Real estate is still going strong in 2022 and is an appealing long-term investment vehicle for a lot of people because it offers many attractive benefits. First of all it has the advantage of being a tangible asset, unlike stock and if you’re looking for a better return on investment, property has the added benefit of leverage.
The power of leverage
Property investments have a built-in benefit of the power of leverage. Using leverage can be a great way to grow your property portfolio and increase profits, but it’s important to know how to use it to your advantage while avoiding the heavy risks involved. When leveraging a property, you borrow funds from a lender, such as a bank, credit union or a private money lender, to purchase a property instead of covering the entire cost yourself.
The bank will lend you the loan-to-value ratio (LVR) for investment property loans in New Zealand, whereas you may not be able to borrow as much to invest in other asset classes such as stocks. This means you’re able to increase your spending power and use leverage to generate higher returns by investing in property..
This strategy is one of the reasons investing in property is so attractive. Leverage allows an investor to either purchase property that costs more than the amount they have available or to spread out the money across multiple properties.
Return on investment
Return on investment measures the performance of investment properties. It is calculated by the percentage of invested money that’s recouped after deducting associated costs. It’s important to investigate the potential ROI on a property before you invest as there are always many variables at play.
Return on investment in property versus stocks or bonds is generally much higher because you gain the ROI on the full amount invested including any loans. With stocks you only gain interest on the initial amount you invest.
There’s no guarantee you will get a ROI from your real estate, but our qualified financial advisers can help you assess potential ROI and navigate the complexities of property investing.
In addition to power of leverage and return on investment, there are other advantages to building a property portfolio:
Cash flow
Owning property to rent or lease can create positive cash flow as long as you have something left over once the mortgage and any expenses are paid. Even starting off small, once you put more equity into a mortgage, you can expand your property investments as well as your cash flow.
Our property investment experts have the knowledge and the know-how to increase your cash flow and build a steady income stream, or even replace your dayjob and support your retirement plans.
Appreciation
When a property’s value increases over time, it is said to be appreciating. While there are no guarantees that property will appreciate, understanding the market conditions and making smart choices within that environment can protect your investment.
Diversification
Managing risk is a large part of investing. Diversifying your investments spreads them out across different asset classes, sectors, and strategies so that a downturn in a particular area is less likely to impact the whole portfolio. While there is risk when investing in real estate, by having diverse holdings consisting of properties, shares, or other investment vehicles, you can mitigate your risks.
