Apartment buying for property investment can be risky. Therefore, it is important to keep some property investment tips in mind. For example, being mindful of oversupply and questionable quality can be an issue.

Location is linked with oversupply. There needs to be an actual need for apartments in a given area. If a city is closely surrounded by suburbs and is easily accessible, then apartments are not really required. The success of your property investment therefore hinges on the novelty or glamour aspects attached to it, and not the practicality, which is not ideal.

Investing in ApartmentsIn regards to quality, leaky building syndrome can be a particular problem. In New Zealand, if the building has it then the entire building (ie all the tenants) may be required to foot the bill as many of the building companies responsible have declared bankruptcy. The Government makes some contribution but ultimately the bill falls back on the owner.

Leaky building syndrome is caused by the use of inappropriate materials, installation or improper design, resulting in weather tightness issues. In New Zealand, the use of untreated timber has also been an issue as it was considered acceptable to building requirements until recently. Now that the untreated timber used in construction has been exposed to moisture, it has deteriorated and rotted.

When buying any building, but in particularly when investing in apartments, one of the key property investment tips is that an inspection process should be thoroughly undertaken. Leaky building syndrome can cripple you if your apartment or home has it. Repair bills in the hundreds of thousands are not uncommon. Those cheap deals you see may not have been a year or two ago but due to circumstance the owner may now be taking a huge hit to get rid of the property. There are a heap of stories of people losing lots of money in apartments. There are success stories of course, but they are less common.

Another big issue with apartments is obsolescence, in 5-10 years time the building can look like a slum from the outside, which will drive your value no matter what you do to the inside.

When buying apartments for a property investment you need to consider that all you actually own is a small chunk of a large building. It is harder to control your interests in the investment compared to a house, for example.

It’s not all negatives though. Apartments can be a cheap investment that probably has ok cash flow; just don’t bank on any capital gains to be safe, and remember these property investment tips of being thorough with your inspection and research!

Responsible property investment means having a good Properties Team.It is one of the most important Property Investment Tips.

John Donne once said “No man is an island”.

When talking about Property Investment, this expression could not be more fitting. Whilst it may be possible to build a property empire all on your own, it is a lot easier to build upon the knowledge and skills of others where possible. By employing the help of an expert, the amount of time that you can save as well as the amount of money you may save in the future should make the decision a “no-brainer”.

Who are these mystery experts that no Property Investor can do without? I’m talking about Solicitors, Accountants, Real Estate Agents and of course the support of Family and Friends. They can all be very valuable for Property Investment Tips and advice.

1) A Solicitor
Now a Solicitor may sound like a dirty word to some of you, but I guarantee that a good solicitor is worth his or her weight in gold. However, they will need to be specialized in the property field. A commercial litigator will not be a lot of help to you in this respect but a good property lawyer will be. They can examine all the legal aspects of any prospect you have, they can set up trusts, partnerships and companies for you to structure all your dealings and they can advise you on any legal obligations you may be accountable for, now or in the future. Solicitors are very easy to find and most should advertise their credentials. Shop around and ask people in the know who they may recommend for your properties team.

2) An Accountant
An accountant will be able to advise you on the best ways to set your respective empire up from a tax and benefit perspective. They will prepare your financial accounts at the end of the financial year and the really good ones will be able to set out your finances in a way where you may be able to save yourself a bit of tax. You may have to liaise with both your accountant and solicitor to set out your portfolio in the best way possible. Like a solicitor, accountants are very easy to source. Try to find one that specialises in property. Most accountants will offer a free consultation before they commence working with you. Talk to them and get a feel for how they operate, if you don’t feel comfortable, then try someone else. Remember they are there to work for you, not the other way around.

3) A Real Estate Agent
Real Estate agents are the men and women on the ground in your properties team. Until you are in a position to know your market 100%, these are the people to talk to. From sales volumes to what prices are doing and where the place to buy is, a real estate agent should be able to give sound advise. Once you have been in this game for a while you will develop your own feel for things and may not need to rely on an external agent as much. It’s always good to have the contacts in place to have a catch up every once in a while, just to double-check your own thoughts. In real estate circles, big would appear to be better, with the most popular sales agents generally being popular because they sell more property and have a good idea on what the market is doing. Try to stick with these people, they will not be hard to locate.

