“Buy a property, pay the mortgage off and buy another one.”
That was a good piece of advice that many parents offer their children.
But it is easier said than done in today’s real estate market, although many New Zealanders have done well in the property sector for many years.
Media reference to the ‘ebbs and flows’ should not be a cause for concern.
Every commercial, industrial or home property should be considered an investment and as a medium to long-term strategy.
If you have taken a short-term view or position, in reality it is either a speculative or a development strategy that carries an element of risk. Those exiting the property sector early may regret their initial investment decision.
Some check points
It is therefore important to consider a number of issues before venturing into the property market as a developer or an investor.
Investors should examine if the income from the property, tax advantages and other benefit would cover the cost of borrowing, repayment, rates, maintenance and other essential payments. A contingency fund would also be essential to cover unforeseen circumstances such as urgent repairs, defaulting tenants on rental payment and the property remaining vacant for a length of time.
Property investors should not rely on capital gain. The value of the property may rise or fall and they may be times when selling the property may be either difficult or subject to substantial loss.
The rental issue
Most investors and property owners worry about the amount of rent that they would receive to cover payments and perhaps earn income. Rent would depend mainly on the location of the property and its condition. Rent received and paid varies between cities, towns and villages.
Investors should also consider the yield of the property.
Yield is the percentage return on the value of the property, after expenses except the cost of loan or finance obtained but before tax.
The yield is not the only return. Total income from property would include tax advantages and capital gain or loss.
My view is that if you bought an investment property which did not appreciate in value after 10 years, and all that you did during this period was repay the mortgage, you would be in no better position than not having the property.
Mortgage repayment is however a form of forced saving, especially those who do not otherwise have the propensity to save.
Real Estate market is not immune to fluctuations and volatile movements.
If you are in a position to continue your investment strategy, you should then consider the market trends carefully, with the help of a qualified and licensed real estate agency.
Some real estate agents may charge a fee for such services, but it would be a small price to pay. You would at least be aware of the risks involved.
Mohit Seth is a licensed Salesperson under the Real Estate Agents Act 2008, a member of Real Estate Institute of New Zealand and works at Harveys Blockhouse Bay in Auckland. Phone (09) 626 6119 Mobile 021-124 1155. Email: mseth@harveys.co.nz
The above article should be considered only as general guideline and not as specific advice. Mohit Seth and the management and staff of Haveys and Indian Newslink absolve themselves of any liability that may arise from the above article.
Photo: Investment in property needs careful study
