The facts

Property Ventures Investments Limited v Regalwood Holdings Limited concerned the sale and purchase of a commercial property in Christchurch for $1.5m. The standard form ADLS/REINZ agreement was used. The vendor had warranted that the building would have a warrant of fitness on settlement. There were problems and the warrant of fitness was not issued.

After lots of debate, the vendor insisted on settlement in full. When the purchaser failed to settle, the vendor issued a settlement notice, cancelled the contract and kept the deposit.

The purchaser had offered to settle at a discounted price. It became apparent that the cost to remedy the situation was likely in the region of $500,000.00.

The decision

The Supreme Court decided the purchaser was in the right. The vendor could not insist on settlement in full when in material breach of warranty.

What’s the significance?

• Vendors need to make sure warranties given are correct. If there is any doubt when signing contracts, the relevant warranties should be changed. If contracts are on foot a commercial solution should be explored.
• If purchasers discover a material breach of warranty by the vendor, they need to assess whether to offer to settle for less than the purchase price or use any rights of cancellation.
• The REINZ/ADLS agreement for sale and purchase is currently being updated to deal with this case.

To be a successful investor we need to be 3 things

1. Positive
2. Responsible
3. Proactive.

If you think of the opposites to all the above and if you fall into any of those categories then you may have to start asking yourself a very important question – “Do I have the right mindset and approach to be an investor? Having said that I remember when my wife and I were just getting started and at social events I would be like a rooster in the hen house who just found something wonderful to eat. Id be crowing about how wonderful property investing was and telling everyone that they should get into it but was amazed of the negativity of some people as they would tell you every reason in the world why you shouldn’t get into property. (How many of you have had that experience eh)?

To make matters worse when beginning investors start out they may go to a conference or event of some kind and get heaps of great information then come home and get advice from their family and friends who are of course experts in the field…..well offer you so much advice about why you shouldn’t get into investing you’d think they were.

So how do we get started then? The majority of people don’t take this path till later in life when they have built enough equity in their family home. So what happens if I don’t have a home with heaps of equity you ask and you just want to get started now? Well of course this will depend on your current financial position but to get started you of course have to make a deposit for your property and it doesn’t really matter what stage of our lives we are at, we could all use some extra cash and one of the ways my wife and I did that was to investigate some of the many hundreds of ways to make money that a guy called Jamie Macintyre speaks about. In fact after we ordered his free $99 DVD (click here for a copy) – (oh and ask them for the free e-book too) – and later attended a conference, we actually bought this internet business.

There are many, many different ways to make money once you start educating yourself about how to do it. So wether you make money from your job, supplement your income and speed up the process using some of the different strategies mentioned in the free DVD or e-book or you already have a heap of equity in your current home to start out, you are going to need a deposit. Before the global financial crisis money was very easy to get hold of but things may have been tightened up a little bit since then but don’t despair, you just need to keep looking until you find the right lender.

So let’s say you want to go out and buy your first investment property for about $300,000 so you will need between 10-20% deposit – 30k to 60k. The next question I get asked is “what about all that debt and how can you afford it”? Well to start with its good debt or an asset….not a liability. In other words you are buying something that you know will go up in value over time provided you buy wisely and do your research and of course educate yourself about property investing. Don’t just go and buy the first thing you see or buy it because its close you where you live and you can drive past and admire it every day. Also don’t think that you will be a millionaire overnight because you will need to be committed to buying and holding your properties for as long as you can. You must buy in the right location, with the right amount of land content and at the right time of the building cycle (more about this later).

The main thing to remember is that you will not be paying your investment loan off completely out of your own pocket. You have three sources of income when buying investment properties in Australia (and other countries) and they are;

1. Rent
2. Tax deductions
3. Depreciation

We will start to break these down into more detail in future posts but remember before you start, it’s important that you seek proper financial advice from those who specialise in this area as everyone will have different circumstances. I am not a financial advisor and certainly don’t profess to know everything about property investing but I would love to share my knowledge, my experiences, my mistakes and journey with anyone who wants to learn and take or continue this journey for themselves……to be continued.

