Just over a year ago on the 9th of May 2017, we became official homeowners! After countless late nights, stressful paperwork a lot of research we have finally cracked the property ladder and have joined this so-called mortgage world and reno life.
For Luke and I getting on board the kiwi dream and getting our first step on the property ladder was a goal for the 2 years leading up to the purchase. The prospect of owning our own home, adding value and building our portfolio of properties is our long-term dream. We are so excited to have kicked this off, started cracking into a bit of average DIY and making this dream a reality.
This whole buying a house thing wasn’t easy, we had countless setbacks, rejections and times where we have felt extremely out of our depth. However, constant research, talking to the right people and just taking a step back to re-evaluate were the only things keeping us positive and on the right track.
We have learnt so much over the past 2 years so we thought we’d share some of the important aspects we have learnt along the way to help you take the daunting first step.
We will be touching on the following areas that we found out the hard way:
- Taking time to get to know your local market
- Decide what the house is for
- Do the math & crunch the numbers
- Go straight to a mortgage broker
- Keep an open mind and don’t judge a book by its cover – keep your end goal in mind
- Build relationships with as many real estate agents as you can
- Do your due diligence
- Putting in your offer
- Extra costs to be aware of
- Trust the process & go with your gut
Keep in mind this is different for everyone and our story and advice is tailored around us finding and buying an investment property as opposed to our first home. Some of the points raised won’t be valid if you are wanting to find that perfect first home to raise a puppy and a child. It’s also just a starting point so please get advice from the appropriate professionals before taking the next step but in saying that stay tuned, enjoy and take away what you wish!
1. Take time to get to know your local market
It is super important to know your current local market. Do the necessary research to get to know what houses are going for, what the different rental markets are and how many in particular areas, what are the good and bad streets, suburbs and hoods.
Both Luke and I didn’t grow up in New Plymouth therefore, getting to know our local market took us a good year to feel comfortable in knowing what the potential upcoming areas were and what areas we wanted to be a part of. Even if you are planning on purchasing a property in a city you have grown up in – it doesn’t hurt to crack into some research to give yourself a good base knowledge, which will, in turn, lead to a good starting point.
Here are some ways we would recommend to learn about your local property market:
- Attend local property seminars – New Plymouth has what is known as the Taranaki Property Investors Association, which essentially provides information, advice and networking opportunities through regular events, seminars, industry news, updates and publications. Find these in your city – head along and take away as much as you can!
- Read the local property market update by Tony Alexander (Chief Economist for BNZ and this guys a bloody genius) – these articles are normally published in the property press magazines which is a weekly magazine with all properties for sale in your area – these are super useful.
- Talk to real estate agents – these professionals are the people that can help you the most however it is super important to remember that they are working for the vendor/seller, therefore – don’t tell or trust them too much… We found a real estate agent at almost every agency in New Plymouth who we naturally gravitated towards (by naturally gravitating towards I mean someone who is somewhat of a millennial and understands what we are after). This meant we were on the mailing list for almost every agency, which gave us the heads up when a new property’s entered the market, which is ultimately KEY to getting ahead of the pack! You will find if you are not one of the first ones to visit the house – you will more often than not miss out – yes, we’re speaking from experience as this is hard with full-time jobs AND a life.
- Go to open homes – we found that quite often the houses found online or in property magazines looked completely different from real life, therefore, we got a lot out of open homes. It also gives you a good indication of the interest of each property in terms of how quickly do you need to move if you like the look of something. Open homes give you a good chance to touch base with the agent, let them know you’re interested and to again create that network. If possible, be that annoying/demanding person and arrange a viewing before the open home.
- Talk to family and friends – we were very lucky to have an abundance of family and friends supporting us throughout our house buying journey. Because both of our families live out of town we relied on level-headed family friends to help us with their point of view on the local market, bounce ideas, keep us realistic and bring us back to the “why”. Why are we buying a house, what is the purpose and will this house help us achieve our goal? It was very hard to remain level head, unemotional so relying on friends and family with their local insight was a massive help.
