Getting the most out of your earthquake claim

5 years on, you deserve to get the most out of your earthquake insurance claim, but what is the best way to achieve your financial goals? – We explore three options, in no particular order.

1 – Managed Repair or Rebuild

This is the most common choice for earthquake claimants – Your insurance will pay for and manage the repair of your property, or a complete new build, and cover al the costs.

Pros

• ·      You can remain in your home after the repair.
• ·      Potential for moderate financial gains through increased house value.
• ·      You can end up with a house much better than the original.

Cons

• ·      You will probably have to move out while the repairs take place.
• ·      It is often difficult to get definitive timings from the repairer.
• ·      You need to oversee repair strategy to ensure a quality end result

2 – Insurance Settlement

Cash settling with insurers is becoming a more popular option for claimants. Rather than your insurance company repairing your house, you will be paid out an agreed cash amount instead. The insurer will then terminate your old policy, leaving your damaged house uninsured. You may then take it upon yourself to manage a repair and seek insurance cover at a later date.

Pros

• ·      Generally the insurer will agree to pay out more than the estimated cost of repair.
• ·      Choose whether to repair your house or use the cash for something else.

Cons

• ·      You assume the risk of any unknown problems, which may become apparent during repairs.
• ·      Maintenance costs can mount quickly if you choose not to repair your house.
• ·      Getting insurance again is difficult, and will require the repairs to be completed.

3 – Full Cash Settlement

Cashing in is done in two parts; first you negotiate a cash payout from your insurer, then sell your damaged house uninsured (often referred to as selling ‘as-is-where-is’).

Pros

• ·      This will usually be the most financially rewarding.
• ·      Most as-is-where-is property dealers will provide you with the flexibility to remain in your house while you look for a replacement.
• ·      You are not exposed to unexpected repair costs.

Cons

• ·      Negotiations with insurers can be stressful.
• ·      If you don’t have a pre-settlement offer, you’ll be left with an uninsured property for a time.
• ·      Not all purchasers of as-is-where-is properties commit to carrying out repairs.

References

www.WhatsMyOffer.co.nz – New Zealand’s number one as-is-where-is property dealer. What’s My Offer repairs all of the houses they purchase, and offer delayed settlement options with no fees.

Dean Lester Services – Dean has an extensive insurance background and offers his experience for your insurance negotiations, ensuring your settlement is fair. Phone: 027 226 0762  

www.BuildersCrack.co.nz - A very handy website for finding local tradesmen for your earthquake repairs in Canterbury.

Top 5 Rental Investment Suburbs in Christchurch

With property prices consistently rising beyond inflation and average incomes, the number of buyers at the cheaper end of the market gets larger and larger, while the pool of cheaper houses actually shrinks.  Conversely, there are more and more ‘expensive’ houses to be seen, with fewer people who can afford them.

We have now seen a surge in popularity of those cheaper suburbs which were previously less desirable, but are now in short supply for first home buyers. This trend is likely to continue.

On the face of what we’re seeing in the numbers, it appears there is particular interest in those suburbs valued towards the peak of the $450,000 Kiwisaver cap, but it may be simply that a mortgage on homes around that value is as much as most families are prepared to repay.

Below we’ve listed our favourite suburbs to buy 3 bedroom rental properties in Christchurch. Our statistics were sourced from Westpac Data Insight, to Sept 2014.

5 – Halswell – It’s hard to look past a suburb with so many acres of new development taking place. The new subdivisions are well thought out, immaculately groomed, and offer an abundance of reserve and walkways, and flowing architecture styles. With new houses completed almost daily,  you’re sure to find a suitable rental property here.

4 – Beckenham – The southern border of Christchurch has increased in popularity dramatically since the Canterbury earthquakes, so we didn’t want to leave our favourite suburb of the south side off the list. Beckenham is a character neighbourhood, so it’s hard to find a modern building better suited for renting, but we believe the proposed heritage zoning and future growth potential of Beckenham justifies this top 5 status.

3 – Wigram – This jewel has long left its stigma of the pre-quake era behind, thanks to another quality development by Ngai Tahu Property, who has a reputation for quality subdivisions. Now an attractive mix of low and medium density properties; Wigram is also home to a promising hospitality space at The Landing.

2 – Hoon Hay – 10.6% growth and a 6.0% yields last year. These numbers stack up for a great investment, but we think there is more where that came from. Beware of which parts of Hoon Hay you buy in though, as this suburb is vastly different, depending on which part of it you’re looking. The best parts are found south of Sparks Road.

