Is property investing still the path to financial freedom?

In a nutshell:

• For years, Kiwi have viewed investing in property as one of the best ways to build wealth and achieve financial freedom. Although it’s still a great option, a lot’s changed in recent years, and there are some important things to bear in mind if you’re thinking about going down this route.
• Successful property investment requires strong fundamentals—good location, solid yield, and manageable upkeep.
• With properties prices now more expensive overall, and the reality of maintaining an investment property more complicated, potential investors need to consider the financial and mental load involved in owning rentals, and whether it works for their situation.
• Paying off your mortgage and building savings may offer more peace of mind, while the rise of technologies like Sharesies are also making other investment options more readily accessible.
• Ultimately, investing in property is still a great way to build wealth—but it’s important that it aligns with your lifestyle, financial goals, and capacity.

Is property investment the best path to financial freedom?

It’s a question I often hear from people trying to improve their financial position for the long run.

Drawing on my experience in the industry, and conversations with thousands of aspirational New Zealanders, let’s take a deep dive into whether you should focus on paying off your mortgage or take the plunge and buy an investment property.

Ultimately, almost everyone has the goal of achieving financial freedom—whatever that means to them—and traditionally in New Zealand, property investment has been seen as the best way to achieve this.

But the world isn’t the same as it once was, especially post-COVID, and I’ve seen a massive shift in people’s mindset around just how investment property fits in to their financial goals.

In the past, New Zealand culture has been heavily reliant on property investment as a path to financial security. But now, more than ever, Kiwi are taking a broader approach to their goal of financial freedom and what is really going to get them there, rather than just assuming that property investment is the only way to go.

It’s awesome to see a slow but growing awareness of investing in shares, of other forms of investment apart from property, investments such as commercial property syndicates or high-performing managed funds. We’ve seen massive growth in KiwiSaver too and the rise of apps like Sharesies making investing in shares so much more accessible.

While there are many different forms of investment out there—and people are slowly growing more comfortable and familiar with them—property remains the preferred way for most people to pursue their financial goals.

I understand this from my own experience. Back when I used to work in a bank, I was still renting. 12 years ago, I bought my first home. Then, over the last ten years, I have slowly, slowly, slowly expanded my portfolio. I’ve been on the coalface so much – buying, selling and renting – that I can fully understand why people default back to the idea of property investment.

Back when I started as a mortgage broker—a decade ago—you could borrow up to 90% across your whole portfolio.

That means your LVR (Loan to Value Ratio) could be 90% across your whole portfolio – including both owner-occupied and investment properties.

In Christchurch, people never used to stress terribly much about having home loans, even at this level, because the region didn’t boom on debt money. EQC and insurance payouts after the earthquakes underpinned the market surge at that time and the reality is that people never really over-leveraged themselves.

Back then, people used to buy investment properties for around $290,000 to $320,000 and rent them out for about $350, $360 or $370 per week. Everything used to be pretty cheap!

Over the last few years, property – and everything else – has become a lot more expensive. Not only is life more expensive, it’s also a lot more complicated. With the digitalisation of every aspect of life, from kids at school with laptops to the rise of AI, the daily grind is more stressful than it used to be.

(Bear with me here, this is related even though it might seem I’m heading off-topic!).

The fact is that life is just not as simple as it was. Because of this, I think it’s so important for people to take their time before rushing into buying an investment property – or they risk losing their peace of mind and, ultimately, their happiness.

If becoming financially free is the aim, is buying an investment property really the best way to get you there and what will the cost be in other areas of life?

For many of us, paying off the mortgage is the number one most satisfying thing you can do to be financially free.

Some might disagree, but in my view, paying off your mortgage quickly and having a good buffer of savings gives you so much peace of mind – and people tend to overlook the value of this.

It seems that modern life means for many people a constant, underlying worry about finances. It doesn’t matter how much money you’re earning – the expectations keep pace with the growth in income – and the reality is that 90% of the people I talk to live with financial worry all the time. You know that must impact on your mood, on your relationships, on your career, whether you’re living week-to-week or maybe have a bit of a surplus but know you’re not financially thriving.

Buying an investment property makes sense if you have a lot of equity in your current property, but I’d never recommend it to my clients just because it’s regarded as the inevitable ‘next step’ or the only way to achieve your financial goals.

Property investment can provide a lot of satisfaction and joy if you’ve picked the right property, in a great location, for a really good price and it is low-maintenance and rents well! In that case, it can work really well, it’s tried and tested.

People always need houses, after all, so it can be one of the most reliable ways to grow your wealth and I still strongly and fundamentally believe in property investment.

It's just that these days life is a lot busier, with many more commitments and complications.

Owning an investment property requires a lot of mental bandwidth that you may or may not have to spare.

Not only is it much more expensive to buy and maintain a property these days, but there are also regulations to bear in mind, including the Healthy Homes Standards that govern minimum requirements for heating, insulation, ventilation, moisture and draught stopping in rental properties.

