

To maintain good occupancy rates in your commercial property, you must offer rents that are competitive with other similar commercial properties in the area. If you are managing your own property, you should undertake a comparative market analysis that compares your commercial property with others of a similar size, type and location. Note that getting information about the rents charged by other landlords, or their internal building improvements, may be difficult to obtain.

Engaging an experienced commercial property manager is a great idea. With their years of experience, they can provide you with a realistic market analysis quickly. They can inspect your property and compare it with similar commercial or industrial properties under their management. A good commercial property manager will also be able to help you set a rent that will make sure your property is leased at the earliest possible opportunity, whilst also maximising your investment return.

Marketing your commercial property in a professional manner will help to ensure quality tenants and a good rental return. In commercial property markets with a lot of competition, making sure your property stands out requires skill and experience. Prospective tenants will often weigh up the commercial rental price being asked for against location, building quality and other aspects of the property. First National Commercial agents are experts at targeting their needs.

Our commercial real estate network attracts many inquiries from prospective tenants waiting for properties to become vacant. Our expertise in marketing and presenting commercial properties will make sure that the leasing process runs smoothly and is more cost-effective than private property marketing efforts.

A well-presented commercial property often attracts higher rental returns. Before looking for tenants, you should undertake any cost-effective building improvements or maintenance required to broaden the appeal of your commercial property.

Ensure that your property is clean and tidy, and appears ready to move into. Pay careful attention to the following:

• General building condition – Have any damaged paintwork touched up and any minor damage repaired.
• Cleanliness – Make sure the property is spotless, walls and bathrooms are clean, and have the carpets professionally cleaned.
• Surrounds – Make sure the area around the property is clean and tidy, including any gardens and access ways. Clean up any rubbish areas.
• Car spaces – If the property has car spaces, make sure these are clearly marked or signposted. Apply new car park markings if required.
• Safety systems– Make sure that all safety systems (alarms, sprinklers etc.) are compliant and fully functional.

Selecting a suitable tenant for your commercial property is very important. The best tenants will look after your investment and reliably pay rent throughout the terms of the commercial real estate lease. Long term tenants are preferable if you wish to receive regular uninterrupted rental income to service your commercial loan.

You should undertake a credit check on any prospective tenants. In New Zealand, you may only do this with the prospective tenant’s permission. Credit checks can be performed by several credit agencies directly online, or you can arrange these checks via your local real estate agent or property manager. Fees typically apply.

It's advisable to ask prospective tenants for references and to contact each reference given (or have your property manager do this), to check that the tenant is reliable and likely to keep up to date with rent payments.

First National agentsmaintain lists of prospective tenants waiting for particular types of commercial properties so we can help to speed up the leasing process for you.

Landlords and property managers will normally undertake these duties:

• If the lease requires it, arranging for repairs and maintenance at the property
• Monitoring rent payments and recovering rent arrears
• If necessary, issuing arrears warnings and eventually eviction notices (in accordance with relevant New Zealand lease legislation)
• Arranging property inspections for prospective tenants
• Preparing detailed building condition and inspection reports
• Arranging insurance policies, paying rates and other bills
• Assuring compliance with Occupational Health and Safety legislation

Property managers (or real estate agents) typically perform the following services:

• Negotiating your commercial real estate lease and providing relevant drafting instructions to a solicitor.
• Advertising your vacant property for rent.
• Arranging inspections for prospective tenants.
• Receiving and screening commercial lease / tenancy applications.
• Completing and filing all relevant paperwork.
• Arranging and monitoring rent payments, and following up on any arrears
• Organising building repairs and maintenance when needed
• Providing the landlord with regular payments and statements
• Paying all required accounts (cleaning, utilities, service systems, security)
• Conducting initial, final, and routine inspections of the commercial property
• Collecting the Bond or Bank Guarantees and any advanced rent prior to the tenant moving into the property
• Lodging of any relevant bonds with the Ministry of Business, Innovation and Employment (MBIE)
• Providing advice on appropriate commercial insurance policies and options

Commercial leases in New Zealand are covered by the Property Law Act. It's vital that whoever is managing the commercial property fully understands the obligations of landlords and tenants covered by this legislation. If you have any doubts about these obligations, consult with a lawyer or other professional people.

