Auckland is no longer the driver of the nationwide market. What we are looking at now is a much more localised market, with places such as Wellington and Queenstown being driven by internal economic factors.
In this kind of market, it’s common to see investors lose confidence in their ability to source locations with strong, fast capital growth. Investors start looking for other ways to create wealth, and one effective way to do this is to grow their equity.
There are three things to consider when you are looking at growing your equity.
You have to decide: which of these are the most important to you? It’s most likely you are going to have to compromise on at least one of them.
- Fast equity
- Easy equity
- Guaranteed equity
If you’re looking for 100% guaranteed, reliable equity growth, the only way you will get this is by paying down your mortgage. This is both hard work and will take time.
The easiest strategy? To wait for the market to cycle up over time, giving you equity growth as the value rises.
But this may be slow, and never guaranteed. Of course, you’re almost certainly going to see some growth and some point, but you could be waiting 10+ years, depending on when and where you’ve bought.
The third and fastest way to make equity gains is by ‘manufacturing’ your equity.
For example, you can create equity by renovating and adding value to your property.
To manufacture your equity means you are creating the equity. In the renovation example, you are manufacturing your equity by adding more value to your property than the cost of the renovation.
Renovation is a common way to manufacture equity. I’d bet that a lot of successful investors started their career with a renovation project. Renovating is relatively cheap (compared to building new or developing) and is faster than waiting for capital growth. Just be mindful that taking on a renovation project if you already work full-time can be overwhelming and exhausting!
The key with renovation is to make sure your profit margin is wide enough for it to be worthwhile. This sounds obvious, but it’s actually often overlooked. Make sure you research what upgrades actually increase the value of a property – for example, a typical strategy is to add an extra bedroom, give the property a fresh lick of paint, or renovate the bathroom and/or kitchen.
Another thing to consider with renovation projects is that you are usually limited to a project that is close to you – unless you’re willing to travel long distances to work on your project. This means that investors often choose a project based on proximity to where they live, rather than choosing a project in the strongest property market.
You’re best to get as much advice as possible if you want to add maximum value to your investment.
You don’t want to work on a project for months and only come out a few thousand dollars on top. That is not an efficient use of your time, money, and other resources. Worse yet is the lost opportunity cost – imagine what you could have done in that time!
So, what will you do to push your progress forward? Renovation is only one of many ways you can manufacture equity.
Come along to a free Property Investor Masterclass’ near you to learn about some of the proven strategies we’re personally using in the modern New Zealand real estate market.
We talk property investment, finance, passive income, and lots more. NOT to be missed!
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– Sue