This is my take on a couple of recent articles, however what most ‘pundits’ seem to miss is that property should always be a long term investment and everyone actually does need somewhere to live!

Mortgage affordability is set to improve through July/August as average two year mortgage rates have dropped slightly so house prices are expected to remain stable.

The national average house price rose 0.7 per cent to NZ$352,500 in June from May, which is down around $8,000 from the record high in March.

Our Affordability Report measures affordability nationally and regionally, taking into account house prices, interest rates and incomes.

Affordability improved significantly in Auckland, Northland and Queenstown as house prices dropped, but worsened in Christchurch where prices rose.

Southland, Otago and Manawatu/Wanganui were in the best position whilst the Central Otago Lakes region continues to be the least affordable.

Levels of affordability hit in early 2007, near the peak of the housing boom, were at their worst as interest rates were a lot higher too. People still bought and sold property!

In other words now is a pretty good time to buy.

Nationally affordability has eased with a mixture of July fixed mortgage rates having dropped and house prices being subdued. These falls in rates are not a result of global price cutting, more local Banks cutting margins.

The Reserve Bank lifted the Official Cash Rate to 2.75 per cent from 2.5 per cent on June 10 and economists expect it to increase it again to 3 per cent on July 29.

Many home owners are still on fixed mortgages, but an increasing number are choosing to float given floating rates at just under 6 per cent are still cheaper than longer term fixed rates at around 7 per cent. Due to reducing medium term fixed rates and the possibility of rising floating rates a lot of people are mixing floating and fixed.

The average 2 year fixed mortgage rate, which has been among the most popular with borrowers in recent years, was flat at 7.19% in June. Since the end of June the average two year fixed rate has dropped to 6.98%, this reduces the monthly cost but not by much.

House sales volumes flattened off in the last three months of 2009 and early 2010 as first home buyers and rental investors stayed away. The OCR hike in June and the May 20th budget moves to remove depreciation as a taxable expense for property investors has seen house sales drop a further 20 per cent during May and June. The reality of the Budget is that 90% of Investors will pay less than $40 a week more in tax and most of this will be passed on in rent hikes. The number of sales is expected to remain flat until Spring so Buyers actively looking can expect to do a ‘deal’. I always advise getting a pre-approval first, this adds to the bargaining power later on.

Affordability is hardest in Auckland, Wellington, Christchurch, Hamilton and Tauranga for those on a single income, but homebuyers in smaller provincial cities will find home ownership much more affordable.

On a positive note I’ve noticed the Banks are easing criteria, particularly in high 80% plus loans, its all depends on track record and servicing. In the last month or so nearly a third of my business has come from the UK or Australia, so maybe they know something……….

Finally regulation was proposed for the Mortgage and Insurance industry, that has now changed (it will NOT be regulated!) but I will be sitting my exams soon to add to those gained in Europe, I still feel its good knowing you are working with a qualified Professional!

Your tenancy will be governed by a Tenancy Agreement and The Residential Tenancies Act. After decades of renting properties to tenants on behalf of property owners we have put together this list of important issues for you as a tenant to consider when choosing the right property for your family. This will hopefully reduce the potential for problems with landlords and save you time and energy.

Most tenants main criteria when looking for a property is location. You should narrow down locations that you wish to consider prior to beginning your search to save you time. Auckland is a big city so there is no point in viewing a property unless you are happy with the location. Key points to consider when considering an area is the proximity to local schools, transport, shops and other infrastructure, as well as proximity to your family and place of employment.

What should I expect from a suburb?

Presentation of the neighbours, their vehicles and properties give you an indication of the types of people that live in each street. A drive-by down the main roads will show you what facilities/amenities and goods and services are available in the area.

How do I research a suburb?

You can use technology to your advantage by using Google maps to assist you with your research. Google maps provide a map view and also a satellite image view so you can check out photos of the location via the internet prior to inspecting. Never make a decision on a specific area based on what a landlord says eg. “This is a good street” as you need to satisfy yourself to that regard! You can also check schoolzones.co.nz to find out more about the local schools. Reading local community newsletters will also educate you on the area and what it has to offer. You can read community newspapers online at stuff.co.nz/auckland .

You can use various websites to find and compare rental properties. Try www.allenrealty.co.nz, www.trademe.co.nz or www.realestate.co.nz.

What rent will I pay?

