How do you leverage off your assets, and use that little bit of spare income to build future assets?

In New Zealand, a common wealth building strategy is to buy a house, then use the equity in this property to secure a bank loan to buy another, with the income from the tenants paying the mortgage. You can then sell your rental property(s) down at retirement and collect the capital gain, or continue to live off the rent.

This approach has been traditionally successful for many New Zealanders over the last 50 years, but it’s not a failsafe way to build your assets today. 

Property price slumps, bad tenants, earthquakes, soft rental markets – these are all risks associated with real estate investment.

And today, with low yields, flattening prices and probably most importantly hard to predict legislative changes, I don’t recommend putting all your eggs in the NZ residential property basket.

I do, however, recommend using the same concept – building up assets over a working life and then living off the income – but using a more diversified asset base that is not so dependent on one class of asset.

I’d like to highlight that there is a vast range of assets available to invest in; assets that will grow your wealth with varying levels of risk. If you get to a stage where you have surplus income, diversification is one of the mainstays of professional investment advice.

Diversifying will ensure that catastrophic risks in one asset class don’t wipe out a lifetime of work and wealth.

Shares, bonds, cash in the bank, overseas shares, index funds, commercial and industrial property can all do the same job in a safer, less risky way that just investing in residential property.

Getting the mix of assets right, and ensuring you are investing in quality assets is key to ensuring you and your family are set up for now, and in the future.