- Go online – QV and homes.co.nz are a couple of great websites that allow you to see stats in particular areas, look at recent and past property sales/prices, approximate rental appraisals and gives you a good indication on what you should potentially offer based on the current Government Valuation. We found this particularly useful especially when the property doesn’t give you an asking price (instead they say “offers”). If that was the case, we would jump onto one of the above and it would just give us an indication whether to look into it further or give up right then and there (cause it’s like a million dollars).
- We also found Trade Me another good tool especially when it came to looking at the rental market. For example – we looked at rental properties in each of the different suburbs on trade me in New Plymouth and basically stood clear of suburbs that had an abundance of properties already for rent as; 1. it meant we would be up against a lot of competition and 2. perhaps if there is so many online maybe it is not a desirable rental area.
- Read the monthly Property Investor Magazines – we would get these second-hand cause at like $15 a pop it bloody adds up (life on a budget). So second hand and a month late was worth it. These magazines are super inspiring and have so much information whether it’s on your local market or nationally, it is all relatable and we found it quite motivating. It looks into emerging areas in New Zealand, law changes, any possible development and has some good advice for first home buyers.
2. Decide what the house is for
Before you even start looking make sure that if you are buying the house with some else that you and whoever you may be buying the house with are on the same page in terms of – what is the house for?
When we first told my parents we wanted to buy a house my Dad asked us what is it for? Is it to live in or rent out? We naively said both like it was a stupid question…(common mistake apparently)
It is essential that before you go looking for that dream home you figure this out.
A: a home for yourself or you and your current/future partner to live in and ultimately raise a family
B: a temporary home that you will do up and flick off to leverage into the next one, or;
C: a rental property to start or add to your property portfolio
So, long story short – a house can’t be for both A and C – if it is, you become emotionally attached, the numbers just will not work or you could end up buying the wrong one.
Once we understood the difference between this it enabled us to start establishing what elements were important and what exactly were we looking for in our investment property.
We referred to these as non – negotiable’s and were elements such as:
- 3 bedrooms
- North facing
- Must be able to add value (so basically old and shit)
- Structurally sound
- Location in terms of schooling, local amenities, bus stops, universities & hospitals
As mentioned above we had done our research on the local market so we had in mind certain areas that we really liked and certain areas we would not even look at. To save time we would not view a property if it didn’t tick all the non negotiable boxes.
We swiftly noted that it was almost impossible to find a house that meets everything you are after – especially on a budget… Therefore quite often you will need to be flexible and sacrifice some wants to get your foot in the door. Some of the wants that we thought were negotiable were aspects such as:
- Size of land
- The overall aesthetic look of the house
- State of repair
- Aluminium windows
All of these things are great to have and add significant value, however, let’s be honest come at a cost. For our particular situation, we needed the numbers to work and the ability to add our own value in our own time as we save the money and find the time to do so.
We had to remain very unemotional throughout this whole process, which was quite difficult at times. There were particular occasions when viewing houses where I (being a female) naturally started to see us nesting in certain beautifully decorated homes, you start to picture that lounge suite you saw online or where you’d hang your favourite piece of wall art, however, it took all our strength to pull back, re-focus and walk away – saying to ourselves “they have done everything that we want to do – it’s not quite the right one”. So, stay focused, don’t rush, the right on will be just around the corner.
3. Do the math & crunch the numbers
Before you go online and look at houses – figure out what you can afford so you can decide how much mortgage you are willing and can afford to pay. There is no point in wasting your time or the agents time if you actually cannot afford to buy the house in the first place. If it doesn’t work, walk away – sounds simple right?
In terms of working out what your interest rate would be – generally people will take a loan out over 30 years (bloody long time huh?) so clearly, a lot can happen in that time in terms of interest rates and the global economy. We used the Westpac Mortgage Calculator and also the Investment Calculator which we found super useful when doing the initial calculation.
When looking at your interest rate it is always good to do a couple of calculations just to keep it realistic and should worst-case scenario actually happen. Interest rates at the moment are at an all-time low but this may not be the case in three years time or even two years time so it is important that you plan ahead. Apparently when my parents bought their first house years and years ago (sorry, mum and dad didn’t mean to make you sound that old) but apparently interest rates were like 20% so god knows what to do when/if that happens but it is important to note that it can happen so make sure you have a plan B.