The location will influence the majority of the rent. Some of the rent will be influenced by the amenities and condition of the specific home. Market rents are affected by demand and supply in each suburb so if rental properties are in high demand in that area you can expect to pay more. As a general rule, the closer a property is to the city centre the higher the rent. You can view average rents for most Auckland suburbs on the Allen Realty website www.allenrealty.co.nz

When you finally choose suburbs to concentrate your search on there are specific issues you should look at. This will ensure that you end up with a property that ticks all your boxes that you will be happy with long term.

• Security: Check locks on all doors and windows – most properties are rented ‘as is’ so property owners won’t necessarily be obligated to upgrade something.
• Maintenance: Assess what you will have to maintain as part of your tenancy eg. whose responsibility is the lawns and gardens? Hedges should generally be a joint responsibility with tenants and owners. Do you maintain the swimming pool or does the owner? Who sweeps the driveway or maintains any common areas?
• Insulation: Make sure that you are satisfied with the property and confident that it will be warm and dry. Look for signs of discolouration on flooring, paintwork, and window coverings (curtains/nets) which show evidence of any moisture. Remember that most rental properties will suffer from some degree of moisture. Make sure properties have adequate ventilation. If you can open windows regularly and operate fans or heat pumps then this will assist with airflow and reducing moisture.
• Noise: The location of the property will affect the amount of noise you should expect. If a property is on a main road or in the CBD you should expect a certain amount of associated noise. If there is a building site next door you should also expect some noise. Often apartments in the CBD have double glazing which will help reduce this issue. The owner of the property cannot directly affect or change this aspect of a property so it is important that you do your homework.

When you choose a property to apply for and a landlord accepts your application then you will have to negotiate a tenancy. The following issues need to be negotiated first, as once you sign a tenancy agreement it will be too late to change your mind.

• Tenancy Term: The landlord and tenant should agree when the tenancy starts and if it is a fixed term (eg. 6 or 12 months) or a periodic tenancy (month to month).
• Agreement in Writing: All tenancy agreements should be in writing and should confirm the obligations of all parties including and not limited to the bond, rent due dates etc.
• Bond: Once you pay the bond then the landlord is required to lodge your bond with the Department of Building and Housing within 23 working days of receipt. You should receive written notification of the lodgement of your bond within 5 weeks of the start date of your tenancy.

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.

A real estate agent is someone who acts as an intermediary between buyers and sellers of property, trying to find sellers who wish to sell and buyers who wish to buy. Estate agents typically provide marketing services for sellers to assist them sell for the highest possible price, and assist buyers by helping them purchase property for the lowest possible price under the best terms.

While the act of selling a property or buying a property may be the most important steps in moving house, there are a significant number of steps that need to occur to ensure a move is successful. A customer must find a solicitor to deal with the contracts, ensure they have finance available, ensure they have a removalist organised, make sure insurance is organised, organise any number of trades and service people to clean, wash, paint, fix and mend.

So the question is, who is actually delivering the service that the customer really needs? Whose responsibility is it to ensure that a customer is getting what they need? Well, estate agents may be selling a house, helping to buy another house for a customer but does this alone make the process a successful one? What about the steps in the middle. I’d say the answer right now is nobody provides what customers really need. So if a real estate agent was looking do differentiate themselves from their competition, perhaps the best way is to make one customers life easier, simpler and more successful by delivering the all services they really need, taking an outside in approach, seeking opportunity in the customer value chain. Then when one of their friends asks which real estate to use, they will have no hesitation in recommending the services of the real estate that delivers the full service.

Formerly from the UK, I grew up in mediocre town, went to mediocre school and I followed in the footsteps of my parents. I went to school to get a great education hoping that one day I’ll be able to afford anything I wanted. Soon it was time to leave studies and focus on my “career”. I got a job, I earned, I paid my bills and got a car to match my job. Without realising at the time, that was the biggest mistake of my life. Obtaining the car through finance and having that liability to pay every single month. This is the first signs to becoming financially unstable and ultimately forming part of the daily rat race that will see me trapped forever.

To make your money work for you, there is one simple rule and I only learnt this much later in life. Focus on assets as opposed to liabilities. It’s that simple. Liabilities being everything that takes money away from you, finance, mortgage, credit cards, personal loans, those are the things that will ultimately make you poor. Think about it, you go to work to get paid, you pay off your mortgage debts, car loans and the circle begins again.

