Investing with real estate could be a great way to generate income and a fantastic addition to a diversified investment portfolio.
This blog explores why you may consider investing with real estate and the investment options available to you.
Why invest with real estate?
Real estate investment has been a popular choice for many kiwi investors over the years.
One of its primary advantages is the potential for strong returns. Historically, real estate has appreciated in value over time, providing investors with significant capital gains.
Unlike stocks and bonds, investing in property means investing in a physical asset which provides investors with tangible security.
Finally, real estate might be an excellent addition to a diversified investment portfolio. By considering adding real estate to a mix of assets, including a range of real estate investments, investors could potentially get variance in their income streams.
Understand the New Zealand property market
Currently the housing market is at the mercy of several external market factors, most notably the Official Cash Rate (OCR).
Set by the Reserve Bank, the OCR is a monetary policy tool that influences economic activity, controls inflation and maintains financial stability. This has a huge impact on the real estate market – most notably, the interest rates on deposits and loans.
When interest rates are low, borrowing becomes cheaper, often leading to increased property purchases and higher real estate values.
Conversely, higher interest rates can cool the market by making loans more expensive, which can slow down property buying and reduce property values.
The RBNZ may also regulate loan-to-value ratio (LVR) restrictions for New Zealand retail banks. LVRs measure the size of a loan relative to the value of a property. LVR restrictions support the stability of the housing market and help reduce the risk of a sharp correction in house prices. They also provide an additional buffer if a housing downturn were to occur, which would particularly affect highly indebted homeowners and investors.
LVRs assist banks and non-bank lenders to consider how much money they are willing to lend against a property.
The regulatory environment is another factor to consider when considering your investment options, such as the bright-line test for example.
Investing with real estate without owning property in New Zealand
Property ownership is the traditional route into real estate investment, which usually requires taking out a mortgage. Rent-to-own and co-operative models are some alternative routes to direct ownership that are gaining traction in New Zealand.
There are also several other ways to invest in real estate that do not require owning a property outright. Two common options are:
- Real Estate Mutual Funds: Investing money in an actively managed fund that pools money from multiple investors to invest in various types of real estate. The fund may invest in individual properties, real estate investment trusts, real estate stocks, bonds or other securities.
- Real Estate Investment Trusts: Owning shares in a company that owns, operates or finances incoming-generating real estate, such as commercial properties or shopping malls. The trust pays dividends to investors from income generated by the properties the trust owns or manages.
Peer-to-peer investing
For those looking to invest in real estate without locking in their funds for years and years, and who want to maintain control over where their funds are going, peer-to-peer lending providers like Southern Cross Partners are worth considering.
Here’s how it works. Southern Cross Partners offers short-term specialist lending solutions to Kiwis in need of property finance. Once the loan application passes through our internal approvals processes, we invest our own money in the loan, before offering it to investors.
There are several benefits to investing with Southern Cross Partners:
- You can choose your investment from a selection of pre-vetted loans that Southern Cross Partners has invested its own money in first.
- The loans are fully managed by the Southern Cross Partners investment team.
- You’ll receive regular enhanced returns, like rental income but without the responsibilities of managing a rental property.
- You get access to the SCP investor portal, so you can track all of your investments with us.
- The minimum investment amount is $10,000.
For more detailed information and to explore your investment opportunities in this space, you can get in touch to speak to a member of our team.
Southern Cross Partners is licensed to provide peer to peer lender lending services under the Financial Markets Conduct Act 2013. This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with a financial adviser before making any investment decisions
