Property investment

Insights and commentary on property investing.

Sandy Richardson answers some common questions for New Zealand property investors. Read this week's column or see previous columns.

Sandy Richardson

Sandy Richardson is a Sales Manager at BNZ and heads up a team of property managers who specialise in residential property investment. The views expressed are her own and do not necessarily represent those of BNZ or its related entities.

Latest column: Project Insurance

First published in New Zealand Property Investor Magazine, April 2012

With capital growth slowing over the past few years it's no surprise that the focus has turned to higher yields and cash flow.

Over the past six months or so we've seen investors with established portfolios looking to improve their overall yield and cash flow opportunities. This has resulted in some investors selling property/ies that aren't producing optimum yields, and looking to swap these for properties that provide opportunities to create cash flow and good yield returns.

We've seen a range of options used by investors to achieve this:

  • Making cosmetic changes
  • Making structural changes
  • Splitting the property into two tenancies
  • Converting a garage into a sleep-out
  • Adding a minor dwelling
  • Subdividing.

Although these can support the goal of increasing income they can take a lot of money, time, effort and energy to arrange, and pose risk in the execution both during and after completion.

Whilst your home and landlords insurance should cover cosmetic changes, a builders' risk or contract works policy is required for any of the other changes above. Therefore funding and protection go hand in hand for these types of projects. Keep in mind that if you are borrowing money to fund the project, it will not be uncommon for your lender to require a copy of either the builders' risk insurance or contract work insurance prior to releasing funds.

Contract works or builders' risk insurance will protect your investment against the risks of accidental damage done by the builder or other subcontractor, any increased or any escalated costs during construction (i.e. for material or labour), the risk of natural disaster, public liability (i.e. if damage is done to neighbouring property or person), theft and vandalism, and cover for professional fees to rectify things if a loss does occur.

Typically builders will take care of having builders' risk insurance, contract work insurance on the other hand is taken out by you as the owner to cover the build and liability considerations. This is more commonly used if you are taking a project management role. With the recent introduction of Building Act changes that require licensed building practitioners (LBPs) to undertake or supervise all restricted building work, development costs may increase and the average DIY Kiwi may become an endangered species. Take the time to consider the consent requirements for your project. Cutting corners can lead to future resale and insurance difficulties, and can also cause headaches during any claim process.

Insurance isn't always front of mind when considering development possibilities but it's worth ensuring that the equity that you have created and the future cashflow that you are predicting isn't quickly eroded from lack of protection.

In a situation where extra insurance cover is needed these costs should be factored into your project budget. Having cover during any development phase may not require an increase to your insurance premiums but will provide peace of mind that your property and project are both covered.

Every development opportunity will have its own opportunities and risks. It is imperative to get in early and discuss your plans with your team of experts, and other required professionals including a surveyor, an architect, the council, LBP, and your insurance provider.

 

Previous property investment columns

 

The offsetting advantage  PDF 210KB March 2012

Sandy Richardson examines the ins and outs of insurance for property investors.

Are you well-covered?  PDF 168KB February 2012

Sandy Richardson examines the ins and outs of insurance for property investors.

Time to reflect  PDF 152KB January 2012

The state of the market and the outlook for investors, as Sandy Richardson sees it.

Beware of bargains PDF 154KB December 2011

Cheap is not always the best when buying property, writes Sandy Richardson.

Your investment blueprint PDF 122KB November 2011

When it comes to your banking, it pays to think ahead and have a strategy which allows room to expand. Sandy Richardson writes.

Switching banks: Stay or go? PDF 88KB October 2011

Switching banks used to be a time consuming and difficult process. Not anymore. Sandy Richardson explains what's changed and why spring is such a busy time for home buying.

Rate averaging PDF 143KB September 2011

Fix or float? Sandy Richardson takes a look at the age old question that all mortgage holders must face.

Mortgagee sales – how to avoid them PDF 99KB August 2011

Nobody likes to see a mortgagee sale. Sandy Richardson reveals the most common ways property investors get themselves into trouble.

Still more fees PDF 78KB July 2011

Continuing a look into the world of fees.

Fees, fees and more fees PDF 93KB June 2011

Ever wondered what the plethora of different home loan fees and charges are all about?

The cost of lending PDF 141KB May 2011

For many property investors, interest is the largest ongoing expense, sometimes even surpassing the purchase price of the property.

The right loan for you PDF 98KB April 2011

In property investment, it's important to structure your loan appropriately to maximise returns and minimise costs.

Guarantees PDF 82KB March 2011

When your bank requests a guarantee, the reasons may not always be clear. Sandy Richardson explains what they mean and why they're necessary.

Building and using equity PDF 90KB February 2011

Sandy Richardson shares her thoughts on how to make the most of finance to build and utilise the equity in your residential property investment portfolio.

The ins and outs of registered valuations PDF 81KB January 2011

Buying a new property? Restructuring your existing lending? Borrowing more funds? Sandy Richardson explains why your bank will often ask for a valuation on one or all of the properties involved in the transaction.

Preapproval maximises your buying power PDF 129KB December 2010

Sandy Richardson examines how investors can best arm themselves to tackle the current buyers' market.

Buyer's market PDF 60KB October 2010

Sandy Richardson explains why the current residential property market is ripe for the plucking.