However the assets – this is something that puts money in to your pocket. If you want to be rich, spend your life buying assets and I have chosen to work within tangible assets, something you can see, feel, stay in and sell on. I work with tangible assets within emerging and distressed markets that not only appreciate, but you earn from rental income, rental income that puts money in to your pocket every single month to supplement your income from your daily job.

Making your money work for you is easier than you actually think. For example, If you want a nice new car, instead of thinking, I can’t afford the car – why not think, HOW can I afford the car. Personally I would look for money making assets; my chosen example would be real estate. I carefully invest in to an emerging market or a distressed market that will generate me income, with that income I’ve generated from my money making asset; I can afford to pay for the car loan without losing any liquid cash. Once the car is paid for, I now have an income generating assets that has appreciated in value, plus a nice new car that is mine to own 100%.

Depending on how much money you have to start with, you could use the example above to generate you future financial success to overcome mortgage repayments, car loans, credit card bills and to secure that all important financially free future. Once you have obtained the asset, it will usually look after itself without any support from you whatsoever.

So as my first post and if you’re reading this, take a look at what you can cancel out in your life to free up more cash to focus on building that asset column of your own. Take a look at your cash flow, where you get your cash and where it goes because that will tell you a story of how you handle your money.

Remember, it’s the Assets vs. The Liabilities and now is the time to learn the difference between the two.

I run a small investment consultancy and I’m always seeking ways to further my wealth creation through real estate, feel free to send me an email and follow us on twitter and Facebook.

As professional property managers we often have property owners that contact us to enquire about either giving their tenants notice so properties are vacant just prior to the event, or alternatively renting out their family homes over this period. Many have been lured by the buzz of the World Cup fever and rumours of easy money and great returns. However, I believe that this potential market is over-inflated and many property owners will find themselves disappointed unless they face certain realities.

This RWC market will predominantly only benefit owners of furnished apartments and houses that are vacant at the time of the event. Those landlords who plan to give existing tenants notice to vacate so they can get higher rents for the period of the RWC, must think about the opportunity cost involved. They may secure double the normal return for 3-4 weeks of the tournament but then may also experience a week or two of vacancies prior to the RWC tenancy and the same afterwards before securing new long-term tenancies after the events. These vacancies may wipe out any potential profits and this is before you even think about potential damages to your property from a party who may be in the country for 3 weeks, never to return.

Any smart investor will ask − why terminate a long term tenancy to secure a better return for 3 weeks? With more tenants coming and going, there are greater risks of vacancies, damage, wear and tear and depreciation. There are also additional costs including marketing and the logistics of signing up tenants also to be taken into consideration. Landlords may need to pay for power/water/gas as tenants only staying a week or two certainly wouldn’t want to set up their own utilities accounts. There is also much debate about whether the Residential Tenancies Act would even govern theses short-term tenancies. Section 5M of Residential Tenancies Act excludes tenancies “where the premises are let for the tenant’s holiday purposes”

In many instances it won’t necessarily matter what legislation governs the tenancies as the tenants are visitors and could be gone before you even notice any problems, let alone take action against them. Landlords need to look at the big picture. The majority of visitors attending the event will surely stay in short-term hotels/motels/hostels and serviced apartments. They will spend most of their time out and about watching rugby and exploring New Zealand. The majority will only require basic short-term accommodation and not large furnished houses. They want to be spending little time on cleaning/cooking so most will opt for serviced accommodation. Many visitors will want to follow teams around the country and not commit to 2 or 3 week tenancies in one location.

Although there are many negatives to consider, there will be many landlords that will make the most of opportunities to rent out properties short-term for the event. I expect that some visitors, mainly families, will try and utilise this private market rather than staying in serviced hotels/motels/hostels and apartments. The majority of this market will be made up of private homes (not rental properties). Some visitors will want a base for the event and after the event, for extended stays.

For those looking to take advantage of this market, think outside the square! If you want to compete with other property owners then think about offering a rental package for a week or two that includes some of the following, which will help differentiate your property from the thousands of other landlords looking to cash in.

1. A pick-up service from the airport.
2. A bottle of NZ wine, a crayfish, and/or a dozen oysters upon arrival
3. A car with the property
4. A cleaner once or twice a week
5. Complimentary tickets to a minor game at Eden Park

The most important aspect is that property owners should know who is renting the properties. Deposits and Bonds should be taken and contracts completed stating maximum numbers of tenants, rules and regulations. You may only have one bite at the cherry so if it’s worth doing it’s worth doing well!

