KEY POINTS:
The property boom is turning more than the Official Cash Rate on its head, with panicky baby boomers – who fear they've left it too late to plan for retirement – now finding they can cash in short term.
Managing Director of property investment brokers KEY2, Russell Benshaw, said it's good news in the medium term for the New Zealand Reserve Bank because retirement may not be the disaster everybody is expecting, particularly with people aged 45 to 60 years now finding that it's not too late to build up a nest egg.
"We were very surprised at the huge response we received when we launched our property investment package 'Speed Wealth for 45 to 60 year olds' – it has turned out to be a real trigger for people."
Mr Benshaw said the traditional approach to owning investment property is to buy it, hold it for ten years or more and then sell it. Over a long period of time it has been common for many investment properties to double in value.
"The big problem with this approach to owning investment property is that it can take ten years or more to work well. And for many people approaching retirement, this is far too long to wait."
Mr Benshaw said two popular strategies for building speed wealth were 'buying carefully selected properties off-plan' or 'buying carefully selected investment property in high growth areas'.
"A good off plan property is only offered occasionally, which means investors must get in early when the opportunity comes up. You want first choice of the best properties and this means moving fast - in some cases the window of opportunity to use an 'off the plans' strategy can be as little as two to four days."
The best way to measure if an off-plan property stacks up is to ask:
1. How likely is an owner occupier to buy this property in ten years time? If the answer is 'very likely', it means the property will sell to both investors and owner occupiers in the future. The more kinds of people who are likely to buy an investment property, the better the opportunity for a good capital gain.
2. Would a mainstream bank lend at least 80 per cent finance on this property? Generally this means the property will be easier to sell than a property that they will only lend a lower finance amount on.
3. What is the rental market for this property? The bigger the rental market for the property the less likely it is to have vacancies or bad tenants.
4. What will cause this property to increase in value? Difficulty in identifying sound logical reasons why a particular investment property will increase in value quickly is a good sign this is not the right property to use an 'off the plans' strategy with.
With the 'buy carefully selected investment property in high growth areas' strategy, the goal is to make a gain on each investment property of somewhere between $150,000 and $350,000 within two to five years.
Important questions to ask when pursuing this strategy include:
* Is the population in the area increasing rapidly? Local government authorities will usually have large amounts of high quality and up-to-date population figures for their area.
* Why are people moving to the area? Investors don't want to be caught by temporary growth – good examples of these traps are certain mining towns in Australia which will only enjoy a brief boom period.
* What is the availability of rental properties in the area? If there is a limited amount of rental properties available in a high growth area, it means the demand for these properties is very high – and that's a good thing.
Mr Benshaw said the key is to focus on the property first, before anything else.
"If it's a good property it will be easy to rent, it will attract good tenants and it will have a good capital gain and will be very easy to sell in the future," he said.
