Scheduled maintenance is planned for June 13 at 4pm, during which time the site will be temporarily unavailable.
%20(600%20x%20600%20px)%20(1500%20x%20600%20px).png)
For as long as Kiwis have been gathering around the barbeque, they have been waxing lyrical about the properties they own, the properties they’re about to buy, and the properties that will fund their retirement. Except, the people gathered round the BBQ, the ones having those conversations, have traditionally been men.
We know that women invest less than men and usually think of that in terms of the stock market or investment funds, but how do the numbers stack up when it comes to NZ’s most beloved investment strategy – the rental property?
Unsurprisingly, most properties in NZ are owned by couples, however for those owned solely by women there is a slight majority when it comes to owner occupied properties and a more significant minority when it comes to investment properties. Specifically, women alone own 21.6% of investment properties in NZ compared with 26.5% being owned by men. This contributes to the gender wealth gap which measures the differences in assets owned by men and women, separate from the pay gap which measures income. Property of course can tick both boxes, providing an asset with a realisable value and a source of income, so let’s get more women in a position to get involved.
Why do women own fewer investment properties?
The first reason is the gender pay gap, which impacts women’s ability to source and service additional lending from the bank. This is likely to be a substantial barrier for women, as they have smaller KiwiSaver balances to use for their first homes and take longer to build equity in those homes due to lower incomes and career interruptions, making it later in life they can leverage off their home for the next property.
The second reason put forward is a lack of financial education or literacy, however I’m not convinced that it’s a lack of understanding keeping women from these investments. I would suggest that a lack of inclusion in the conversation has been one of the driving factors, and which is now changing as the industry and networks become far more inclusive.
I would also suggest that there is a time and energy factor to be considered. When it comes to my Managed Fund there is no maintenance to be considered, no calling a plumber or making sure I meet regulations or keep abreast of legislative changes. Only 59% of investment properties in NZ are managed by a property manager (up a sharp 10% since 2020) which means 41% are looked after purely by the landlords, who have taken all responsibility onto themselves with all the time and energy that entails.
The existing mental load, household responsibilities and care burden that women do and historically have had in addition to paid work mean that the idea of essentially managing another house may have been a daunting prospect.
Despite the challenges, investment properties remain a popular and (if done correctly) successful route to building wealth for the future. There are also women who have used their interest and confidence to not only make successful investment property purchases themselves but have turned it into a business to help others. Maree Tassle, founder of I Find Property is one of those. For anyone seriously considering an investment property that will meet their needs now and, in the future, using a service like I Find Property ensures you get insights on the industry, the regions and the property types which are hard to come by otherwise.
So, if you are considering building an investment property into your Financial Plan for the future, what are some basics to get you started?
1. The minimum deposit requirement for an investment property can can be different to an owner-occupied home. Currently you need a 35% deposit if you are purchasing a property that is second hand (has been lived in before), however if you are purchasing a property that is brand new and you own an owner-occupied, you only need 10% (for the investment property). This has changed over time as the Reserve Bank alters policy. Knowing this, the question for you is will you fund this through equity or cash?
2. Equity is a term used by brokers and lenders but often not fully understood. Equity is the portion of your house that you own, as opposed to the portion owned by the bank. So, to work out what the equity is in your home currently you can take the value of your house today (not what you paid for it) and subtract any mortgage. That is your equity as a dollar figure – to work it out as a percentage you need to divide that number by the value of the home.
For example, if my house is worth $1,000,000 today and I owe $600,000 on my mortgage, my equity is $1M - $600k which is $400k or 40% ($400,000/$1,000,000).
3. Understand what leveraging means. Another industry term thrown around with little explanation, leveraging means borrowing from one area to invest in another. It doesn’t have to apply only to property, but it is one of the key differences in investing in property over managed funds – you can borrow money against one property to invest in a new one. This is where knowing your equity comes in, that’s what you can leverage to put a deposit on the next property. It’s important to note that you can’t use ALL your equity however, you must leave 20% equity in an owner-occupied home, therefore in my example I would have potentially $200,000 I could leverage to buy an investment property.
4. Always use a professional. Use a mortgage adviser to help you source and structure the lending and use a property manager to look after the investment. Not only are most of us time poor and stretched thin, but the cost of getting it wrong (whether that’s dealing with tenants or the bank) will be far greater than the cost of engaging a professional.