If you've decided that a real estate agent or property manager is going to manage your commercial property, make sure you choose one that will provide you with great service. A good real estate company will save you time, remove hassle, and will help your commercial investment grow. The following checklist contains questions that will help you to find the right real estate company for you.

• Does the company have dedicated commercial property managers?
• How, and how often, will the company keep you updated?
• Do they seem to have good knowledge of the local commercial and industrial rental market?
• How many properties do they manage? How many properties will your dedicated manager be managing personally?
• What kind of property management systems do they have?
• Does the property manager have a sound understanding of the appropriate legislation?
• Does the company make sure it’s staff attend regular training to keep up to date with current trends and practices?
• Does each real estate office have the support of a large network?
• What approach does the real estate company take when screening and selecting tenants?
• Are there formal systems in place for following up arrears?
• What systems will they use for collecting rent and reporting to the landlord?
• Can they arrange insurance and payment of all outgoings?
• How effective is their website and online marketing?

First Nationalhas a team of highly experienced property managers, and we welcome your enquiry anytime about the services we can offer you.

Investing in commercial property is different to residential property investing. The rewards of commercial property ownership can be great, but in times of market uncertainty, there are risks to be considered. We provide some helpful tips below:

• Don’t overcommit financially to commercial property ownership. It can be tempting when things are going well to financially stretch yourself in search of quicker or larger returns. A more sensible strategy is to re-invest the majority of your profits on an on-going basis and use a long term returns approach.
• It’s alright to put some of your wealth into speculative investments, but make sure that if these turn bad, you haven’t exposed yourself too much.
• Do not commit funds from the sale of one property to finance another until settlement on the first one occurs. Commercial property transactions can be more complex than residential transactions, and can take longer to complete. Bridging finance can be expensive at high interest rates.
• A handshake is a good way to end a meeting, but is not the way to finalise commercial property discussions. To legally protect yourself, always have a solicitor prepare and execute contractual agreements when closing a transaction.
• Be careful if considering a variable-rate mortgage. While these may sometimes offer better initial interest rates than a fixed-rate mortgage, a spike in interest rates could result in a significant financial burden. To determine if a variable-rate mortgage is appropriate for you, consider what impact different interest rate increases might have on your finances. Consult a financial advisor or lawyer to get advice on your specific financial situation.

When choosing between buying a standard residential property or a holiday home, you need to decide whether you're making a strictly financial investment, or a lifestyle choice. Ask yourself the following:

• Will the investment property (bach) be used as a holiday home for your family with short term rentals, or will it be rented out to others long term?
• Are you able to cover a large portion of the running costs out of your own funds, if you are unable to get rental income for much of the year?
• What long or short-term financial goals do you have for the property?
• Will the investment property offer you any New Zealand tax benefits?
• Are you confident of your financial position if there is a downturn in the New Zealand holiday rental or sales market?

If you're investing in property for the first time, consider whether you'll require constant rental income to cover mortgage repayments. If you do, a long-term residential property investment is probably more suitable for you.

Location is the most important consideration for holiday home investments. The property must be in the right area to attract regular rental opportunities, and to provide the potential for strong capital growth. Things to consider include:

• Surrounding infrastructure and amenities in your chosen location.
• Future plans of local municipalities and / or developers for the area.
• Tourist appeal, from kiwis and from overseas visitors. Will the property attract interest all year round, or only during peak seasons?
• Accessibility of your property to major towns and / or airports.
• How attractive is the property itself, and the street it’s sitting on?
• Does the property enjoy good natural light, a quiet environment, and a good amount of accommodation space?
• Will the property appeal to a broad range of tenants such as couples, singles and families? Is the property near to restaurants and tourist attractions?
• How is the property likely to hold its value? In a financial downturn, free-standing property tends to drop less in price than units or apartments.

It's often wise to buy in an area that you personally enjoy taking holidays in. That way, if rental income is difficult to get for any reason, of there is a downturn, you still have holiday accommodation that you can use personally and enjoy.