All the very best Anthony Shaw

PS – feel free to join our Facebook group here and add me as a friend.

Of course, being a real estate agent the first thing I’m going to tell you is to talk to an agent in your area and get on therealestate.co.nz as most homebuyers are starting their search on the Internet and realestate.co.nz is the most trusted source for consumer Real Estate information.

However, if you simply can’t afford the commission or have your own reasons for not working with a Real Estate professional, there are some things you can do to make your house more attractive to buyers and to expose it to more of them.

THINK LIKE THE PRO’S – Don’t try to save money by taking photos with your digital camera or putting up a sign you created with a felt pen.

For about $200 you can get a professional photographer to take high quality photos and a good signboard should cost you a similar amount.

CLEAN YOUR HOUSE – Get it so clean your in-laws wouldn’t recognize it.

Polish all shiny surfaces, hardwood floors and granite are especially impressive when they sparkle.

Hardwood and granite polish can be purchased at any standard retail store like Mitre 10, Hammer hardware, Place Makers etc.

Bathrooms and kitchens need to be spotless, no dirty grout, no dirty dishes, no food sitting out, no dirty clothes or towels or dish rags in sight.

Vacuum and mop your floors, no dust bunnies or scuff marks should be visible. Dust displays and trinkets on shelves, a dusty house makes people sneeze and frown.

Rely on the fresh smell of a clean house, don’t over-perfume with candles, sprays or plug-ins. Many people are sensitive to perfumes and will wonder what you’re trying to cover up.

MOW THE LAWN – The first thing a potential buyer sees is the view from the street, make sure it’s a nice one.

Mow your grass, weed your flower beds, prune dead foliage and trim the hedges.

Do not leave toys, trash cans, tools or other distractions lying out.

DECORATE TO SELL – You want your potential buyers to see their future home, not your stuff.

Take personalised pictures and hangings off the walls, remove fake plants or sculptures and other personalized art, minimize furniture, get a storage unit if you have to.

Make sure an implied flow of traffic is present so that when potential buyers walk through the front door they feel compelled to make their way through the whole house.

This is achieved by arranging furniture and light in a way that is inviting.

From the 1973 Bloomingdale’s Book of Home Decorating (Source nadja.robot at Flickr)

PUT THE HOUSE IN THE PUBLIC EYE – Advertise your home for sale.

The most effective ways are on well-known and frequently visited websites.

Be sure to emphasize important features like the floor area, number of bedrooms and bathrooms, size of the section the house is on, new additions and benefits (new kitchen appliances, new roof, recent bathroom remodels).

Refrain from wasting readers’ time with long narratives or overly-descriptive “flowery” words.

GET YOUR REPORTS DONE EARLY – Get a home inspection, Then advertise that the inspection has been done.

If any of your report notes a problem with a particular system in the house, get an additional inspection done by a specialist and fix whatever may be wrong (ie If the builder notes missing tiles on your roof or evidence of water damage in the attic, have a roof specialist assess the integrity of the roof and have it repaired or replaced if you can afford it).

Remember, if you have knowledge of any material facts affecting the property or its marketability, you MUST DISCLOSE THIS TO A BUYER.

A LIM report from your local council will be appreciated by prospective purchasers and may save you time in the negotiation and conditional contract periods.

A QV e-valuer (estimate of market value) valuation is an affordable way the may help you underpin your asking price.

I would like to wish you the best of success in your selling endeavors and hope to service you as a buyer when you finally sell.

If you ever need assistance please remember I have helped many private sellers in the past so feel free to contact me.

Good luck with your sale
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This post is based & adapted with permission from a post by Jessica Murr. Jessica Murr is a Realtor in Far Northern California specializing in luxury homes, ranch properties, real estate sales consulting, social media and networking, first time homebuyers, and real estate investment planning.

