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G & J

Avoid Costly Property Investment Mistakes

We all know that the Auckland property market is very expensive, with house prices having increased at rates significantly faster than the inflation rate. We also know that from recent sales figures the average property sale price seems to have fallen slightly. We also know that the number of listings has declined from the peak. It had been great for Auckland property owners as their wealth increased whilst effectively doing nothing but paying the mortgage.

We also know, that there are no accurate statistics for the number of homes being built in Auckland. A figure of around 6,800 is being touted, but that doesn’t necessarily take into account multiple dwellings such as a townhouse development on a section. Only one dwelling may show on the council statistics yet in reality there may be two or more dwellings that share some common walls.

Investors tend to use the increased value of property they already own as security to borrow more at historically low interest rates. It is all too easy in a hyped-up property market to make terrible investment mistakes. The problem is, the mistakes will only become evident when the property market cools, which it will inevitably do.

If buying an investment property, the economics of the deal need to be a key driver. If the economics don’t stack up, then it should be a simple decision to not buy, and move onto another potential property.

Some properties are great investments; some are not. Successful investors know how to spot the good ones. When the market is going mad, it is easy to make rash decisions which will prove costly later.

Investing in property requires many different skills sets and thorough research. Understanding the financial aspects, including tax implications, is critical. Returns from property come from both capital gain and net income. There is also a fundamental question that you should ask yourself. Do you really want to be a landlord and subject yourself to all the stress and worry of dealing with tenants? What happens if the government changes the tax rules on property?

The key is to find a property that will provide capital gain as well as sufficient rental income to cover borrowing costs, rates, insurance, property management fees and maintenance. It can be far too easy to underestimate these costs. Occupancy rates can also be seriously underestimated.

If you are planning on investing in property, read as much as you can on the subject. Join your local Property Investors’ Association, attend meetings and get to know other investors. Find out who you can go to for expert advice on the financial, tax and legal aspects of investing. Select a geographic area to focus on based on future expected demand.

Before you buy, do your calculations on price, rental income and expenses, including any renovation costs, so you know what the financial implications will be. Above all, err on the side of caution, as the wrong buy decision could prove to be very costly mistake, both financially and emotionally.


Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.