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It has often been said that all advice is not created equal. An advice that has worked well for me may not be for you at all. For as long as Auckland property market remains buoyant, our mainstream media will always be awash with property mentors and investment advisers. How do you navigate yourself through all the commercials, adverts, testimonials promising the Midas touch? If you are already being advised, how do you know that good performance of your portfolio is down to the quality of the advice received and not just propelled by the natural market force?
Here are some tips to consider:
- Find the right adviser. Finding a property adviser is not difficult but finding a good property adviser may be trickier. Ask around at APIA events to get solid testimonials from investors who are in the same situation as you. Be mindful that sometimes the most knowledgeable investors are not mentors because they are quietly doing what they are good at doing, which is investing.
- Know the differences between an adviser and a salesperson. Are you taking advice from a qualified financial adviser or a salesperson? Always find out how the adviser is being remunerated. Are you paying for the advice or are you paying for an investment product? Does he or she have a conflict of interest when giving you advice? This is not to say that a salesperson of an investment product is incapable of giving good advice but be aware that their opinions may not be as unbiased as you would have liked.
- Are they qualified to give advice? While most property mentoring services do not come under the ambit of the Financial Advisers Act, it is prudent to look into the background of the person whom you have come to rely upon for investment advice. What are their formal qualifications? Are there any independent testimonials that speak to their strengths as advisers? How long have they been investing in property and how well are their portfolios doing?
- Are they taking their own advice? Does your advisor put his money where his mouth is or are you being sent out there into the market on your own? At his keynote presentation, Lewis Donaldson, reminded us that many real estate agents selling investment properties do not invest in properties themselves. In fact, many know very little about the differences between a good home and a good investment property.
- Consider the source of published surveys and statistics. Investors value certainty above all else. But investment by virtue is an art of predicting the future and hedging your bet, which is probably why most investors keep a close eye on published studies, surveys, and statistics. While hard numbers can help you understand the present and foretell the future, it is important to understand the motivations behind their publication. For example, a real estate agency that is eager to attract more investors to buy its excessive housing stock is more likely to point to figures that support the suggestion that it is a good time to be buying investment properties.
- What is the nature of your relationship with your adviser? Listen carefully to the language of your adviser. Does she talk about about the future at all? Does she ask you questions about your short- and long-term goals? Is she more focused on one single deal or does she talk about investment in a more generic term? Advisers who are fixated on one single deal may be good for just that one deal but they may not have the resources, expertise, or even interest, in advising you in the long term.
The danger of bad advice only manifests itself when the market collapses which is when many of us will be well past the point of no return. Or as Warren Buffett so eloquently put it, 'Only when the tide goes out do you discover who has been swimming naked.' Take advantage of the strong market force right now and empower yourself with the right advisers who will properly support your investment endeavours.
What are some of the strategies you use when you evaluate a property adviser? Share your thoughts below.
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- The Welcome Home Loan scheme has been designed specifically with low-deposit first-home buyers in mind. Bypassing the LVR Restrictions, low-deposit borrowers who earn under the threshold amount can procure a loan with only 10% deposit. If you are still finding the market tough, now is the time to tap into Kiwisaver's First Home Deposit Subsidy.
- Though the market will not come to a grinding halt in the next couple of months, it will slow down during the holiday season as it always does. Motivate first-home buyers should dust off the Christmas mince pie crumbs and get to the open homes.
- Fresh from his triumph as the first ever Property Idol as voted by the Auckland Property Investors' Association, Kyron Gosse gives some sage advice for first-home buyers, "Home ownership is still possible, you might need to re-adjust your expectations. Rather than buying a house, consider buying a unit. Look at more affordable suburbs as your entry into the market. Personally, I think the best idea is to start with an investment property. Let that grow for you while someone else pays it off. You can pay down the mortgage to increase your equity faster, and then use that property to get yourself into your own home."
- Rather than moving into a flat with friends, why not pool your respective deposits together and buy a property jointly? You can own your own home and still live with your mates. A friend of mine did exactly this a few years ago with three friends. She then tapped into her family's resources and building expertise to subdivide the plot to build a second property that was later sold. All four of them had done very well out of it.
- Some first-home buyers are electing to retreat from the market temporarily by terminating their rental leases and moving home to live with their parents. This can cut down on outgoings as well as providing parents (especially those that are retired) with an alternative income stream. Come the time for these buyers to re-enter the market, the parents are also more likely to be in a position to help out financially.
- Others are suggesting first-home buyers to hold tight and give it some time for the second-tier financiers to reemerge in the market. Although this is likely to result in riskier loan terms for a group of people who are already disadvantaged by the mainstream system.
- Strategy - Property comes in all shapes and sizes just as investors all subscribe to different strategies. What is yours? Do you want to invest in stand-alone houses or do you prefer the input of body corporates on a strata title? Do you value capital gain over cash-flow? Be clear on which strategy will give you the lifestyle you want today and in the future and go for it.
- Purchase Price - Be an expert in the area you want to invest in. Find out the market value and projected capital growth of the area and the property itself, the potential rental return and get a realistic understanding the level of tenant interest in the area. Get friendly with the RPNZ database, regular market updates from REINZ and major real estate agencies, talk to your fellow APIA members about what they are paying at this market and take control over how much a property is worth to you (i.e. how much you are prepared to pay for it).
- Initial Capital Injection - How much deposit are you going to put down? Will there be a deposit at all? To what extent are you willing to leverage yourself to own a particular property? How much do you have to put down to enable you to keep acquiring other properties? Speak to your local ANZ Mobile Manager who will give you definitive answers and other funding suggestions to these questions.
- Loan Structures - As an investor, you are also in a position to make an informed decision about which loan structure will serve you the best. Which finance terms will propel you along your strategic vision of your investment? Have you considered staggering your loan terms so they don't all come up for renewal at once? Are you going to fix your loan in this market or do you prefer the flexibility of floating? APIA TV is now showing a seminal presentation by ANZ senior economist Sharon Zollner on the state of the New Zealand economy and the sustainability of the Auckland housing market which will go a long way into helping you arrive at a sound decision.
- Continual Capital Injection - You get to maintain, renovate, and add value to your property at your will. Be it an extra bedroom, a new lick of paint, regular window washing to improve street appeal or even minor dwelling development in the back yard to maximise your profit proposition, you decide how much you will continue to invest in a particular property to get you the highest possible rental return. Do you know that as an APIA member you are also entitled to enjoy retail discounts when shopping with DIY giants such as Bunnings and Placemakers?
- Tenant Selection And Management - Who do you want to rent your property to? A student? A family? A young professional? Are you going to manage the property yourself or engage a professional property manager? Are you willing and able to repair and maintain the property or will you hire a tradesman for various jobs? Don't be a wallflower when it comes to tenants. You are allowing your valuable investment to be in the possession of another person, make sure you choose someone who will not let you down.