..Finally, we’re priced right, our house looks so good we are considering keeping it and not selling after all, but we STILL don’t have any buyers looking at it!! What gives??….

I hate to say it, but maybe your agent isn’t using the right tools to market your home. Is your home on the agent’s website? Realestate.co.nz? Trademe.co.nz?

Are all the pretty new photos up there? (The more pictures the better!) Is the price correct?

Is your agent writing about your listing in his/her blog? Is your agent using online social media to share your listing with savvy buyers?

YouTube, Facebook, Twitter, Flickr, these are all places you should be able to find your listing. Pictures of it, links to it, descriptions of it, lots of info! Social media is not a trend that is going away.

It is not a “phase” and it’s not a thing the kids are doing.

It is the newest way to connect and communicate and share with the world.

Newspapers around the globe are going broke because people are going online to get their information and news.

Buyers want the newest, latest, greatest knowledge and they want it as fast as a click of a mouse.

They don’t want to search through a dozen magazines and as many newspapers to find their home. They want that information to be accessible and online media is the place they look for it.

So if your agent isn’t using social media to market your listing, he ought to be.

If neither of you is familiar with it and you would like some help, email me.

I’ll be glad to share my knowledge and give you some tips that will help move your property from “For Sale” to “SOLD”.

This has been adapted with permission from a post by Jessica Murr. Jessica Murr is a Realtor in Far Northern California specializing in luxury homes, ranch properties, real estate sales consulting, social media and networking, first time homebuyers, and real estate investment planning.

Alright, we’ve gone over the comparable sales, we’ve priced our home competitively, we are ready to be fair and reasonable, but we STILL don’t have any buyers touring our house!

Why isn’t our house appealing to buyers?

Take a look at your photos first. Is there clutter? Are there bright distracting colors? Is there a dead lawn out front, broken or dirty windows, kids’ toys lying around? Those have got to go. Clean your house – I can’t stress that enough. If your version of clean is that everything is stacked in the corner or that the pile of papers is under the desk instead of on top of it, HIRE A CLEANING SERVICE. They’ll come to you; they will clean EVERYTHING (even the nasty crud growing behind the toilet); they get it done in one day; they bring their own supplies. Where’s the down side? For $100 it’s done and your home will now be more attractive to buyers.

But my house is clean! It’s spotless; the cleaning service said there was nothing to do here.
Okay, why else might your house not be appealing? Dated furniture? Questionable paint schemes? Is it just ugly? Maybe not to you, but you’ve been decorating this house and putting things in it that you like, not what a buyer is going to like. Use a critical eye, ask your agent, ask some friends and neighbours, and if no one can give you any helpful tips, call a professional stager.

Stagers will come to your house, take a tour, prepare a quote, work with you to see what you can afford, and get the most important things taken care of first.

To be continued.
This post has been adapted with permission from a post by Jessica Murr. Jessica Murr is a Realtor in Far Northern California specializing in luxury homes, ranch properties, real estate sales consulting, social media and networking, first time homebuyers, and real estate investment planning.

Well, if you’re selling in Auckland, I can tell you it’s probably one of three things:

1. You’re priced too high
2. Your house is not appealing to buyers
3. Your agent is not marketing your house in the right places.

So, how do I tell if I’m priced too high? I’ve learned from my own experience as well as the feedback from buyers, sellers and agents all over Auckland that houses sell faster when they are priced competitively. Before you decide “competitive pricing” is pricing below comparable properties, understand that competitive pricing is listing for a price near what comparable properties have SOLD for recently.

Look at comparable properties and consider what criteria truly make that property comparable to yours. Basics like floor area, number of bedrooms and bathrooms and geographic proximity. If you have a two bedroom, one bath, 75 square metre home, it is not comparable to a four bedroom, two bathroom, 200 square metre home just because it’s only two houses down. Also, just because you own a 350 square metre home 40 kilometres from the closest town does not make it more valuable than a 120 square metres home in a suburban part of town 5 minutes from the commercial district. You need to ask your agent what features make your home comparable to others and only look at properties similar to yours.