Make sure you don’t underestimate the ongoing expenses and outgoings involved with the ownership of an investment property. These costs can include:

• Body corporate levies and costs.
• Letting and property management fees.
• Insurance costs.
• Caretaker, cleaning and maintenance costs.
• Electricity, gas, water and council rates.

Consistent advertising to find tenants to rent the property, regular property maintenance, furniture replacement, and linen hire are other expenses to consider.

Expenses you may choose to incur in order to make the property more appealing to potential renters could include the provision of high quality furnishings, Sky TV, modern kitchens and appliances, air conditioning or heating units, barbeques and outdoor dining areas and even broadband internet connections.

Holiday homes can sit vacant for long periods. As an investor, you should ensure that you have funds in reserve to cover mortgage repayments and fixed costs.

When you invest in a timeshare property, you purchase the rights to use a unit in that property, often a hotel or resort facility, for a set period of time each year. You pay a set administration fee each year for this service. You can usually trade these rights with other timeshare owners, enabling you to purchase the rights to holiday at a different time of year, or to purchase accommodation in a different location or resort.

Note that you never actually own the property, just rights to use the facilities. New Zealand timeshare sales are covered by law through the Securities Act. This requires the promoter of the timeshare to register a prospectus and distribute an investment statement to potential purchasers. You are paying up front for the rights to use the property for many years to come, so it's important that the company which owns the actual property is financially stable.

Timeshare resorts and exchanges associated with the New Zealand Holiday Ownership Council will need to abide by that body’scode of ethics.

Buying a timeshare property can be a low-cost way to initially invest in a holiday home, but there are often hidden costs that are not always immediately apparent. If you’re looking into a timeshare investment, make sure to consider the following:

• There may be extra costs other than those associated with purchasing your timeshare rights. These might include hidden fees, levies that rise over time, and future obligations to fund repairs and maintenance. Make sure you understand all the costs involved before signing anything.
• Do not expect to make money reselling your timeshare rights. While it is possible these will increase in value in some instances, it is not a common occurrence. Many owners lose up to half of their investment when reselling.
• Some timeshare purchasers end up even worse off, because the value of the property they have invested in depreciates drastically over time. Make sure you understand how long your investment will last, along with the obligations property owners have to reinvest in the property.
• In an economic downturn, demand for your timeshare period may decrease, particularly outside of peak holiday weeks. As money gets tight, people tend to take less holidays, not more.
• While timeshare sales people may try to sell you on the benefits of being able to swap your timeshare rights for those in different properties, make sure you investigate how active the exchange market really is. If the swapping process is difficult, inconvenient, or costly, or there are not enough participants willing to swap, then the promised benefits may never materialise.
• Make sure to investigate the quality of any properties you wish to swap your rights to, and make sure they are of comparable quality and desirability to the one you are investing in.

A well run timeshare scheme can provide a low cost and flexible way for you to access a holiday home, especially in prime tourist locations. If you're looking for an investment that offers a positive return or capital gains, consider other options.

When deciding whether to rent out your holiday home personally, or to entrust it to a real estate agent or property manager, consider the following:

• What knowledge of the industry and rental market do you possess?
• How much free time do you have to devote to marketing your property, dealing with renters and handling any unforeseen issues?
• Do you have the ability to handle maintenance issues personally (or the time and contacts to arrange for tradespeople)?
• How willing are you to involve yourself in your customers’ rental experience or to deal with possible complaints?

If you decide to manage the letting of the holiday property yourself, there are a number of tasks that you will need to undertake. These tasks include preparing an inventory and condition report at the beginning and end of each rental period, cleaning the property after it has been vacated, laundering used linen, replacing any broken appliances, and transferring the keys to each new tenant.

Self-managing owners need to be highly organised to handle all of the tasks required. It also helps to have all advertising and booking mechanisms streamlined.

First National Real Estate property managers can handle all aspects of holiday home property management for you, removing hassle and stress. Our property management fees are inexpensive, and are normally a tax-deductible expense.Contact our property managers nowand let us manage your holiday rental for you.