1 - Hornby – Probably encouraged by extensive development in neighboring Wigram Skies, Hornby topped the charts at 11.5% growth last year, and a very respectable 5.8% yield. There is also further commercial development underway in Hornby, which is now the closest major hub to the commuters coming to and from Rolleston. For an affordable option, Hornby is the first place to look.

Cities With Growth Potential – Christchurch and Wellington

Christchurch & Wellington property prices have been trailing behind the growth experienced in Auckland since 2011, which has created a significant price gap between the two cities, to a degree that has never been seen before. This could indicate Christchurch & Wellington prices will increase over the next few years, while the national balance is restored.

New Zealand housing is a national market, so while we can look to the usual indicators such as net immigration, rent prices and building consents to make short term regional predictions, the basic overriding economic principal of supply and demand will eventually play out, and with that comes the effects of competition, so the long term pattern shown since 1992 should remain true in the future.

In other words, Christchurch & Wellington housing is competition for Auckland, and provides a healthy alternative for those comparing property investment options between the three main cities. As more and more are priced out of the Auckland market, they will look to these substitutes instead.

There are two things that could happen to close the gap. Christchurch & Wellington prices go up, or Auckland prices go down. The latter seems unlikely, due to Kiwi investors’ reluctance to lose money. History suggests we merely hold onto our property in less prosperous times, rather than selling at a loss. To the most part, we see fewer sales in those conditions, but not lower prices.

If you’re playing the long game, which is the safest strategy for a normal Kiwi family, Christchurch & Wellington have massive growth potential now, so could be the cities to buy in right now.

Step by Step - Buying your first rental property in Christchurch

Below we've Plotted out 8 steps to take you from home owner to property investor, with our cheat sheet tips which provide valuable shortcuts for the first time investor. If you are new to property investment, we recommend signing up to a free property club seminar, or personal consultation, which will help you through each step in greater detail… Just sign up here… http://goo.gl/forms/pdo8kI47SP

1) Is it the right time to buy?

Property investment is a long term game, so if you're looking for a get rich quick scheme, you're in the wrong place. Don't get hung up on what the property market might do over the next few months. The important thing is what happens over the next few years, and that's generally a steady gain, which averages about 6% per year.

Cheat sheet - Check out the stats since 1992, for Auckland, Christchurch & Wellington, on the REINZ website… https://www.reinz.co.nz/shadomx/apps/fms/fmsdownload.cfm?file_uuid=8850044A-1DEB-43E2-B6F1-5F0193958C56&siteName=reinz

2) Will the bank lend you money?

This doesn't mean you need thousands of dollars in the bank. If you own your own home, you're already on the property ladder. This is the hardest part of all, so well done if you fit into this category. Once you've owned a home for long enough, you'll notice it's worth significantly more than you paid for it. This is known as gaining equity, which is the key to step three.

Cheat sheet - Get an approximate value based on your most recent Christchurch Council valuation here… http://www.ccc.govt.nz/services/rates-and-valuations/rates-information/

3) Use your equity to fund your deposit

Before the bank will lend you money to buy a rental property, you need to prove you have a 20% deposit, but this doesn't need to be cash. Most property investors use the equity they own in their family home to satisfy the banks criteria. For example, if your home is worth $500,000 on today's market, and you only owe $300,000 on your mortgage, you have $200,000 equity, so can probably borrow another $500,000 to buy a rental property.

Cheat sheet - Use a mortgage calculator for an idea of your borrowing capacity, like ANZ Bank’s indicative approval process here… https://onlinestore.anz.co.nz/get/home-loan

4) Choose the right type of property

There are two ways to profit from property. Yield is the rental income you receive on the property, and capital gain (aka growth) is the increase in value that will happen over time. Generally speaking, the higher one is, the lower the other, but there are definitely some that are better than others overall, so you're looking for the right balance between the two. 

Yield will help you pay the mortgage, but capital gains will make you far more profit in the long run, so it depends on your own financial situation. If you can afford to pay off some of the mortgage from other income, such as your salary for example, it's worth choosing a property which can offer better long term gains instead.

Apartments/townhouses and cheaper suburbs usually offer higher yields, while larger houses and more expensive suburbs offer better growth. A larger house in a cheaper suburb might offer you a good balance in between.

Cheat sheet - Westpac offers great statistics of yield and capital gains, broken down by suburb and dwelling type. Download the report here… http://www.westpac.co.nz/home-loans/property-investment-hub/investment-tools-and-resources/westpac-property-investor-report-3/

5) Get some tax advice

Property investment can be structured to offer significant tax savings, if you do it right. Some things to consider before you buy might be whether you will be considered a speculator, subject to capital gains tax, or what expenses can be deducted from your usual income, to decrease your weekly tax bill.