Market volatility is what generates the return on your investment, and you can therefore use volatility to make money. With experience we find that most events in life that are volatile or uncertain still follow a reasonably predictable pattern over time.

In financial markets, making observations about the way markets have behaved previously in similar conditions should enable you to take the right actions and to reasonably predict the outcome.

Markets move in cycles and as surely as the sun will rise every morning, markets that have dropped will rise again. The question is, how far will they drop in any downturn and how long will it take before they start to rise?

When markets are uncertain in the short term, there are some important principles to consider before you invest. More than ever, the two key principles of liquidity and diversification apply. In simple terms, that means you should aim to invest in things that can easily be converted to cash again (don’t put your money into investments that are locked in or for which there are few buyers and sellers) and spread your money among many different investments rather than trying to pick winners. One of the most effective ways of achieving this is to use another basic investment principle, called dollar cost averaging. That simply means drip feeding small amounts of money on a regular basis into a diversified investment. Contributions to KiwiSaver are a good example of this.

For long term investors, short term market volatility will seem of little consequence in years to come.

Start with the basics. Focus on your goals and objectives. If you have long term investment goals, remind yourself not to get too distracted with short term changes in the market. Reversing your strategy will cause you to lose value and lose time – both key ingredients for achieving your goals.

Review your attitude towards risk and reassess whether your investment strategy is a good fit for your risk tolerance. When things are going well in investment markets it is easy to take on more risk than you should. Find the right balance between risk and return so that you can achieve your goals while taking an acceptable level of risk.

Stay diversified. Markets can change quickly, and moving all your investments into one asset class might work in the short term, but it means you are taking on more risk by having all your eggs in one basket. Don’t sell in a panic or you will crystallise any paper losses. Selling up and putting all your money into very safe investments will lower your return, possibly making your goals harder to achieve.

Evaluate all the options you have. This might mean getting more information from an expert who you trust. Make sure that any advice you get is from someone with a balanced or independent point of view who can point out the downsides as well as the advantages of different investment options.

Confident investors have a long term plan that they stick to, they do their research, they aren’t swayed by emotions such as fear or greed, and they are successful at building wealth.

Divide your portfolio into three amounts. The first amount is a lump sum of cash that is the equivalent of 6-12 months worth of income. For example, if you need $1,000 per month to top up your income, set aside $6-12,000 in cash. This amount should be placed in a high interest on-call account.

The second amount of money should be the equivalent of 1-3 years income, so in our example you would set aside $12-$36,000. This should be invested in fixed interest investments which are of good quality.

The third amount to be invested is whatever is remaining after setting aside the first two amounts. These funds should be invested mostly in growth assets with a small amount of fixed interest.

The way this strategy works is that over a three or more year time period the gain from your growth portfolio can be cashed up and put into your income portfolio to keep both portfolios constant. The interest from your income portfolio can be put into your on-call account to keep it topped up, along with proceeds from investment maturities as required.

Firstly, we are seeing a decline in property prices as winter sets in. Some property investors have reacted to the last budget by choosing to sell and this has had an impact at the lower end of the market.

Mortgage interest rates are expected to increase over the next few months and this will help keep property prices in check.

The second piece of good news for first home buyers is that from 1 July, 2010 you can you use some of your KiwiSaver funds for your house purchase providing you meet certain criteria.

You must have been a member of KiwiSaver for at least three years and the house you buy must be one that you plan to live in yourself for at least six months.

You will be able to withdraw the contributions you have made to KiwiSaver plus your employer contributions and investment returns. As well, you may be eligible for a subsidy of $1,000 for every year you have been a member of KiwiSaver up to a maximum of $5,000. To be eligible, your income and the value of the house you are buying must be within certain limits.

Thirdly, you may also be eligible for a low deposit loan through Housing New Zealand’s Welcome Home Loan scheme.

With this scheme, you can borrow up to $200,000 without a deposit and up to $280,000 ($350,000 in some areas) with a 15% deposit on the amount above $200,000. That means you can buy a $280,000 house with a deposit of $7,500 and your KiwiSaver money (contributions plus subsidy) will count towards your deposit.

Now is definitely a good time for first home buyers.