In last month’s column I spent a bit of time talking about the implications that all the recent legislative and bank policy changes are set to have for Kiwi property investors as credit conditions tighten massively.

Between that and the increasing likelihood of a recession – hinted at by the latest inflation statistics – it looks like we should be hunkering down for a period of pretty significant uncertainty in the coming months and years.

So, how can property investors protect themselves in the current environment?

In a world that’s looking increasingly risky, diversification is your best friend, offering far greater predictability and certainty in terms of financial outcomes.

For investors that’s not just about where and what sort of properties you’re investing in – but about your spread across different lenders, sources of income, and other investments as well. There are a few proactive things you can do to help protect yourself, and your financial position, in the turbulent times ahead.

Split Your Banking

Coming off the back of a period where it’s been pretty easy to access credit, it’s not uncommon for investors to have all their loans with the same bank.

Consolidating made things simple, and often helped you lock in better deals on things like interest rates. And this meant there wasn’t always much thought given to the risk of putting all your eggs in one basket.

Until recently you could probably get away with it. It was a still a relatively safe assumption that the proceeds of any sale would be yours to keep, even if you had several properties cross-collateralised with the same lender. That’s all changed.

Now, when you sell one property your bank will review your ability to pay all your other loans too. If they don’t think you can afford what’s left, there’s a good chance they’ll opt to keep the sale proceeds to pay them off – you’ll have nothing to show for your investment.

The best way to protect yourself against this is to split your properties across different lenders. For those still investing in property, do it proactively. If you’re in a position where you already have all your investments with a single lender, do something about it as soon as you can. Don’t procrastinate. As we transition towards a softer housing market, grapple with an artificial credit crunch, and have the added threat of a recession looming, having all your loans with a single lender is only going to get riskier as time goes on.

Alternative Lenders

Up until not that long ago getting money out of the banks was so easy people never really had to consider other options. But as accessing funds via traditional lenders has become more like wringing blood from a stone, people shouldn’t be afraid to look elsewhere.

In New Zealand we’ve got some great alternatives in the form of a few well-established non-banks that are hugely market competitive, and far more approachable and open to lending.

Yes, they’re often a bit more expensive in terms of interest rates, but under these new credit conditions people will need to get used to the fact that accessing money is going to come at a slightly higher cost.

Non-banks are going to be a really important tool for anyone looking to diversify lenders right now, and investors should be using them more.

Expert Help

At last count, us Kiwis had about 57 per cent of our total household wealth invested in residential property.

As investments go, it’s been absolute gold for people over the last few years, but it can also be extremely illiquid.

Under current conditions that could be a real point of concern for anyone with the bulk of their wealth in property, particularly for those wanting to shore up cash reserves or long-term passive income heading into retirement.

Now’s the time to diversify your investment portfolio, to help protect against the volatility ahead. Whether that’s as cash in the bank, fixed interest securities, bonds, shares, or something like Squirrel’s peer-to-peer lending platform, where you can earn higher returns.

For anyone wanting to divest out of property, talk of “the everything bubble” that’s happening right now might leave you feeling like any investment is going to be precarious, and you’ll certainly need to be careful.

I’d recommend investing some time and money to chat with a financial planner, who is able to help you better navigate these challenges and work out where to reach your financial goals.