Next, look at the SOLD price of those properties. It doesn’t matter what these people were asking for their houses, and it doesn’t matter what comparable properties that haven’t sold are listed for; all that matters is the bottom line – the sold price. If you price your home near that dollar amount, you are saying to buyers, “I am fair and reasonable” and buyers will be fair and reasonable also.

Lastly, when looking at these comparables, make sure they are homes that have sold recently. You should not consider homes that sold more than 6 months ago because an appraiser won’t and neither will your buyers when they decide what a fair and reasonable offer is. I don’t care that your house might have sold for $350,000 in 2005. You didn’t sell it in 2005, this is 2009. Let go of the past. If comparable properties are selling for $220,000 then your house needs to be priced close to that. Remember, the value of ANYTHING is only what an able buyer is willing to pay. If you are determined to list your home for more than 15% above what comparable properties are selling for, don’t waste your or your agent’s time. Wait it out, hang out for another 5-10 years when things are on a steady rise.

To be continued…
This has been adapted with permission from a post by Jessica Murr. Jessica Murr is a Realtor in Far Northern California specializing in luxury homes, ranch properties, real estate sales consulting, social media and networking, first time homebuyers, and real estate investment planning.

A few helpful tips when you are looking to buy.

Start looking when you know what you can borrow and at what cost. Sounds simple but a lot of people make offers on property only to find they can’t get or afford the mortgage.

Check the property carefully. I recommend a full building inspection and a thermal imaging report. Yes they cost money, but look at it as insurance, too many people end up with huge bills for maintenance that they hadn’t bargained on.

We all ‘fall in love’ with property, it’s often an emotional purchase. Try to remember it’s probably the largest financial commitment you will ever make.If a report on construction or area comes back negative, walk away. If you don’t you may have issues selling in the future.

Finance approvals can be conditional. Always make sure your Bank account conduct is perfect. No unauthorised overdrafts or returned debits as this will affect your approval!

Look at low rates now as a bonus and try to over-pay. This will not only reduce your mortgage (and so the interest you pay) but also makes sure you are protected for when rates rise….which they will.

‘Do ups’ rarely make bargains. There is usually a reason behind the ‘do up’ and if professional house renovaters have not bought it, then perhaps you shouldn’t either!

Make sure you have enough money not only for the deposit, but for the extras that always come up. Legal fees, builders reports, maybe Registered Valuation. Up to $3,000 can be spent before you know it!

And finally. Real Estate people are Sales people! They act for the Vendor and not for you, so be aware and ask heaps of questions before signing on the dotted line. Always make your offer conditional on Finance, LIM and Building Inspection. Good luck!

Many buyers approach the home buying process, probably the biggest financial transaction in their lives, unprepared. They then deal with real estate agents, bankers, mortgage brokers, lawyers and others who are accustomed to property deals and in may times end up confused and frustrated.

The solution?

First, create a strategy that’s right for YOU!

Ask yourself these questions:

1. What am I trying to achieve? For some it is being in the right school zones, for others it’s about living stumbling distance for the local bar.
2. How long will I live in this house? Long term solution or just a step onto the property ladder.
3. Is my lifestyle going to change? There is no joy in buying a house and committing to a mortgage if you can’t enjoy overseas holidays and going out to a restaurant like you were used to.
4. Do I still want to travel or work overseas? Than buy a house that would be easy to rent out and maintain.
5. What type of ownership would suit my requirements, straight ownership, Ltd company or a trust? Speak to lawyer or accountant on how to best protect your assets.
6. Do I want to buy an investment in 2,3,5 years? Than buy a property that would allow you to create or generate enough equity for future leverage.

Second, create your own team of experts, people who can advise you on the many aspects of home buying.

