1. New Zealand Superannuation, and 
2. Their own private savings. 

New Zealand Super, in general terms, is between 66% to 72.5% of average ordinary time earnings after tax. 

A few questions arise:

1. Is this enough for you to live off in your retirement?
2. If not how will you supplement your income?
3. Will the Government be in a position to provide income at this level as the population’s age increases? 

As the population ages there become more people who draw on Government superannuation. There are also less people in the workforce paying taxes to fund the Government payment. Hence the Government must either increase its revenue from other sources, reduce the amount it pays out to the elderly and therefore the lving standard of the elderly decreases, in increase the age at which the government starts paying superannuation.

If we want to be more certain about our retirement or if we want to enjoy a better standard of living than superannuation provides we need to invest now to supplement the income in our golden years.

By looking at an example we can quickly asses how much we’ll need to save. For instance to enjoy an income of $50,000 you would need;

$625,000 in cash invested @ 8%pa

After 5 years with 3% p.a. inflation your cash buying power is reduced to $536708 (a loss of $88,291) We can use a calculator to plan our retirement savings (see below). Hence, we need to find investments that produce both an income and a way to keep pace with inflation so capital is not eroded. 

Why invest in property?

...including by putting a little aside each week in the bank. However, inflation and taxation erodes the buying power of cash in the bank over time. You can look to improve your returns at above bank rates by considering other investment strategies. These strategies should aim to accelerate the growth of our nest egg. Residential property is a common, and increasingly popular, form of investment in New Zealand. These days, we all know someone who seems to have a made their fortune out of rental property. We’ve summarised below why residential property makes a sound investment.

Property is easily understood

The first investment rule of Warren Buffet, perhaps the greatest investor of all time, is that you should only invest in things that you can understand. Property is central to our primary needs. Food, clothing and shelter are as simple to understand as they are primal. Therefore, it meets fundamental number 1 of investing. 

You can use the power of leverage

Banks understand the certainty and security of property which is largely why they are prepared to lend so much on it. By using other peoples money you can magnify the return on your investment. Let’s look at an example where you have a $30,000 cash  – although this could be provided from equity in your current property.

Buy house for $300,000

Equity $30,000 

Borrow $270,000

Now let’s assume that the property grows in value 10% in the next few years – here’s the equation now.

House now worth $330,000

Equity $60,000 

Borrow $270,000

A 10% growth has lead to a 100% increase in your equity. Whilst we have simplified the complexities around owning a residential investment and have not considered the financial costs associated with the ownership it illustrates the mechanics of leveraging.

Property provides cash-flow & capital gain

One of the key fundamentals in owning residential property is that it provides both a cash-flow and the opportunity to gain by capital improvement. The cash flow is provided by way of rent paid by the tenant. Naturally, there are expenses and tax implications to consider when generating this income. However, any capital gains in the property are not currently taxed in New Zealand if you are a long term investor in the property.

You are in control of your investment

You are the CEO of your investment strategy and portfolio. There’s no board or external shareholders to consider or challenge your decision making. What’s more Lodge City Rentals will take any of the hassle out of tenanting the property, collecting the rent and taking care of the management. Simply, drive past and admire while you study the market to find your next great buy.

Capital gains are not taxed

Investing for the long term you get the gains of your investment and are not required to share them with the Government.

Property is a form of compulsory savings

For people who can't save, paying off a mortgage is an enforced savings programme.

Great reasons to get started on your own investment portfolio. And to make it easy we’ve found some great reasons why Hamilton is the ideal city of the future to invest in.

Why invest in Hamilton?

Get me started – Let’s find my first investment!

Please have a salesperson contact me

Discuss building your portfolio with Lodge City Rentals

Property prices

Rental and property investment prices are likely to rise over the long term, particularly if a property is well managed. The wealth of the investor grows as both income and property capital grow.

Location

Hamilton is New Zealand’s fourth largest urban area and one of it's fastest growing cities. Statistics NZ predict the city is will grow from around 144,000 in 2010 to 155,000 by 2016 and to more than 181,000 by 2031. Both urban and northern migration are key factors in Hamilton’s growth as people are drawn to the city for employment and education. 

Hamilton is located in the heart of the Waikato, one of New Zealand’s richest Agricultural regions. The Waikato is New Zealand’s highest export region and accounts for around 20% of the country’s total exports. Agriculture, biotechnology, light innovation, transport logistics, science research and education dominate most of Hamilton's economy but other industrial sectors such as manufacturing and retail are emerging and provide a diverse employment environment in the city. 

