Do the hard Yards

With the property market continuing to rise to pre-2007 levels we are seeing a number of Property investment "guru's" come back to their old jobs. Unfortunately, some of the gurus are still giving the same advice they did back in 2007. I don't know what they do when there not selling the idea of investment property to people. Unfortunately, not all of them have kept up with the legislative changes. Some of these changes are significant. For example, I have heard of gurus still recommending flipping property (or worse, property renovations) without declaring it to IRD. Back in 2007 IRD had little interest in pursuing these investors. However, IRD has since increased their audit activity in this area and most accountants will ensure things are structured correctly and declared to IRD in full.

When you have a little start up Cash (be it Cash or equity in your home) the property guru's will be there to help get you on the road to investing. Most of, these people are extremely good sales people and generally know what they are talking about. Most of them have just enough understanding of the legal and accounting implications to help you through the first stages of property investing. However, any good property investor would know that the key to investing is not in knowing it all, but knowing who to talk to for what. The better guru's have generally partnered with an accountant and solicitor and recommend that you either go and talk with them or seek independent advice of your own.

When buying anything, doing your homework before any money changes hands is the key. You wouldn't spend $50k on a new car without knowing it has a reasonable reputation, taking it for a test drive and making sure that it was going to serve the purpose. Similarly, these things apply when buying investment property. You want to know the reputation for the area you are buying, that the property is structurally sound and that it is going to serve its purpose.

So how do you do that with property? How do you know the reputation? You could start with doing some homework, then seeking independent advice. Local real-estate agents can generally tell you what the going price is for a property is in any given area. We can assist with Current Market Appraisals, following this you will probably need to talk to a registered valuer to keep the bank happy.

Test driving a property is a little hard, and I don't know many banks that accept a fortune tellers word for lending. However, most accountants have the tools to do projected cash flows. However, few have invested in the tools for doing Property cash flows. Knowing the projected cash-flow of a property in advance can make a big difference. after all, many people will be familiar with the adage "Cash is King" in business.  The more correct term is "Cashflow is King" this is no different in property investing.

As for; will the property serve the purpose? This is a two pronged argument. Why are you buying the property, Cashflow or Capital gain?  Only then can we talk about the structure, but not now since I'm running out of space.

I did talk about homework you may want to consider, improving some of your investment strategies. Unfortunately, New Zealand has few great writers in this field but books like ‘Real Money Real Estate’ (Brad Sugars) and ‘Building Wealth Through Investment Property’ (Dolf De roos) have sound principals that can be applied regardless of where in the world you are.

And for all those that like to ask me every time I'm out enjoying a glass of wine. My gut feeling is it is time to consider fixing your interest rate (if you haven't done so already) as they are likely to start rising before Christmas. However, this is a personal view and not a qualified opinion.


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Keep an eye out for August’s article!


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