The time commitment is significant. Even if you have a property manager, there’ll be oversight required, and if you don’t have a property manager, you’ll be dealing with tenants and property maintenance on a regular basis.

You’ll need a financial buffer in place too. What happens if the property is empty for a couple of months? Can you afford it? Often, we hear from property managers that tenants are not paying rent and they’ll need to go to the Tenancy Tribunal to try and recover costs. That means you may be out of pocket for a while.

Yes, there are options available to go interest-only on the mortgage or to apply for a mortgage holiday, but none of this is easy, none of it happens without a time commitment, so you’ve got to be prepared.

Property investment is still a great way to be financially free in the right circumstances – and with a plan in place for what you expect from the property (that’s important).

If you’re a couple on a $250,000 income, for example, you’ve got a home worth $1 million with a mortgage of say $350,000 or $400,000, then using some of the equity to buy a quality investment property (that will hopefully go up in value and has a good yield) can be a great move.

But even if you have a decent income and good equity… If you plan on taking that equity right up to the 80% LVR limit to use as a deposit, borrowing 100% to buy an investment property, borrowing another $10,000 to $20,000 for a bit of a buffer, and putting it all on an interest-only mortgage—I’m not a fan of this approach.

I’ve never believed in that theory, and I will never agree with anyone who is trying to sell you an investment property by saying you can just arrange interest-only lending to make it affordable.

I understand that everyone’s motivation is different, everyone’s definition of financial freedom is different. But I’ve had an inside view of the financial journey for so many people over the past ten years, as well as buying and selling more than 20 properties of my own and it all comes back to stopping to think deeply about what you really want to achieve in your life, short term and long term, before jumping into investing in property.

Historically, investment properties have been seen as a long-term strategy, but I’m changing my view on that. As I head towards my forties, with my kids now 8 and 6, I look at my life for the next five or ten years and realise that my priorities have completely changed from where they used to be just a few years ago.

And I know that’s not just me. Life is so uncertain these days, with big changes in technology and a shifting political landscape, both here and overseas.

For some, property investment will remain a very long-term game, but it can make sense to start thinking of the short-term game as well.

Who knows what is going to happen in 10 years’ time, so perhaps rather than thinking of the long term, of the next 10 or 15 years, look instead at the short term.

If you buy this property now and sell in two or three years, what will happen? What are you going to achieve?

When National came in, they changed the bright-line for existing properties from 10 years to two years. People don’t talk about it, but I honestly think this is such a privilege – to be able to buy a property, sell it in two years and not pay any tax on it. It’s almost too good to be true. But to be smart about it, you need to pick an investment property that makes sense, that has a good future, and you need to do your due diligence. If you look at people that do particularly well with investment property, they tend to stick to the fundamentals, buying good, solid, standalone homes, in good locations with good school zoning.

Brick-and-tile homes in family-friendly suburbs, these are your tried and tested investment properties.

This is how you turn property investment into a winning strategy – pick the property well and you stand a good chance of benefitting from capital gain. There are those that advise investors to chase cash flow instead, but the reality is that it’s very hard to find a cashflow-positive property these days. In my experience, the number one reason people buy property is for the capital growth.

Look at what has happened with prices in Auckland over the last ten years, in Queenstown, in Christchurch, so choose your investment property carefully and put yourself in the best possible position to see the value rise.

But if the outcomes just don’t seem worth it in the short term or if you can’t find the right property at the right price, don’t worry.

You don’t need to rush into buying an investment property. Yes, an investment property is great for your kids. Yes, it’s great for your retirement. Yes, it’s great for all of that, eventually, but the financial stress may not always be worth it, especially if life is complicated right now (with young kids, for example).

So, if your path to financial freedom isn’t investment property (at least, not right now) then what is it?

A major reason for the popularity of property investment is that people just don’t understand the alternatives.

They don’t have knowledge of the financial markets, the international markets or private equity, of how wholesale funds work, how managed funds work and what different types of funds are available.

That makes it hard to put your faith in these options, especially when you’re thinking about investing a significant sum of your hard-earned money.

But if I look at our own investment funds at Squirrel for example, knowing who’s managing them and what a super-talented bunch of strong, ethical people they are, then – hand on heart – I would have no problem recommending a conversation with them. If I’d just sold an investment property, I’d probably think twice before buying another rental and I’d maybe look at a high-growth fund with a good, ethical company.

If I’m getting 7% to 10% return on a fund, while being able to focus my attention on my kids and my life, why would I bother buying a rental?

Are investment properties still the best way to financial freedom?

Property investment remains the number one way to build long-term wealth – just as long as it doesn’t ruin your relationships and your happiness along the way!

And if it’s not the path for you right now, there are other great options to explore. Open your mind to the possibilities, seek out the knowledge and make a choice that fits your financial goals.