Education and Research are particularly important to the city, particularly through the University of Waikato and the Waikato Institute of Technology (WINTEC). The Ruakara Research Center accounts for most of New Zealand’s Agricultural innovations and is one of the most identifiable signs of the city’s research prominence. However, other aligned businesses such as Innovation Park, NDA and Livestock Improvement are large research houses unto themselves. Given the importance exports play in the New Zealand economy, both agriculture and research should be considered growth sectors for the region. As the planet rockets towards 7 million inhabitants, feeding this population takes on a greater priority. Regions specialising in the production of food (and research into food production) are well placed to benefit from the increased demand the increasing population spawns.

Population 

Larger scale investors are seeing Hamilton city’s potential. The population of Hamilton's urban area in 2010 was 200,300. Key retail chains and developers have recognised the significance of this population and this has lead to considerable investment in retail malls and clusters throughout the city. Westfield with their Chartwell development, Kiwi Income with their Centerplace expansion and Tainui Group Holdings enormous commitment at The Base being the most graphical examples of the confidence large investors have in Hamilton’s future.

Hamilton also has a youthful population. The average age of around 31 in Hamilton compares to New Zealand’s average age of 35 years old. This not only provides a solid tenant base it also provides a large population that will mature into house buyers in coming years.

Hamilton is a desirable place to live. Crime is relatively low, it has a mild climate and moderate rainfall, and there are over 1000 hectares of open space including 145 parks and 63 sporting areas giving residents ample outdoor space. The city is home to major sporting events and teams including the Chiefs Super Fourteen rugby franchise, the Waikato Magic Netball team and Northern Districts cricket, giving fans from all codes a team to support. Furthermore, its proximity to both coasts, Lake Taupo, skiing at Mt Ruapehu and the bright lights of Auckland means it's only a short drive to enjoy a multitude of diverse sporting, recreation and cultural pursuits. Residents are further spoilt by a top array of schooling choices. From pre-school through primary, secondary and onto tertiary education, Hamilton has some of the country’s finest academic choices. These add value to residents and are another significant draw-card of families to the city.

As the city’s popularity expands so does the value of its real estate. This city has a great future which is why it’s a great place to invest in.

For more information about property investment in Hamilton contact us today!

Visit lodge.co.nz for the latest Investment Property listings

Real estate investment is a relative simple investment class to understand. There are two primary wealth creators from residential real estate investment. Firstly, the gain in value of the property over time, which we refer to as capital gain. Secondly, the income that is generated from the property by way of rent, referred to as yield.

Understanding capital gain

A property’s capital gain is the profit which is made when you sell the property for more than you paid for it.

Some residential property investors adopt a strategy whereby they buy investment property to make a long-term profit through capital gain. Some of these investors are so focused on this strategy that they will sacrifice profit in the short term (as expenses such as mortgage repayments and insurance reduce the net rent an investor receives) to take advantage of the wealth created as the value of the property increases value over the long term. Their assumption is that the price of a property will rise over time. Click here to read how some of our most successful residential investors have built their property portfolios.

Understanding rental yield

Yield is the rental money received from tenants over a year, expressed as a percentage of its purchase price. It is typically expressed as either a gross or net yield.

Gross yield

This is the income return on your investment before any expenses or outgoings, such as interest, rates or insurance, are taken into account.

Gross rental yield is a commonly used expression when considering residential property returns as it is simple to calculate and lets you compare properties with different values and different rents easily.

Net yield

This is the income return on your investment after any expenses or other outgoings, such as maintenance and insurance, are taken out. Net yield is sometimes referred to as ‘rate of return’.

High yield for cheaper areas

It’s a general rule of thumb that yields are higher in cheaper areas. The return should be weighed up alongside other factors such as maintenance, tenants, anticipated vacancies, expenses and anticipated capital gain.

The key difference

Although the gross rental yield is a simple calculation, it’s important to remember that it doesn’t take other factors, such as expenses, interest rates or periods of vacancy, into account.

For example, a property may have a high rental yield but may also have high maintenance costs, which may make the rental return low when taken into consideration.

Calculating yield

Gross rental yield

To calculate, take the 'Annual rental income (Weekly rent x 52 weeks)' and divide by the 'Property value'. Then multiply this number by 100.

Example: Property value $450,000 and expected rent $500 a week.

(Annual rental income) = weekly rent x 52 weeks=$500 x 52 weeks=$26,000

 (÷Property value) = ÷ $450,000 
x 100 
Gross Yield = 5.7%

Net rental yield

To calculate, take the 'Annual rental income' and minus the 'Annual expenses or loss of rental income' from this. Then divide this number by the 'Property value' and multiply this number by 100.