Purchase Price: $400,000
Deposit 20%: $80,000
Loan Amount: $320,000
Loan Term: 30 years
Interest Rate: 5% – Fixed for 3 years
Weekly Mortgage Repayments: $395.00
Example 2: Interest rate renegotiation (Three years later)
Purchase Price: 400,000
Deposit 20%: $80,000
Loan Amount: $300,000
Term Amount: 27 years
Interest Rate: 9% – Fixed for 3 years
Weekly Mortgage Repayments: $555.00
We did a couple of calculations with some slightly higher interest rates so should shit hit that fan in a few years we know how much more we potentially need to find per week.
4. Go straight to a mortgage broker
This was possibly the best thing we did. We went with Stephanie Murray Mortgages (SMM) here in New Plymouth. Natasha at SMM was absolutely AMAZING – she was super friendly, always available, easy to talk to and simplified everything from confusing financial terms into basic human english so we understood exactly what was going on, what needed to be done and why they needed a million payslips and 5 forms of ID (slight exaggeration but the paperwork is ridiculous). Natasha took care of everything, from arranging pre-approval, negotiating interest rates, advising us on our loan structure, and putting us in touch with specialised professionals to help get the job done.
Apparently buying a house is one of the most stressful things you will do – well Natasha took all the stress away which enabled us to have a laugh, get excited and learn as much as we could along the way. The best thing is Mortgage Brokers come at NO COST to the buyer – (Sorry Natasha – took a while, but you did get paid eventually). Mortgage Brokers get paid if and when the sale goes ahead – the bank essentially pays the broker a commission for bringing your business to them, this will not affect you and your interest rate– so you have absolutely nothing to lose and everything to gain, you will not regret it. Thank you, Natasha – you were bloody awesome!
5. Keep an open mind and don’t judge a book by its cover – keep your end goal in mind
For us, this meant – zero emotion. This may be different if you are buying a home for yourself or for you and your soon to be family to move into and live in it for years to come however for us – we have moved in, we’re doing it up (slowly) and plan to rent it out. A lot can be said for “looks aren’t everything” – we saw the potential in our place that not many people saw…if any for that matter (hence the successful purchase). Being new to the process and extremely naive helped us in being completely oblivious to the amount of work involved in a do’er up’er. So basically, what we’re trying to say is who cares what it looks like as long as it has good bones and ticks all the non negotiables, she’ll be right, plus, what can go wrong? …
6. Build relationships with as many real estate agents as you can
As mentioned previously these relationships are super important. If you’re not first through the house your probably last and it’s quite often too late. Initially, we were always behind the eight ball and by the time we had gone through the house, it was under contract making it near impossible to get our ducks in a row and put an offer forward. We found this super stressful as we both work during the day in jobs that are hard to slip away from for an hour or so. So, make sure you tell the agents exactly what you’re after, get on their databases and follow up. It’s up to you!
7. Do your due diligence
This is essentially the process you take to investigate, inquire and evaluate before signing on the dotted line. It is important that you put your due diligence elements into your offer to allow you to escape should anything not be quite right. Basically, this is making sure the decision you make is informed and official research is carried out with care to make sure you have a way out should anything not be or feel quite like it should.
8. Putting in an offer
There are 3 main ways to buy a house in NZ – Offer/Negotiation, Tender & Auction. Most house purchases are through negotiation unless you’re in the likes of Auckland or Wellington where houses cost millions. So, here in Taranaki, we went through a negotiation offer where basically the houses are advertised at a set price or price range whereby you can make an offer in writing to then potentially negotiate with the seller until you agree on a set price and/or conditions. A negotiation process is ideal for buyers as it gives you time to think and allows you to put conditions in your offer (due diligence) that will let you fully check the place out before you commit to buying it.
Conditions essentially allow you to carry out your due diligence. You can set as many conditions as you wish however the more conditions the more likely the offer could fall through. It is important to state that the conditions are “satisfactory to you” to make sure you are happy with the outcome.