These experts may include a solicitor or legal executive, a building inspector, a finance / banking adviser, a buyer’s advocate an accountant and a town planner.
Talk to them about what you should look out for when buying, how to structure your purchase, how to structure your finance and what you can or can’t do with your future house or land.

Third, become your own expert. Choose a suburb, an area or a building style and immerse yourself into it.

Study its the history, recent sales, common titles, average prices, better streets etc.

Connect with the local agents – they are a source of valuable information.

Drive and walk the streets and talk to the residents.

They will be flattered and proud you have chosen to buy in their neighborhood and tell you everything you’d want to know including properties that may be coming on the market soon.

Once you know the area and a property opportunity presents itself, you will be well prepared to snap it up quickly for the right price.

Part 2 (understanding Auction, tenders and price by negotiation) and part 3 (working with real estate agents ) coming soon.

General

• As there is a range of experience levels in this forum be careful not to take advice from just one person. It will only be their opinion. Try seeking out information from the seasoned investor too, they have been through property cycles and know how to survive them.
• Use the forums search function a lot of topics have already been discussed here. But if you cannot find anything just ask somebody will help you out.

Philosophy

• The property market works in cycles. It is fun and exciting for a couple of years when we have a boom (like we have just been through). But during any impending slump it is no longer the in thing to be doing and can at times be hard work.
• Property should not be treated as a get rich scheme (despite some seminars beliefs). If structured properly with the correct support it can be a reasonably safe wealth creation tool.
• Use as many resources as you can. Read past discussions here and go to the library to get some books out. There is a huge range of books available at the library and it means you can read them before you buy them for your bookshelf. Try: Planning for property success By Andrew King and grow rich with the property cycle By Kieran Trass. There are many other recommended books available and even reviews on this site.
• Form your own opinion based on what you believe is your own safety level. People can tell you to mortgage to say 80% but if you won’t sleep well at night due to worry don’t do it. Only go as deep as you feel comfortable.
• Try to be careful on how deep and fast you get into the property market. Use the advice from seasoned investors who have been through it all before. Most people can make money during a property boom just from buying any property. But it is buying the right property to hold long term that is harder. You will hear many stories from investors who purchased large amounts of property only to lose most of the gains during the slump. Buy the right property from day 1 and don’t be one of the statistics that need to sell up when the market tightens.
• Write down all the things that are stopping you from investing or that would affect you sleeping at night if you were investing. These are now you’re “What if’s”. What if interest rates go up? What if tenant builds a P lab? What if house burns down? What if house gets trashed? What if property goes down in value? What if rents drop? Etc. Now you can work on a plan to cover these. Eg. Insurance.
• Beware: Too many people can suffer “Paralysis by analysis”. By the time they invest the boom is all but over. This is Fear of investing.

Structure

• If you are serious to be a long-term investor get a structure in place to protect yourself and your assets.
• If you are going to use any statistics for house growth ensure you use 10 year growth figures. 1-year figures are deceptive and do not indicate possible future growth. During a boom even the poorer suburbs can experience growth that looks good. 10 year figures will most likely include a complete cycle boom through to slump. Shorter terms will miss part of the cycle and not be accurate.
• I heard an interesting stat that out of all the banks long term interest rate predictions they have had poor odds at getting it right. This would be similar to economist’s long term property value predictions I guess. Past history is no guarantee of future growth and long term factors are very hard to predict as something usually happens to alter the forecasts. (Wars, terrorism, floods, earthquakes, Asian crisis). However saying that we can usually see into the short term and be semi reliable. Using historical growth and buying in the right location at the right price can put us ahead of those blindly purchasing to follow a boom.
• A good way to protect yourself is to use the “What if’s” (See Philosophy above). Decide if you are going to protect yourself from anything that concerns you with regards investing. Most things that concern people and prevent them from investing can be covered by a well thought out plan. Do this from day one.

