Why property is the ultimate long-term investment

by Genius Homes

There are a number of reasons why some investments perform better than others. But in this article, we’re going to focus on property in particular, and why it might be a sound investment at this time. 

Property can be set up to generate passive income. When used as a rental property a house can be the ultimate long-term investment, if the value increases over a period of time. Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate - this remains true today.

Please be aware that the opinions given below do not constitute financial advice and are a summary of publicly available information. You should always consult a registered financial professional before making any investment decisions.

Is property more affordable today than it will be tomorrow?

It seemed only a little while ago that we thought mortgages had reached their most affordable rate ever and were unlikely to go down further. On the 16th March 2020, the Reserve Bank reduced the OCR (Official Cash Rate) to an all-time low of 0.25% where it has remained for over a year. Many retail banks have cut their mortgage rates to match, with an average 1-year fixed rate of 2.49% seen across all major banks (as of June 2021).

This is excellent news for anyone looking to build an additional house, invest in property or looking to refix their mortgage rate. If you have existing equity tied up on your property you may be able to leverage this to get a mortgage on a new house which you can then use as an investment property. There are a number of options available for generating income from a second house and whereas using it as an Air BnB might be less popular now than before there are still many uses for an additional property beyond accommodating short-term stays. 

While this low interest rate is great news for borrowing money it’s not great news for savers. The record interest rate is also applied to savings interest rates so while borrowing is cheap sadly savings provide a lower return than before. Many savvy investors were aware that traditional savings accounts provided lower returns and had their savings in investments. 

There are winners and losers when interest rates go up or down and while saving might not be as lucrative as it was before borrowing is more affordable than ever, and this is good news for the property market.

How are house prices doing?

While the interest rates reach all-time lows, New Zealand house prices keep getting higher. This means that your existing property likely has done more than just hold its value, the equity tied up within it could be greater than ever. However, it does mean that if you’re looking to buy an existing property as an investment, you too will have to pay these increased prices.

So in the absence of bargains how can you use the low cost of borrowing to your advantage? Well, the answer lies in building a new property.

Prefab is obviously a good route to investigate with this, especially if this is your first time building and you want to avoid the daunting project of managing an entire house build. With a prefab home, the costs can be easily controlled as there are no weather delays and subcontractors can be managed on-site. Because prefab home manufacturers can buy in bulk thanks to controlled production timelines they can pass on the savings to buyers. 

Can my property investment earn money?

While the tourism sector may have disappeared almost overnight and taken Air BnB’s and other short-stay tourist businesses with it, there are still a number of opportunities for a property to earn an income, and potentially cover its own mortgage.

History shows that recessions generally don’t impact the rental market in the same way that they affect other income streams. There are many reasons for this including people looking to downsize their monthly outgoings or homeowners being unable to maintain their mortgages.

Another reason why building a prefab home is an attractive option over buying an existing property is the Healthy Homes legislation coming into force. This requires all homes to meet certain insulation, heating and ventilation standards in order to be able to be rented out. For some people looking to get into property investment, this can be an overwhelming task with various unknown costs to meet the standards. 

The advantage of buying new is that modern homes meet these standards by default. Every Genius Homes house meets the insulation, ventilation and heating requirements in line with the new Healthy Homes guidelines. Providing full peace of mind that your new property will be a solid rental home for years to come.

Additional legislative changes have come into effect to make it easier to build property rather than buy existing ones. This is because the government is actively seeking ways to alleviate the housing crisis by increasing the housing supply. These changes include keeping the bright-line limit for new builds at 5 years while extending it to 10 years for existing homes. The Reserve Bank is also making it easier for banks to approve lending for new build properties. While banks are required to need a 40% deposit for investment property purchases of an existing home there is an exception in place for building a new home.

While we cannot say that property is the perfect investment for everyone we can say that prefab can be a good option for those looking to get started. Whatever you choose there are a number of reasons why an extra property can prove to be a sound long-term investment. To learn more about our range of prefab homes and to find your perfect investment property why not use our online dream home finder?

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filed under Property Investing

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