How do you choose a property in a town you don’t know? You might be buying sight unseen. How can you be sure what you’re buying is a sound investment – especially in this volatile market? And how do you manage a rental that might be at the other end of the motu from you?
“I’ve bought properties in towns I’ve never been to,” says property investor and coach Nichole Lewis. “I’ve spent about two to three hours on the phone, and I’ve learned every single thing I need to learn. “
“They want to search the criteria, not the location. People automatically limit themselves to the location where they live. But really what you want is the specific criteria, which is cash flow-positive.”
That means buying what Lewis describes as a “fourth quadrant” property – if the family home is a first quadrant property, bought with your heart, then fourth quadrant properties are all business, typically a multi-unit property which will result in bigger returns on your investment over the long term.
It doesn’t matter where the property is anymore, as long as the “numbers add up”. “I’ve got a simple calculator where you put in how much your property is, what your interest rates are, what your costs are, and then it’ll tell you whether it’s cash flow-positive or cash flow-negative.”
This tactic may actually make finding the right property easier, since you’re casting a wider net than if you limit your search closer to home.
“You’ll find 50 or 60 (properties that suit) in the whole country. And out of them half of them will actually be cash flow-positive, and maybe half of those again will be in your budget, so you definitely don’t want to limit that search”.
“If you decide now’s the time to buy, opening up that search criteria, you’ll find something now versus waiting, you know, maybe a year or two years”.
Buying from a distance comes with risks and opportunities, says Craig Lower, of Wellington-based Lowe and Co Realty.
“You need to know whether property you’re buying is going to be popular not just with future buyers, but popular with tenants, too. What you don’t want to do is end up with a property that’s hard to rent.”
The value of an investment property is in how much it will make in rent, as well as any capital gains, and the two aspects go hand in hand, he says.
“Buying in areas that are going to see population growth is going to be a better longer term investment.”
“I would be looking for a good building inspector and a good property manager who can manage it long term. Build relationships with those people,” says Lowe. “If you build a good team, you can do this stuff from afar.”
One of the things buying outside your city allows you to do is gear your investment conservatively, says Lowe. But you do need to be more diligent with your due diligence.
“If you’re buying something in an area which is half the value of what you’d pay in central Auckland, then you don’t need to take on as much debt, but you do have to be careful and smarter and more intensive in your upfront research and the use of good professionals.”
Doing your research means talking to everyone in the area you can contact, he says. Don’t underestimate the amount of information we can get about a place from ‘the everyday people, like the receptionists or the people at the local shops’. They’re brilliant to talk to, they know the area.
“Talk to council and talk to planners.
Talk to professionals, like valuers even if you don’t need a valuation done. They’re a very good source of information.”
Valuers, principals and headmasters, engineers and financial experts might also be a source of local information.
“They’re always very happy to chat and give you an opinion, as long as you’re respectful of their time. These people are professionals, they’re experts, and love to share what they know. So I always say, never be afraid to talk to people.”
A local property manager can help you get a clearer sense of the rental market in the area since they’re “in it everyday”, says Deborah Kay, head property manager for Hamilton-based property management company Hatch.
“We know what the rents are.”
Having a local manager means the property can be inspected regularly, and maintenance carried out in good time more frequently, as needed. Reputable property managers will also often have relationships with local tradies that means work gets carried out quickly, at a reasonable price.
If you do choose to go with a manager, it pays to shop around and be sure to find out what the management fee covers. It might be better to choose a company that encourages their managers to focus on management, rather than getting new business.
“Because then they’re focused on managing the property; they’re not off chasing other properties,” says Kay.