5. Consider whether it makes most sense to own the property in your own name, in a Trust, or in a Look Through Company. The best way to find out the answer is by speaking to a lawyer or accountant, and ideally have the correct entity set up before you purchase the property as it’s much easier, faster, and cheaper for you to buy it in the correct ownership at the start.
6. Diversify. We talk about this a lot for other investments, but it applies to property purchases as well. Don’t own all your properties (even if that’s only 2 total) in the same city. If (or more accurately, when) there’s a natural disaster, your entire asset base could be destroyed. While we can mitigate this with insurances, we know that the time frame to get a claim paid and then to get properties liveable again is substantial. A simple fix is to spread your properties across different regions.
7. Diversify again. If possible, split your properties and your lending between multiple banks, i.e. have your own home with its mortgage at one bank and take your investment property to another bank with its mortgage. The importance of this is retaining control over the proceeds if and when you sell either of your properties. Whether you’re selling your investment to realise the capital gains, or you just want to sell your home to move somewhere else, if the same bank holds all your properties cross secured then they have discretion over how much of the sale proceeds are used to repay existing debt. We want you to have control wherever possible, not the banks!
8. Most investment properties are not cashflow positive unless you have a small mortgage, particularly with current interest rates. Before you go in you need to know whether you are looking for cashflow or just capital gains and know that it is probable that you will have to put money in on a regular basis.
9. Don’t get sold on a property based on 30 years of interest only repayments. While putting your investment mortgage on interest only repayments definitely helps with cashflow, the banks will only ever guarantee 5 years of interest only and in some cases won’t even approve that. Despite this plenty of salespeople will show you the amazing returns you can make on this property – calculated on never having to pay a dollar of the principle loan.
10. Property investment is a long game. It’s easy to get caught up in the Government changes to Brightline rules and think that 2 or 5 years are plenty of time in which to hold and sell an investment property, but most investments should be chosen with a longer term in mind, however. If you are banking on flipping a property (or properties) in quick succession, that is speculation not investment.
Owning property is something women couldn’t do until very recently. In the US it was only in the 70s that women were able to get a line of credit without a man cosigning the application! The ability not only to own property but to leverage it to build wealth for ourselves and our families is a huge step towards reducing the gender wealth gap. Buying property takes strategy, preparation, and consideration, but with a little advice and the right support it can be a great way to use what many Kiwis already have – equity in their home rather than cash in their accounts. Next summer when the guys start firing up the barbeque and talking about their investments, you’ll be able to join the conversation, bring other women along with you, and shift the focus from ego to equity.
Elizabeth.
I see my role as a Financial Adviser not just to advise on individual aspects of your finances, and certainly not to simply transact on your behalf. My role is as a guide, to help chart the course, provide scaffolding and support as you progress and redirect you if you’re getting lost in the weeds. Most of our regrets, I have found, come from not having started sooner. So, let’s start today.
About Elizabeth
Hi, I'm Elizabeth, one of the Financial Advisers here at Velocity Financial. Day-to-day, this involves engaging in conversations with clients about their lives, families, aspirations, and, of course, financial goals. In a big picture sense, though, I'm driven by my perpetual desire to improve outcomes for individuals and, eventually, communities. At Velocity we aim to bolster the financial literacy of Kiwis, helping to alleviate financial anxieties, and opening up the possibilities of what can be achieved. We empower our clients to formulate a plan for the future. I'm particularly passionate about assisting women in reaching their financial goals and feeling confident in managing their money. To aid in this, I write a monthly blog on topics that affect women and maintain an Instagram page @what_would_she_do.vf. This platform provides financial content for those who might not be prepared to consult with an adviser yet but still require and deserve sound advice. In my past life, I was a nurse, so helping people is essentially my modus operandi (I'm also quite resilient and not easily grossed out!). During my spare time, I'm likely attempting to keep up with my energetic kids. If I do manage to find some time for myself, you'll find me curled up with a coffee and a book.
Elizabeth is the author of the monthly blog What Would She Do? A column for women, by women.
Follow What Would She Do on Instagram
Disclaimer: Elizabeth Moloney-Geany (FSP693611) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Elizabeth’s disclosure statement on our website.
Always get professional advice
The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures https://www.velocityfinancial.co.nz/disclosure-statement.