The difference between having an empty holiday home and an occupied one will often come down to having an experienced, professional property management team working on your behalf. When selecting a real estate agent or property manager to look after your holiday home investment, look for a strong track record of experience in holiday letting, combined with an extensive knowledge of the local rental market.

First National Real Estate property managersare highly experienced experts. Once engaged, your agent will draw up a written Property Management agreement with you. This Agreement will outline everything the agent will be responsible for, what they will need to get in touch with you about, and anything else related to your overall relationship. Items that should be specifically included in the Agreement are:

• The Property Manager’s fees or commission.
• Reporting frequency and what needs to be included in each report.
• Inspection frequency - e.g. how often they will inspect the property.
• Details of how the property will be marketed (and allowed budgets).
• Handling of bond lodgement, bond refunds and payment of rent.
• Tenant screening and selection criteria.
• Processes for dealing with complaints, rent arrears or other problems.
• Processes for reviewing the rental price with potential or existing tenants.
• Procedures for handling maintenance – both routine and extraordinary.

All tenants must be provided with the keys to your bach or holiday home. Landlords should also specify (in writing) the services and facilities, if any, that are included in the rental price. Some commonly provided services include:

• Electricity, gas, water and local phone calls.
• Cleaning services.
• Gardening.
• Sky TV.
• Broadband internet.
• Laundry services.

While some customers enjoy a traditional and basic kiwi bach experience, other guests (especially from overseas) may be expecting more high-end facilities such as:

• Modern kitchens and bathrooms.
• Quality furniture and soft furnishings.
• Luxury sheets, towels, and pillows.
• Contemporary appliances (Flat screen TVs, computer games, modern kitchen and laundry appliances).
• Adequate air conditioning and heating systems / pumps.
• Outdoor dining and cooking areas / barbecues.

If your holiday home has these features, it’s a good idea to advertise them prominently. These features may persuade tenants to choose your accommodation over other properties, or to pay a higher price to rent your accommodation.

Make sure that you or your property manager conduct a thorough review of the property before each tenant moves in. Complete a Condition Report outlining any existing damage, marks, or signs of wear and tear on the inside and outside of the property. Complete an Inventory Report detailing all furniture, appliances, cutlery, crockery and other items provided with the property, along with their condition.

The better the Condition & Inventory Reports are prepared, the better the outcome for both parties at the end of the tenancy. Some landlords take photographs to prove the condition of certain items, and attach these to the Agreement. Both of these reports should be signed by the landlord and the tenant.

Inform your tenants that you will be inspecting the property again at the end of the tenancy. This should encourage them to take care of your property while they are living there. Let them know that if they do happen to damage something, they should contact you. It's easier to work something out together during the tenancy, rather than sending the tenants a bill once they’ve left. It is usual for landlords to cover minor expenses (such as the odd broken plate) or fair wear and tear themselves. For more significant damage, the occupant will be responsible.

Taking a bond at the beginning of the tenancy offers landlords some protection.

Landlords and their agents have a duty of care to the tenants who lease their holiday property. The property must meet all appropriate health and safety standards before it is occupied. Conduct regular checks of electrical and gas appliances, to make sure that they are in good working order, and compliant with local laws.

If the property has a swimming pool it will need to be adequately fenced to prevent young unsupervised children from falling in. The Fencing of Swimming Pools Act outlines the minimum requirements for such fencing and rules around placement. This Act is enforced by local Councils and the fines for not complying can be steep.

If you need advice on whether or not a fence meets the Act requirements, contact a First National Real Estate Property Manager. We're happy to help.

Some of the usual rules governing tenancies don't apply for short fixed-term tenancies of less than 90 days duration. You don't need to worry about the rules concerning fair market rent, tenant eviction notice periods, or rent increases following substantial improvements to the property.

Rental returns for short term tenancies will normally be higher than for long term leases, especially if the property is fully furnished. But as holiday seasons represent only part of the calendar year, this higher short-term rental yield must be balanced against the security of income that a long term lease situation provides.

You should consider the tax treatment of your holiday home by the Inland Revenue Department (IRD). While all rental income is taxable and needs to be declared on your tax return, your ability to deduct expenses related to the holiday home (such as interest, insurance, depreciation and Council rates) may depend on how often and for how long, the property is rented out.

