Direct real estate investment

Direct real estate investment is in an investment class of its own, and there are very few hard and fast rules about how to get it right. Everyone has heard of “location, location, location” as the key to the deal, but the reality is “the deal” is the key to winning or losing in real estate more often than not. That is, success is often driven by what you paid for any particular property, and on what terms and conditions.

Location does matter though: nobody doubts that the Auckland housing market is actually a lot of different sub-sectors with different behavior and trends, and some of them appear to make no sense at all. Sometimes it is just about location, but generally every real estate investment is influenced by local factors such as population trends, popularity, affordability, development of facilities, lifestyle options and so on. That in itself makes it almost impossible to compare opportunities on equal terms.

Every property investment opportunity needs to be assessed on its own merits. At the very least you need to understand the following factors in order to work out whether it can make a good “investment”.

Transaction costs

Costs include real estate agents, lawyers, bank charges or brokers fees, accounting and legal expenses. Work out all the costs involved in doing a deal.

When people tell you how much money they've just made on their property deal they'll seldom tell you about the costs they've incurred. Just the difference between the purchase price and sale price. Most don't even take into account the fact that the agent takes a percentage of the sale price.

Ongoing costs

Property management is either time consuming or will involve significant costs if using a property management firm. Prospective tenants need to be checked, agreements sorted, rents collected and inspections & maintenance done. There will be rates, insurance, repairs, possible advertising costs and vacant periods. They are all costs, which will determine just how profitable the investment really is.

Tax & Ownership Issues

The right tax advice, and the right ownership structures, can make or break a property investments performance. This is critical to the actual investment performance – even if you buy well and value rises, you gains can be substantially lower if the ownership structures and tax treatment has not been put together correctly.

Property can undoubtedly be a fabulous investment, but good advice and running the numbers is critical. It is an investment, not your dream home. So the big tip is: Be Business-like.