Finance

• Avoid using the 1 bank trap. This is simply where an investor gets comfortable with there current bank giving the bank complete control over there entire portfolio. Banks will like to cross collaterise if given the chance. Using several banks spreads your loans around and reduces the risk of your portfolio being called up if the economy turns bad.
• Banks use Loan to value ratio (LVR/ Equity) and debt service ratio (DSR/ Cashflow) to determine your ability to acquire a loan. It is safer to drop back and keep your serviceability low at end of a boom. This will enable you to have a buffer if things get tough and let you ride out any pending downturn in the market (Slump). Historically rents and house prices usually drop back from their peak.
• Ramp up your serviceability leading into next boom. This is when you need to use your servicing to catch the wave and build some serious equity.
• Just as it is sometimes safer to diversify your property locations. You should do similar with your borrowings. Interest rate diversification. Spread any fixed rate terms over a range of dates so all your loans are not expiring at same time. Interest rates move around regularly and you do not want to be caught out needing to have your entire portfolio expire at a time when rates may be high.
• There is a large amount of opinion on Principle and interest (P&I) loans versus interest only (IO). The general consensus is if you have non-tax deductible debt e.g. personal house mortgage. Then use Interest only and pay down the non-tax deductible debt with the money you will be saving in lower loan payments. Otherwise if you have no bad debt the choice is up to you P&I or IO. IO can allow you to accumulate more property but P&I can be good during a slump too as the debt is being paid off slowly.

Purchasing

• Treat real estate agents with respect. They are there to help and can provide valuable information needed before you make an offer. You may need them at another stage in life, What if you need to sell a property quickly?
• Analyse your purchase and rent figures. Know your exact cashflow position when buying. That way when/ if rents or property values drop you know if you will have sufficient cashflow to survive.
• Use morals when purchasing property. You will feel better. Why invest if you cannot be happy doing so. Some people use non-moral techniques to acquire property cheaply, watch out as Karma usually bites those people.

Example strategy

A strategy of investing could be as a simple as this:

• Always be aware of current serviceability levels.
• Property values can raise and fall so knowing your levels you can be prepared.
• At the end of a property boom it is probably better to have a lower servicing level. That way if prices drop you are more protected.
• Try to buy wisely during any down turn in the market so as not to affect your servicing level. . Buy creatively and try to achieve high yields eg. Buy a 2 Br and convert to a 3 Br.
• Buy in good areas which will see growth early as the next property cycle rolls around. That way you can be in a position to use your gains early and go hard into a boom. Being 1 step ahead of other investors who may have purchased last cycle in less desirable areas.
• As the property market picks up and we lead into the next boom raise servicing levels high. Buy up big as each property shows equity growth.
• As the boom is nearing an end consider dropping servicing level once again.
• Repeat process.

Note: This was an example strategy. Every investor is different and needs to work out a plan that suits them and there risk profile. Think outside the square, use renovations, developments, buy and sell, buy and hold, commercial.

My 2 cents

A lot of people have gone out and have maxed out serviceability levels to buy numerous properties through the hype of a boom. This on its own may not be bad but could be slightly flawed during a slump. If values do not increase much in years to come they will quickly run out of serviceability and find they have to wait quite a while.

As a side note some of these people have been purchasing in less than desirable areas. Which are slow to move in value until later in a property cycle (ripple effect) so they won’t be able to benefit until well into any property boom.

One thing to consider when purchasing in less desirable areas is the ripple effect during a boom.

Take the last boom we have just been through as an example. Some of these less desirable suburbs got there big jump in prices later on in the boom after others had already been through it.

This could cause implications for a portfolio of property. If the next boom continues to follow the ripple effect pattern you may not get the big price rise until the boom is well under way/ nearing its end.

This is not to say you will not get slow growth just that the large portion of any equity which may be created during a boom will not be usable until boom is well in truly arrived.

We want to be right there at the start of a boom ready to pounce before the rest of the herd push the prices up. Then when they do, they propel our property prices with them.