In general, you will be allowed a deduction if you can demonstrate that these expenses are related to the earning of rental income. The amount of time that the property is rented out may impact on this assessment. If you only rent the house out for 10 weeks per year, you may only be able to claim the deduction at a rate of 10/52 - i.e. pro-rata, based on the weeks that rental income was generated.

If the IRD believes that your expenses are private in nature, and are not a legitimate expense that led to the generation of rental income, they will likely be denied. Visit the IRD website for more information, or contact a First National Real Estate agent.

Property remains New Zealand’s most popular form of investment. Property investment is generally easy to understand, and has traditionally offered solid investment returns. Before you invest, you should have a clear long-term real estate strategy. For example, you'll need to decide whether you're looking for high rental returns in the short term, or if you’re more interested in longer term capital growth.

Your First National Real Estate agent can help you to work out your best investment strategy and find you the properties to invest in. If this is your first time investing in property, you should also seek professional investment and taxation advice.

The main benefits of investing in residential or commercial property include:

• Capital gains – An increase in the value of your property over time thanks to a rising property market, or improvements you’ve made to the property.
• Rental yield – The annual rental income you receive, less maintenance and mortgage servicing costs.
• Tax advantage – In some cases, savvy investors can gain tax advantages through negative gearing, whereby they can deduct the costs associated with owning an investment property from their overall tax bill. Please consult a taxation specialist for advice on your own situation.

Choosing an investment property is very different to choosing a home to live in. Keep our tips in mind when considering properties to invest in:

• Match the property to your long term real estate strategy. Consider whether you want to buy commercial, industrial, or residential real estate. Decide whether you want properties that are ready to move into, or would prefer cheaper properties that require improvements.
• Understand all the costs of property ownership. Aside from buying the property, there will be other expenses such as real estate fees, Council rates, property inspections and property management fees.
• Think about protecting yourself with Landlord Insurance. This will cover things like unexpected repairs, lost income if you need to evict your tenants, or damage if your tenants turn out to be the wrong type for your property.
• Calculate how long you will be able to cover the mortgage repayments for if the property is vacant, and factor this into your overall budget.
• Shop around for the right loan, and make sure the one you select suits your strategy. For example, if you’re looking for short term capital gains, an interest only loan may help as this will lower repayments and increase your cash flow.
• Keep up to date on the latest property trends.Contact First Nationalto receive our Property Market Outlook, which includes tips, trends and predictions.

• Research the local real estate market and find out whether houses or apartments are in higher demand. Market conditions change regularly.
• Talk to a First National Real Estate agent to find out what’s popular in different regions and different parts of the city you wish to invest in.
• If you already know where you plan to invest, focus your research there and determine which type of property is in demand and which is in shortest supply.
• If you’re aiming for a portfolio of properties, then a mixture of houses and apartments is a good way to diversify and minimise risk.
• Apartments are usually less expensive so the answer may lie in affordability.
  However, houses tend to maintain and improve their value more consistently.
• Some property investors believe apartments are too similar to one another and that houses offer more potential to differentiate and add value.
• With a house, you’ll be bearing 100% of the costs of maintenance whereas in some apartments, body corporate fees may cover certain expenses.

New homes are generally clean, fresh, modern and energy efficient. Older homes are more established so any building problems are known, and they tend to be in areas with more services and facilities nearby. There are advantages and disadvantages associated with each choice. Here are some points to consider:

Buying an old home

• Older properties are often cheaper than new ones, but this is not always the case. House prices will largely depend upon the home location and condition.
• Older homes sometimes have charming period features that modern homes don't have. These features include higher ceilings, unique architectural features and quality New Zealand native timber floors.
• Older properties may need upgrading of their heating and cooling systems, electrical wiring, plumbing and roofing. Sometimes these improvements can lead to good capital gains, so the expenses are offset against resale values.

Building a new house

• New homes are designed to suit modern lifestyles so will appeal to a wider range of tenants (and some owners).
• There can be additional tax benefits from purchasing new properties, including the ability to claim depreciation. Consult a taxation specialist or other financial specialist to discuss your individual situation.

