back to buying basics

Regardless of where we are in the residential property market cycle, there will always be opportunities to buy. Whether you are looking to take your first steps in the property market, or are a seasoned investor, it is always good just to get back to basics.

Affordability

"I can't afford to buy in an area where I want to live" is a common predicament for folks looking to get onto the property ladder, particularly in Auckland and other higher-value cities. Here are a few possible solutions to consider for this dilemma:

  • Buying a property where you can afford and renting it out, and then renting a property yourself in the area you want to live.
  • Getting flat-mates to help pay the mortgage.
  • Compromising  on some other aspects of your "wish list" – like whether you buy a home that needs a little work (eventually), or sacrifice the idea of a separate study or garage.
  • Buying a property in conjunction with someone else, although this requires well thought-out legal documentation.
  • Buying a flat/townhouse/apartment where the land content and therefore price is less. Remember; this is just a first home.

All of these scenarios must make sense financially, but may create more lending issues for your bank than a straightforward purchase/occupy scenario.

Finance

Banking is competitive and banks are particularly keen to capture your business. It always pays to shop around and brokers can be of help here, but normally you can get yourself a better 'deal' as a one-off customer directly with a bank. Do some negotiating!

Banks will look more favourably on lending a higher loan-to-value ratio (percentage of property’s value you want to borrow) if you have a proven track record which shows prudent financial management. You should therefore sort out any outstanding debts or hire purchases prior to asking for a loan. With the ongoing credit crunch, banks are being more cautious and generally requiring larger deposits. You also need to be honest with yourself as to the level of mortgage payments you can afford; you don't want to end up as another mortgagee sales statistic!

Choosing a house

It is pretty hard to go past the old dictum 'location, location, location'. Buying in a sought-after area will bolster your chances of capital gain and will also ease the selling process when it comes time to move on. 'Worst house in the best street' is inline with this sentiment. If you buy a 'do-up' in a good location, your potential for capital gain is greater than if you purchase a fully renovated home in an inferior area that is already at the top of its value range. So be amenable to putting in a bit of 'sweat-equity' and see past the tired décor and rampant gardens if the house is otherwise suitable. How much of a handyman are you? Be realistic, as costly tradesmen can drastically alter the financial equation.

A two bedroom house has limited marketability in comparison to a three bedroom house, so if it has scope to alter the layout to achieve an extra bedroom, then this is a definite bonus. If you are buying to occupy, the house must fit your needs. This raises the issues of school zones, proximity to amenities, public transport, motorways, employment and family to name a few.

Getting Advice

Valuers provide an independent opinion of value, but can also provide a report on issues such as tenure, house attributes, potential for improvement, school zones and proposed council works. Ideally they should be engaged prior to making an offer. They should not be engaged at the end of the process and expected to rubber stamp an offer. Use their knowledge of the local area and market conditions.

Get a lawyer to look over any contract before you sign. While these are pretty standard these days, there are clauses that can trip you up and clauses that you can add to your advantage.
A LIM (Land Information Management) report shows all the information the council has on the property you are interested in. Extrapolate this by talking to a town planner to find out any future proposals that might affect you, including neighbours' plans.

A building or property inspector can save a lot of heart-ache by warning you of issues of poor workmanship, deterioration, water penetration, non compliance etc. Don't accept claims on monolithic clad 1990s houses that they have never had any issues, or that it got the 'all clear' a couple of years ago. This does not mean it won't leak in the future.

Real Estate Agents can save you a lot of time by short-listing houses that match your requirements. Try and be honest in terms of what you can afford. Agents can also be a good source of local knowledge.

Tenure

Are you aware of the drawbacks of cross leases, unit titles with body corporate levies and ground leases? If the property you are considering falls within one of these categories then make it your business to find out; particularly ground leases. These can appear to be a good buy to the unwary, often with a low asking price and annual rent. However rent reviews always exponentially increase the rent payable and capital gain is severely restricted or absent, which make them hard to sell at the best of times.

Finally, do your homework; do not be rushed into any decisions and get advice from independent experts. QV has a range of property reports and title information to help you through the process. Free school zone, neighbourhood demographics and latest property statistics are great at helping choose which area to live. Once you’ve found a house that you like E-Valuer is a cost effective way to get an idea of its estimated market value to see if it’s affordable. QV Valuations also have registered valuers all over New Zealand who can provide you with a comprehensive report and give you valuable advice. Given you are about to make one of the largest financial decisions of your life, don't leave anything to chance.