Conditions can be just about anything you want to specify however some common ones are;
- Subject to Finance (Satisfactory to you)
This clause covers a lot as essentially it gives you time to arrange your loan with the bank but it also covers aspects such as kiwisaver, insurance, building report & valuation as the loan/finance will potentially not go through without these. One thing we learnt was to make sure you state “purchases lender of choice” otherwise the seller can force you to quote different banks until you are accepted by one. This might force you to use a bank you are not familiar with, a bank that you just don’t want to use or a bank with potentially higher rates & interest.
- Subject to Valuation (Satisfactory to you)
A registered valuation tells you the market price of the property and what you should essentially pay for the house. By having this in the clause it gives you time to get this done and if the valuation comes back and hasn’t met your expectations you can withdraw your offer accordingly. If you have less than 20% deposit the bank MUST require a registered valuation however if you have 20% or more it is optional and up to the buyer.
- Subject to Building Report (Satisfactory to you)
This clause gives you time to get a licensed builder to come in and check the property for any current or potential issues. If they red flag anything make sure you ask them a rough idea of what it might cost to get repaired or fixed so you can then negotiate further with the seller or ask for them to get it done for you before you go unconditional.
- Subject to LIM Report (Satisfactory to you)
A LIM (Land Information Memorandum) report is issued by the local council and provides you with all the information they have on that particular property and all the work that the council has had involvement with.
This report will typically include:
- Zoning information
- Information on natural features which impact the use of the property (such as flooding or erosion and wind risk)
- Scheduled roads or utility (such as drainage) developments
- Information on of current rates
- Information on any protected or heritage trees on the property
- Details of resource consents, or building consents issued for work on the property
A LIM report is a super useful report however while it can contain vital information on a property you’re interested in buying, it won’t contain ALL information on any given property.
Just look at the LIM in the context of what is currently in place at the property. It’s important to note that not all the work carried out on a property will appear on a LIM as not all the work requires council involvement. However, if there you notice something strange or perhaps construction that may not be listed in the LIM make sure you discuss it with your lawyer and real estate agent prior to making an offer.
- Sellers Conditions
The seller also can specify conditions which they can use as an escape clause. A common one to note is the “Cash Out Clause”. This is essentially a clause in the sale and purchase agreement that allows the seller/vendor to accept a cash offer within the conditional period of your offer. If the vendor evokes the cash out clause, you as the buyer have a period of time to go unconditional.
So, if your conditions are met in the specified time (normally 10 working days), your offer then goes unconditional – which means you’re legally bound to buy the house. It is super important that you have the right conditions with enough working days to allow you to do your due diligence. Its normally quite a stressful 10 days but if you have your ducks in a row and the right people on board you’ll be sweet as. Hopefully the above will give you an idea of what we did.
- Have a good understanding of what property is worth to you. Be prepared to negotiate – you never know, you might get lucky with a slightly lower price
- Know your price limit, stick with it and be willing to walk away
- Be flexible with some conditions. This can be done thorough settlement date or deposit amount which will potentially make the deal more attractive
- Do your research about the property to increase your bargaining power
- Remember the agent is working for the seller to get the highest possible price – be mindful of what you say
- Don’t feel pressured into rushing things. Be prepared to walk away
- Don’t necessarily tell the agent or seller your top price
- Don’t sign anything you don’t understand – always check with your lawyer
9. Extra costs to be aware of
As like anything there are hidden costs to be aware of that sometimes you don’t think about. So here is a rough idea of what to plan for and make sure have available to you during this time. This will vary city to city and is approximate depending on the level of service received. Obviously like anything, you pay for what you get…
- Lawyer $2000 approx.
- Builder Report $700 approx.
- Lim Report $600 approx.
- Registered Valuation $800 approx.
- Rates adjustment (difference in rates that have already ben paid for)
- Also, moving and set up costs to be aware of
10. Trust the process & go with your gut
Last but not least don’t rush, enjoy the journey/challenge, trust the process and as with most things, go with your gut. Whats the worst that can happen?
So there you have it, if you’ve made it this far our sincere apologies about the novel. All of these 10 tips are based on buying an investment property, how we went about it and what worked well for us. There is definitely no right or wrong way to go about buying a house and it will vary depending on the type of property you are wanting to buy and where you are in the world.
Anywho, happy house hunting and remember this is just a starting point so please get advice from the appropriate professionals before taking the next step. Good luck and holla if you have any questions.
L & A