Property investment (and property ownership in general) has been a mainstay of the ‘Kiwi way’, and for many, it’s a key part of their plan to grow their wealth. Today, 57% of New Zealand’s wealth is held in housing – of which 1/3 is investor owned.
Investment property has long been considered a safe investment choice, one that (almost) guarantees returns with little effort. But this might be changing. The ‘passive’ approach of buying and waiting for the property to appreciate may no longer serve investors the way it has in the past.
Changes to legislation and changing economic conditions could mean investors need to change how they approach investing in property – from what they purchase to begin with, to how ‘active’ they are for the duration they’re holding that investment.
For those who currently own an investment property, it might be high time to re-evaluate your investment(s). Is it still performing as it should to help you achieve your financial goals – or has it inadvertently turned into a lemon?
Because with changing housing markets, changes to legislation, and just general life, the property you purchased a few years ago may no longer be the right property for your needs today.
So, when should you consider re-evaluating your property portfolio?
When there are changes in the property market
The property market is always cyclical – so there will always be times when house prices are high and interest rates are low, and the other way around.
And it’s not always necessary to review your investment property based purely on where the market is in that cycle.
But if it’s impacting your ability to hold the property, that’s another story. Increases in interest rates as you approach the bottom of the cycle may mean you end up paying more towards the property to cover the costs. If you don’t have sufficient cash flow to cover those costs this may impact your ability to hold that property for the short term, and the profitability of the property in the long term.
When there are changes to your cash flow position
Some investment properties are negatively geared – meaning the investor has to put in their own money to cover the costs of owning the property. This can be fine if you have plenty of surplus cash that you can divert towards your investment.
But if this changes, you don’t want the price of your investment property to come at the cost of paying off the mortgage of your own home, or being able to cover other bills or lifestyle costs.
On the flip side, if you suddenly start earning more money, or your cash flow surplus increases due to other reasons, this may be a time to investigate whether you can add to your property portfolio – especially if you have built up sufficient equity in your existing properties and they’re performing well.
When there are changes in legislation
This is something many Kiwi investors are bearing the brunt of today, with April 1st marking the next step in the tax deductibility phase-out. For properties that don’t currently meet the definition of ‘new’ only 50% of interest costs will be tax deductible, potentially making them more expensive to hold.
But there may be other changes to legislation changes that end up making it more, or less, favourable to hold a particular investment property. Staying up to date with changes to legislation means you’re in a better position to decide whether your property is impacted and how, and if it’s time to revisit whether that property is the right one to keep.
As part of being a property investor
We listed a few scenarios above where it’s worth taking the time to review your investment portfolio. But even if there aren’t any major ‘events’ that trigger it, it’s still worthwhile to regularly go through this process. You want to be an active holder, regularly re-evaluating your investment property to make sure that it’s still the right investment for your money to be tied up in, or whether there’s a better opportunity out there for you.
And re-evaluating your property portfolio isn’t necessarily about re-considering whether you should own an investment property or not. Rather, look at it as an opportunity to determine whether the property you currently own is the right property. You may find that switching it out with a new property is the better option both for now and for the longer term.
Want more immediate help? Book a consultation with an enable.me financial adviser. They can help you take stock of your current financial situation vs where you want to be, assess whether your current portfolio is helping or hindering your progress, and recommend a programme to help you make the most of your investment. Fees apply.
Disclaimer: This blog post is for informational purposes only and does not constitute individual financial advice. If you’re interested in receiving financial advice, you can book a consultation with an enable.me coach. Costs apply.