Cheat sheet - pro-Tax NZ offers free advice to home owners. Request a free consultation from the Christchurch Property Investors Club here… http://goo.gl/forms/pdo8kI47SP

6) Shop around

Now that you know the type of property you're looking for, it can be fun choosing a rental to purchase, but be prepared to set in for a long wait. Setup search criteria on Trademe Property and Realestate.co.nz, so you're emailed the latest suitable listings daily, and set aside your Sundays for open homes. Often the best buys are made before they are even advertised though, so it pays to contact local agents and let them know what you’re looking for.

Cheat sheet - Real Estate agents are usually happy to find you a property that suits, and won't cost you a cent, as they will be paid by the seller of the property you eventually choose to purchase. 

7) Crunch the numbers

Before you purchase your first rental property, you want to be sure you can afford to make the repayments on your new mortgage. Things to consider are how much the repayments will be, how much rent you can charge, and what other expenses you'll be liable for, such as rates, insurance, property management and maintenance.

Cheat sheet - Westpac offers a great calculator here… http://www.westpac.co.nz/home-loans/calculators/property-investment-calculator/

Bonus tip - You will often find property managers are willing to give you a free rental appraisal. We recommend the team at Venture Property Management… http://venturemanagement.co.nz/

8) Due diligence

This is where a solicitor is important. Before you sign a purchase agreement on a property, ask the vendor to send a copy to your solicitor. The solicitor will uncover any potential issues with the property, and ensure your legal interests are protected. Usually you will enter into a ‘due diligence’ period of around 10 working days, during which time you can consider the property in more depth, while maintaining an option to cancel the purchase. Common things which your solicitor might ask for are confirmation of finance and insurance.

Cheat sheet - Here is an example of a fairly rigid due diligence clause you might include in your purchase agreement… 

"This agreement is, in all respects, conditional upon the purchaser being satisfied that the property is suitable for the purchaser’s requirements following the purchaser carrying out a due diligence verification of the property, including by way of example and without limitation...

1. The value and condition of the property including compliance with building and local authority regulations.

2. The terms of all encumbrances, rights and interests registered against or in respect of the title.

3. The overall financial suitability of the purchaser’s proposed purchase of the property.

The date for fulfilment of this due diligence condition is that date being 10 working days after the date of this agreement. The parties acknowledge that this due diligence condition is inserted for the sole benefit of the purchaser and may at any time prior to this agreement being voided be waived by the purchaser giving written notice of waiver to the vendor."

The Ultimate Cheat - Sign up to the Christchurch Property Investors Club, and we’ll arrange a Property Investment Consultation with one of our sponsors, who will help you through steps 1 to 8, FREE!... http://goo.gl/forms/pdo8kI47SP

Free Stuff to Get You Started

In this highly competitive world we live in today, companies are offering all sorts of incentives to their customers, in a bid to win them over. The good news for us is, this means a whole lot of freebies on offer, if you know where to look. 

Below we’ve shared some of the best FREE tools and services on offer, to help build you property portfolio.

OPES Partners - A great first step for anyone thinking about saving for retirement through investment property. OPES have registered financial advisors who will come to your door, look at your personal finances, offer investment advice, structure your taxes efficiently, and basically hold your hand through the entire process of purchasing your first rental property.

New Zealand Home Loans - This is a great free service for anyone who has a mortgage. NZ Home Loans will restructure your mortgage to ensure you’re not paying more than you should be. Best of all, they’re paid by the banks, so it’s all free baby!

Mortgage Calculators - Most banks offer mortgage calculators on their websites. They’re great for getting a rough idea of how much you can borrow, or how much your repayments might be. We recommend Westpac’s property investment calculator for a more in-depth analysis of a particular property as a viable investment, as it takes information such as capital gains, rental income and chattel depreciation into account. Check it out here… http://www.westpac.co.nz/home-loans/calculators/property-investment-calculator/

Q&A - If you’re already a landlord, and managing the property yourself, www.landlords.co.nz have a questions & answers service which is sponsored by industry experts. 

http://www.landlords.co.nz/ask-an-expert

Seminars - There are often free seminars happening around Christchurch and it’s definitely worth attending at least one of them. They can be really motivating, and often explain property investment in very simple terms. Stay tuned to Christchurch Property Investment Club’s Facebook Page, for updates on the next seminar near you. The best ones will usually offer free food and drink too!