4) Your Family & Friends
Whilst these particular people may not offer any particular specialist skills, they will be able to offer help, support and ideas to assist you with your decision-making. Having the support of family can do wonders for stress levels and having good friends you can call upon from time to time to help out with the odd job (as long as it is reciprocated) can save time and costs. Friends may have undertaken a similar endeavour as yourself, of which they may be happy to steer you in the right direction. Remember a problem shared is a problem halved.

Whilst there will be many others who will no doubt provide you with information and guidance along your path to investment nirvana, I believe that the 4 groups listed above are probably the most important components of your Properties Team.

So you’re looking to purchase your first investment property? And why wouldn’t you, it is a tried and tested way to build wealth as well as a relatively easy investment option that you can manage yourself. Naturally there is a range of things to consider and decide before you should delve into your first investment property. The purpose of this article is to examine one of most critical areas to determine first: the budget!

I will be using the purchase of a Residential Investment Property as the example in this case

Before you can start looking at possible rental properties to purchase you need to consider just how much you are prepared to spend. How much you spend will depend on your situation in life. Some may be able to pay cash up front, whilst others may have borrowed as much as they can from the bank to finance the venture.

Firstly, you’ll have a very strong indication of your budget by the amount of money you have in the bank. As mentioned above you’ll either have the money up front or need to gain financing. If you need financing then you’ll still need a deposit first. How much you can borrow against that deposit will depend on a variety of factors, but generally for a house it is 70-80%, and sometimes even 90-95% of the house’s value.

However, deciding how much you can afford to spend is not just about how much the property costs or the weekly cost of the mortgage. There are other factors and costs to consider too.

Costs that will be associated with the purchase of a rental will be such things as:

  • Interest and loan repayments if borrowing of funds has been used
  • Property rates (environment, council, water, etc)
  • Insurance
  • Any associated maintenance costs

Now the rent you will receive from your property will go some way to paying for all these costs and in some cases may provide a surplus! If you have had to borrow from the bank to fund this purchase, chances are you may need to “top up” your rental from your own funds to cover the full amount of the associated costs.

For Example: You purchase a $300,000 rental property. You borrow $240,000 from the Bank (80%); Interest repayments on that amount would be $16,800 per year (assuming 7% interest). Rates are $2000 per year and Insurance $500 per year. If we broke this down to a weekly figure it would be $371 per week. Depending on what sort of rent your property will command will determine how much it may cost you on a weekly basis. Bear in mind that the above figure has not allowed anything for repairs and maintenance to the property should anything go wrong. This is something you will need to budget for as well.

By working out what you could comfortable take from your own income each week; you can determine how much you would be able to borrow and spend on an investment property.

Property investors make money from investment property in an an extremely varied array of ways. Here is a broad outline of the main types of property investment.

Residential Rental Property Investment

a) Owner Occupancy:

This is the most common type of property investment, possibly the most common type of investment period. Owner Occupancy is where the owner lives in the house he or she owns. It is common for a house buyer to borrow 70 – 90% of the house’s value and take out a mortgage for 20 to 30 years. Returns come in the form of capital gains over the period of ownership.

Some residential property investors disregard this as an effective form of property investment compared to rental property because it does not have same the tax benefits that can make rental property investment so appealing.

b) Rental Property Investment:

Rental property investment involves renting out a dwelling for people to live. This could be by renting out a house, condominium, apartment, or flat. After owner-occupancy this is the most common type of property investment because, in the case of a house, investors you can usually borrow 70% – 90% of the house’s value. This makes it perfect for investors to borrow against there own home to buy it. During the property boom of a couple of years ago it was possible to even borrow 100%. Investors can usually borrow more for a house than they can for other types of dwellings, for example an apartment.

Returns from rental property investment come in the form of rent from tenants and from capital gains.

Commercial Property Investment

Commercial Property Investment is the owning of premises which occupiers rent to make money for themselves. The list of examples is endless, but would include warehouses, retail stores, and office blocks.

While the returns are potentially higher for commercial property, it is generally more expensive as it is often placed in high value areas, such as central business districts. Most importantly, the amount investors can borrow is less, usually 50-70%. It is seen as having greater risks than residential property investment. One reason fr this is because the occupier of the property is more vulnerable to bankruptcy than in a residential property.

As with residential property investment, returns come in the form of capital gains and rent from tenants, in this case businesses.

Property Development

Property development is an incredibly broad form of property investment. Essentially it involves the purchasing of land or a building, and improving its value for resale.

On a smaller scale this could be simply buying a house and making a few improvements or modifications then selling. Small scale investors sometimes prefer this to rental property investment because they do not have to deal with tenants.

