Post Covid-19: What to believe
Contradictory messages about the market are rife, but investors should stick to the basics.
The accompanying photo shows two different news headlines in New Zealand on exactly the same day. If you go searching, it won’t be too difficult to find other similar examples of contradictory “news”. It’s a perfect example of “never let the truth get in the way of a good story”.
So, the question is, how do we determine exactly what is real and what may be hearsay when we are wanting to invest in this controversial market?
It’s easy really. It’s about sticking to the basics. Here’s what I’m doing:
- Choose a market. If it’s one you know well, or you already live there, it may be easier than a market in another location you have no experience with. But in either case you can’t do your homework until you have a location in mind.
- Create a brief for that market. Try and be as specific as possible. For example, it might be a multi-income, development opportunity, for example, a subdivision, a renovation (add value), apartments, an “as is, where is” property… The list goes on.
- Talk to professionals in that market to gauge their impression of what is happening. I talk to property managers, real estate agents (the experienced ones), valuers and other investors.
- A good mortgage broker should also be consulted to discuss how the different lenders view the location and type of properties you are interested in. This is important because, for example, while a lender may love a main centre like Auckland, they might not be keen on smaller apartments in that same city. The different scenarios will result in different offers being made to you by the banks, such as deposit amount and interest rates. Some lenders don’t like small towns, others are less inclined to lend on properties requiring a lot of work. A good broker is a critical part of your team to help you prepare for your purchase.
- Engage professionals. Once you have a property under a conditional offer, have the mindset to pay good people to provide rigorous feedback. As an example, I’m currently looking to invest in Christchurch (a market I know nothing about) so as well as paying a property finder, lawyer and building inspector, I’m also paying an EQC claims consultant to check things for me. I don’t see these as expenses but more as investments. If that means I have to spend money to identify a risk I’m not prepared to take, then it’s money well spent.
- I’ve already mentioned property managers, so I’m going to get more specific now and suggest you just choose one or two property managers to advise you. The reason for this is that some property managers are way more “on the market” than others and have their finger on the pulse of what the market can deliver. Ask other active investors in that market who is hot and who is not. As well as rent prices, ask specific questions about locations that are in demand and types of housing. A good property manager is also whom you will need to consult when considering any add value strategies. For example, how much extra weekly rent can I get if I add a dishwasher or a garage?
- Ignore the media. Most of it is sensationalism. Finally, plan to play the long game. Yes, there are a lot of unknowns right now. However, it’s a given that people will always need a place to live, and property is a tangible, necessary product. With interest rates at a record low, you can still have a contingency for a rainy day and purchase safe investments.
This article was published in the August 2020 issue of the New Zealand Property Investor Magazine and is shared here with permission from the magazine.
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