Information - It’s everywhere! The important thing is to get the basics right, and get advice from the right people. At Christchurch Property Investment Club, we aim to weed out the junk, to deliver only what’s really important to know, without over-complicating things. Here are a few of our favourite information tools which might come in handy:

TradeMe Price Index - For the latest sales and rent statistics broken down by region. http://www.trademe.co.nz/property/price-index/

Zoodle - Offers free property information, including useful summaries of Christchurch suburbs, relevant school zones, and house/land sizes. NB: More specific property information can come at a cost.

http://www.zoodle.co.nz/search/christchurch

Christchurch City Council - Find out the government valuation of any property you’re interested in. 

http://www.ccc.govt.nz/CCC.Web.RatesInfo/homeliving/ratesvaluations/ratesinfo/index.aspx

Rental Appraisals - Most property managers will give you a free rental appraisal in an effort to gain your business. It’s not an exact science, but we’ve had impressive results from Maryanne Dick, who runs Venture Management here in Christchurch.

Brokers - Why would you do the running around looking for the best insurance or finance deal, when there are brokers who will do it for you, and don’t charge you a cent? Using a broker is much easier, and often their network of suppliers will deliver a more competitive price for you. We recommend AON Insurance Brokers, and Tony Mounce Mortgages has a great reputation for delivering the best mortgage options in Christchurch. 

The Absolute Basics

We’ve created this cycle diagram to illustrate how you simple it is to build your own property portfolio, by repeating three simple steps, as the property market grows.

Many people dream of having no mortgage, while others know that making a profit from the bank’s money can be a very smart investment. 

Step 1 - Use equity in your existing property to purchase a rental property.

Step 2 - Wait for value in your properties to rise, then revalue.

Step 3 - Use new valuation to prove additional equity exists - Borrow more from bank.

Step 4 - Repeat step 1.

This is a simplified example, and property investment carries risks and complications that need to be considered before you invest in a rental property. We recommend speaking to an independent financial advisor, who can consider the suitability of property investment for your own personal circumstances.

Common Myths of Property Investment

Being an avid property investor, I've struggled to understand why I encounter so many people who have enough equity in their family home, but haven't bought a rental property. To me it seems like wasted opportunity that makes little sense, but once I started paying attention to peoples reasoning, I noticed five common misconceptions that can hold people back, and I aim to dispel those myths in simple terms below...


1) "It’s too expensive" - We’ve all seen property prices increasing year on year, to the point it seems unaffordable to own more than one home. It is true that saving for a 20% deposit on your first house can be extremely difficult, but once you’re on the property ladder, it gets a whole lot easier, because that’s when your existing property starts to build your next deposit.

For example, New Zealand house prices have risen 35% in the last five years. A first home bought in 2010 for $350,000 would now be worth $472,000, meaning the owner would have the equivalent of a $122,000 deposit for house number two, without saving a cent.

2) "You only average 6% return on investment (ROI)" - While it is true that property prices have averaged a 6% per annum gain in the last 25 years, this is not an accurate reflection of ROI, because a sensible property investor would use the bank’s money, rather than her own.

For example, a $500,000 house increasing in value by $30,000 is a 6% gain, but if you borrowed 80% of the house value, you’ve actually grossed $30,000 from a $100,000 investment, or 30% ROI. 

3) "The aim is to pay off your debt" - Many people look at a 30 year mortgage as a huge interest cost, but a savvy investor knows that the ROI is usually much greater than the interest rate, so more debt equals more profit.

For example, the aforementioned $530,000 house with a $400,000 mortgage at 7% interest would cost $28,000 per year, but after rental income the net cost is reduced to $4,000 per year (1%). This leaves an actual ROI of $26,000 from the $104,000 invested (25% Net ROI). 

4) "It’s all about getting high rents" - Chasing high rent is not the way to build your wealth. It helps, sure, but not if it’s at the expense of  capital growth (the increase in your property’s value).

For example - A $450,000 house that costs $50 per week but increases in value by 6%pa, is a far better long term investment than an apartment that earns you $50 per week rent , but only increases in value by 3%pa. Here are the numbers after 10 years...

House profit = $356,000 growth - $26,000 costs = $330,000
Apartment profit = $155,000 growth + $26,000 = $181,000

5) "It’s the wrong time to buy" - Nobody can accurately predict what the property market will do in the short term, but it doesn’t actually matter. Property investment is a long term game, and history suggests that over the long term, property prices will reliably increase.

For example - If you buy a property today that is worth $10% less tomorrow, you are unlikely to notice any real change, provided you hold onto the property until prices increase again. When the house is worth twice as much in 10 years, you’ll be glad you did.