It is also common for developers to buy large blocks of land for subdivision. This is more of a medium scale form of property development.

On a larger scale this could be buying an empty plot of land and building anything from a hotel to a golf course. It involves finding a plot of land then having the imagination to see the best way to develop and market a property for maximum returns. The options for this type of development are endless. An example of one famous developer of this scale is Donald Trump.

Large-scale property development is more difficult to enter because it involves more capital and has higher risks. Because the total cost is unpredictable it is also more difficult to borrow for. However, the potential for profit on such a venture is huge.

Property is like any form of investment, where the greater the risk you take the more potential you have to make greater profit. Ultimately how much risk you take my depend on where the money you invest has come from, and to what degree of trouble you would be in if you were to lose it!

What time scale are you working on?

The time scale you are working on will affect the level of risk you may need to take to see a positive return. Where there are many safe investments that will make a nice return over a period of 5 to 10 years, there are very few that are risk free for a period shorter than 12 months. It is my opinion that property investment should be seen as a long term strategy for profit.

Spreading Risk

One way to reduce the risk involved in an investment is to spread that risk across several different projects. If you are lacking in capital, then one way to spread risk would be to invest with a partner, family or friends. Putting all your eggs in one basket is not the best strategy for every beginner. Raising the capital required to invest in property will be a key factor.


Capital is the money that you have to invest. Capital may come in the form of equity you have in other investments, or the property you live in. The amount of capital you have will turn into the deposit you have to place down on your new investment property after expenses.

Market cycles – How to avoid greater risk

The property market works in cycles, both locally, and as a whole. In times of recession people have less money to spend, more people need to sell their homes, and as a result properties sell for less. If you are a cashed up buyer with capital this is an ideal time to invest in property, and there are plenty of bargains to be found. However, it is also much harder to borrow cash during a time of recession, with banks feeling to pinch of lower interest rates, borrowers are often expected to find a much higher deposit.

The key concept in property investment is leverage. If you have experience in the industry you may already understand this concept, but for the benefit of those who are new, I will explain it. Leverage is your ability to increase your returns by using other peoples’ money to increase the overall value of your investment. With property investment it’s usually the bank’s money.

It makes more sense if you look at some numbers

Say you have $30,000 to invest. This would need to be a lump sum to invest in the first two options, however for option 3 it could be equity from your main residential property which you live in. Lets look at the best way to invest this money?

Option 1) Place your money into a term investment or savings account with your bank

We would be looking at about 3-4% return. After you consider tax on profit, and inflation you are going make very little progress at all. Although, your money will be very safe.

Option 2) Stock Market and Shares

Unlike with the bank, your money would be considered not as safe invested in stocks. However, a lot of that depends on the risk of the stocks you buy.

This table shows how much money you would make if your stock gained 8% annually for 10 years. 8% may be a fairly conservative profit from playing the stock market, however, if you wanted to play safe, I think it is a good index to use.

Year Total Value Annual Profit
1 $30,000.00 $2,400.00
2 $32,400.00 $2,592.00
3 $34,992.00 $2,799.36
4 $37,791.36 $3,023.31
5 $40,814.67 $3,265.17
6 $44,079.84 $3,526.39
7 $47,606.23 $3,808.50
8 $51,414.73 $4,113.18
9 $55,527.91 $4,442.23
10 $59,970.14 $4,797.61

Doubling  your money playing the stock market over 10 years is a good investment, however this projection takes into account an 8% annual gain, and assumes you have invested wisely. There are other variables which haven’t been considered.

The numbers for property investment look even better.

Option 3) Property Investment

The best thing about property investment is it enables you to leverage the $30,000 to purchase a property of $100,000 – $200,000, depending on how much deposit is required.  Your investment will grow as a percentage of the value of the whole property, not just the amount you have invested.

Year Total Value
1 $200,000.00
2 $212,000.00
3 $228,960.00
4 $247,276.80
5 $267,058.94
6 $288,423.66
7 $311,497.55
8 $336,417.36
9 $363,330.74
10 $392,397.20

Looking at a conservation rate of growth for the property market of 6%, the overall value of your property would double in 10 years, however, rather than the investment of $30,000 doubling, the whole investment has doubled. Even if you only had only paid off interest, and no principle, and you still owe the bank $170,000, your $30,000 has turned into $222,397.20 of equity in the property.

So as I am sure you have guessed the $222,000 is much better than the $60,000 from the stock market!