Example: Property value $600,000, expected rent $500 a week and expenses/loss $5000.

(Annual rental income) = $500 x 52 weeks = $26,000
(less Annual expenses) = - $5000
(÷ Property value) ÷ $450,000 
x 100 
Net Yield = 4.6%

Examples of expenses can include: 

• Repairs and maintenance
• Property management fees
• Insurance
• Rates 
• Interest payments
• Any anticipated vacancy costs (loss of rent)

Want to find out how much rent you could get for your property?

To find out where your house sits in the local market:

• Contact a property manager
• Ask us for a rental appraisal

Check out the latest market and rental reports.

Our associate company Lodge Real Estate is Hamilton’s largest residential sales business with a reputation of securing outstanding results for clients.  In addition David Kneebone and Jason Waugh both hold agent licenses and are well qualified to discuss potential acquisitions, disposals or restructures within your property portfolio.

Talk to us first and we can discuss your next step.

How do I get started with a property investment?

Learn how these investors built their property fortune.

Show me this week’s best investment property buys.

Case Study 1

Building your wealth

Background

First time investors had bought a property as a rental which was managed by Lodge City Rentals. The investors were interested in building their portfolio and subsequent cash flow and asked Lodge City Rentals for some direction as to the best way to do it.

Business Challenge

Whilst the investors had benefited from the improvement in property prices from their time of purchase they were not in a position where the bank would allow them to release enough equity in their current properties to purchase another.

Business Solution

Whilst they did not have enough equity to purchase again Lodge City Rentals suggested they consider adding and ancillary dwelling for which the bank would lend them enough for. Their existing rental was sited on a 750m² piece of land which gave them ample scope to complete. The simple build process took 10 weeks and the two bedroom

60m² ancillary dwelling cost $100,000 to erect.

The Final Say

The initial investment property was grossing 6.5%.

The new ancillary was tenanted for $250 per week giving a gross yield of 13%. The combined gross yield was 8.4% a 29% increase in gross yield.

Case Study 2

Protecting your wealth

Background

In March 2008 Lodge City Rentals met with an owner who had 32 units in Hamilton but was experiencing problems with the investment. A small private property management firm was engaged to manage the property. However, the monthly statements were inaccurate, bonds were not collected – or if they were they had not been lodged, there were inappropriate tenants and rents were much lower than expected. In addition tenant ledgers were in disarray with complete confusion as to who was in what unit and how much they had paid.

Business Challenge

There was no quick fix to this situation. Lodge City Rentals set about the arduous task of untangling this web. It required firstly calling on each tenant, identifying them, unscrambling their rent payments and working with the bond centre to ascertain where some bonds were. Step two involved ending some tenancies and finding more suitable tenants.

Business Solution

Using Lodge City Rentals pool of resources and extensive knowledge to unravel this mess was the first step. Ensuring the ongoing smooth running of the investment from the time of engagement was the primary focus of the team. The property has enjoyed 87% occupancy from the time of management with 100% of the rent collected and expenses accounted to the landlord. Regular inspections have ensured that small maintenance issues are dealt with at the time and do not burgeon into a large capital expense.

The Final Say

We gave this to the owners, here’s what they had to say……..

“Lodge City Rentals gained our confidence from the outset. We were greeted with a ‘can do’ attitude – willingness to take the challenge on – without question.

We were kept informed throughout the process. “Contact us anytime” was a genuine invitation. Our investment was fragile and our anxieties high, so the personal and sensitive concern for our plight from the team at LCR was appreciated, as was their prompt efficient action.

A dismal (and potentially ruinous) situation was turned into a successful business within a year. We now spend little time on site and we know that our managers will contact us when needed” - Gail Loane

Success Story 1

Our feature investor has been one of our favourite and most successful investors for 30 years. She is, however, private and humble preferring to keep her identity unpublished. We respect this but also believe you’ll find value in her remarkable achievements. After all, since purchasing her first property in 1980 in Glenfield, Auckland, she has amassed over 45 residential investments.

Her advice for first time investors is to start sooner rather than later. It becomes too easy to find excuses for why not to invest. “Creating strong relationships” she councils and for that reason advises using only one bank and listening to the advice they give.

She was fortunate to receive good advice when she started out. Keep your properties in good condition she was told. In addition she received good advice on tenant selection although today she enjoys leaving this to the expertise of Lodge City Rentals.