Buying a property before it has been built has advantages and disadvantages:

Advantages of buying off the plan

• In a rising market, real estate purchased off the plan can end up being worth much more than what you paid for it by the time construction is complete and the settlement date has arrived.
• Where this occurs, investors can realise a substantial capital gain just days after settlement, without having invested much more than an initial deposit.

Disadvantages of buying off the plan

• As you’re buying something that doesn’t yet exist, you can’t be 100% confident it will end up exactly as you expected it to.
• If you’ve speculated on a quick profit and the market moves in the wrong direction during the construction period, you could be left struggling to find a buyer. As a result, you might have to accept a significant loss.
• Often, architects plans are amended mid-construction due to the inevitable obstacles that arise during the construction period. This could result in the finished property being different to what you signed up for.
• It’s difficult to gauge from looking at a plan whether the quality of eventual construction will be up to the standard you expect or not. Some builders provide show homes or show apartments that you can visit before ordering.
• Delays in construction can upset your financial plans, and may result in money being tied up for much longer than anticipated. Many builders have insurance to cover this eventuality, but this is not always the case.
• It isn't common for developers to go bankrupt during apartment or building construction, but it can happen, and is therefore a risk for investors.

If you are in any doubt about the price you're about to pay for a property, stop. Engage whatever real estate research or valuations are required to give you (and your lenders) complete peace of mind over the price being paid.

• There are a number of checks and reports you can have carried out on the property, including a Land Information Memorandum (LIM) report, a Builders Report, a Title Search and a Valuation.
• If you are in negotiations to buy, you can make your offer conditional on a satisfactory outcome from any or all of these reports.
• The total cost of all four reports is typically between $1000 and $2000. House and land sizes and location of the property can influence these costs.
• Do your own due diligence on the property and the local area by researching it thoroughly and finding out how much nearby properties are selling for.
• If there are any auctions in the area around the time you are selling, attend these to see what price is reached and how much demand there is. This will help you to further establish a true market price (range) for your property.
• Look up recent sales in the area using real estate agent’s websites. Contact your First National Real Estate agent for any further assistance you require. They will know the local market intimately and are well placed to help you.

Landlord Insurance protects property investors from a range of events that might impact on their property value, or cause disruptions in rental income. This type of insurance typically covers items such as the property itself (for fire, flood, theft), along with unexpected repairs, damage done to the property by accident or by your tenants, and loss of rent if your tenants stop paying or you are forced to evict them. Many policies also cover accidental damage caused to others on your property.

Landlord Insurance is advised for all investors, to minimise your financial risks.

Ideally, you should arrange your finances before you start searching for an investment property. This will let you know exactly how much you can spend.  The amount you are able to borrow depends on a number of factors, including:

• Your annual after tax income.
• Your monthly expenses.
• The type of loan and current interest rates.
• Repayment type (principal or principal and interest).
• The loan term (number of years to pay the loan back).
• Estimated repayments.

Visit the website of any major bank in New Zealand to find a loan calculator you can use. Your lending institution should be able to give you a more detailed outline and / or a pre-approval on your borrowing capacity, which is usually valid for three months.

Rental prices are highly individual and will be decided by the type of property you have, the number of bedrooms or offices, and the area the property is located in.

Our First National Real Estate agents can give you an estimated rental price through a free, no-obligation Rental Appraisal. With over 400 offices around Australia & New Zealand, we've got agent coverage in your area. Many First National Real Estate offices also offer a property management service should you require this.

First National Real Estate agents are experts in their local areas, and they have a wealth of knowledge about investment properties. As a company, we would be happy to share this exhaustive knowledge with you. Start building your investment property portfolio with help from First National today.

Here are some tips to help you boost your investment property equity quickly:

• Get a Tax Depreciation Schedule done annually for your property. This will tell you exactly what you are allowed to claim as depreciation, which will help you maximise your New Zealand tax benefits.
• Talk to a First National Real Estate property manager for advice on improvements you could make to your property that would increase the rent.
• To pay off your mortgage faster, consider making your payments fortnightly rather than monthly. Talk to a financial advisor for further advice.