enableMe Advise on How to Avoid Buying a Lemon

New Zealand's property market is no longer booming like it was in recent years, but enableMe’s financial trainer, Hannah McQueen says that does not mean would-be property investors have missed their chance. McQueen says investors could make money in all parts of the property price cycle. "When things come off, you can buy at a discount and make your money upfront, not over time. You pocket it straight away."

However, McQueen said it was easy to be caught out. "In Auckland there tend to be more lemons than good properties from an investment perspective. A lemon is a property that you can't afford to hold in all parts of the property cycle." She said people could be caught out if they owned a property they could not afford if interest rates rose. "People who get burnt are those who have to sell when the property market is down.

“People think they can jump in and will be fine and I'm crossing my fingers for them that it will be if interest rates go up 1 percent. That’s a couple of hundred more dollars they need to come up with; then if the tax efficiencies aren't there that might be another $100. If they are already living payday to payday they don't have the tolerance to do that."

However, property is not risk-free or a one-way bet. You can be affected by bad tenants, gaps in tenancy, big maintenance or repair bills and interest rate rises to name a few. Property should be treated with the same degree of caution and consideration as any investment and you should seek appropriate advice. But here are a few rules of thumb to keep in mind.

As McQueen says, don’t buy a lemon. It seems obvious, but there are more lemons out there than worthy property investments, so you need to know how to buy right. Also, you need to understand the numbers. Some properties will get you a good rental yield, but cashflow often has an inverse relationship to capital growth potential. Similarly, interest rates will rise. It’s not a case of ‘if’ but ‘when’

Property investment (as distinct from property speculation) is not a get rich quick scheme, you need to assume you will hold the property for at least 10 years.

enableMe advise you to understand your own financial situation and your tolerance for risk. Do you have money left over after you’ve paid all your bills? If your cash surplus is low, your tolerance for risk is low. If you have less than 10,000 a year surplus, now is probably not the time for you to buy property, so for more information on financial advisors, budget advisors and financial planning please go to http://enableme.co.nz .