As a long term investor she has developed clear buying criteria for her portfolio. She invests in property with good location, the ability to develop future potential and it must be a property she feels comfortable renting to tenants. As long as the rent covers the bills she is comfortable as her primary gains have been made from the shrewd selection of properties based on these principles and her ability to uncover hidden potential. This has included purchasing neighbouring properties to develop a larger block for future comprehensive development.

Her interest in property first surfaced when she and her husband were living overseas. She needed to find a unit for her daughter and new baby so they would have a safe and secure place to call home. Despite interest rates of 19% she went ahead and purchased a two bedroom unit. Her daughter paid the then market rent of $65 per week. Once the equity built up she went on to use it to buy further investments.

Despite her undoubted success she is still an avid learner. She encourages investors to read books and talk to people to develop their investment strategy. Seek out expertise she wisely councils. The only time she broke this rule it had disastrous consequences. “I purchased an apartment and didn’t do my homework which would normally include taking advice from my property manager”. She lost almost 25% on the purchase and is a mistake she will never repeat.

She is continually looking to add to her portfolio. Even during volatile times in the property cycle she understands there are bargains to be had. She considers herself a professional investor and, therefore, gets Lodge City Rentals to take care of the management of the property. This allows her time to study the market, understand the trends and recognise great buys.

Her residential quick guide

1.       Start now!

2.       Save a deposit (that’s the hardest part of the property ladder) and get into real estate.

3.       Don’t wait until you can afford the dream house – buy a cheaper rentable house and rent a house in your dream area.

4.       Develop a criteria

Her Criteria

·         Location

·         Potential to add value

·         Make sure you feel comfortable with tenants renting the property.

5.       Be a professional investor – leave the management of property to the expertise of Lodge City Rentals.

6.       Listen and take advice from trusted experts including your bank manager, property manager, accountant, lawyer and a sales professional.

7.       Join your local Property Investors group – a wealth of information and support there.

Success Story 2

Graeme Walker purchased his first property in 1987 and today generates in excess of $350,000 in rent per year.

The first property was bought in partnership with a mate but within six months they had purchased another 3 within the Forest Lake suburb.   All of the properties shared the same characteristics – they were run down – required high maintenance and generated high returns.

Graeme’s motivation for property investment stemmed from his recognition that the Government wasn’t going to provide the retirement income that would suit him.   Therefore he set about establishing his own future income.

Graeme believes in developing a diversified property portfolio.  His properties represent a balance between low maintenance, steady income, high yields, favoured locations and strong potential for capital growth.   An active investor regardless of market conditions Graeme’s assessment of a property to purchase takes into account the value of the purchase and how it will affect the balance within the portfolio.

A strong advocate of the team approach to investing Graeme surrounds himself with trusted professionals and seeks their expert opinion before committing.   His pack includes his bank manager, accountant, lawyer, property manager and trades people.   “Develop great relationships” he councils when pressed for his advice on getting started in property investment.

He also believes in the power of curiosity.   Ask plenty of questions of your trusted professionals.   Listen carefully to the advice they give.   Formulate a strategy with a criteria – and stick to your criteria.   “The only time I’ve come unstuck is when I deviated from my criteria” he says.   In 1996 Graeme purchased a property thinking it had future potential without asking enough questions of enough people.   It turned out the future potential was uncertain and did not materialise.   He eventually cut his losses after 18 months and reinvested in a better property with an important lesson learned.

Graeme believes buying well is a function of being constantly active in the market.   “You’ve only got to be in the right place at the right time – You’ve got to know you’re there” he says wisely”.   This means keeping up with market conditions, sale movements and rental trends all the time.   “This is easier today than ever with the information Lodge Rentals sends me and the analysis on their web site” Graeme points out “but you still have to make the effort to get out and see the buys”.

Graeme’s latest addition to the portfolio is fully furnished self contained studio units.   Don’t expect it to be the last.   “Housing is one of ur essential needs – and as the Hamilton population grows it places more pressure on both prices and rents” he finishes.

Graeme Walker

1.   Ask lots of questions from current and former property investors

Always get advice from property managers they are professionals with their ‘fingers on the pulse’.

Get good advice from a broad range of professions.

2.   – Not all about return

-      Dont sell unless you really have to

-      Work with good professional people, trades people, property managers, bank manager, accountant etc

-      Location counts; be prepared to pay extra for the right location.

3.   – Location, location, location

-      Age of property relating to ongoing maintenance

-      Future potential of property relating to future city planning etc

-      Yield – although this does not form the main criteria