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Ten steps to owning a home of your own

Security, pride of ownership, a chance to save…..there are many reasons why most New Zealanders choose to own their own home. You’ll find that there are few countries where it is simpler and more affordable to own your own home than New Zealand. The following are 10 steps to lead you to owning a place you can call home.

1) Get to know your city and suburbs
If you have just completed the move to New Zealand, it may be a good idea to rent first to allow you time to become familiar with the area in which you intend to live. Take your time and research the suburbs and streets that you intend to buy in. Check out the local schools, public transport, growth in the local population, other amenities – these things will have a bearing on how the home you eventually buy, will go up in value.

2) Work out your financial situation
This is a vital step to save you time and money looking for houses and putting in offers that may not be realistic or possible financially for you. An independent mortgage broker can help work out the best approach and timing for you to buy a house, this service are usually free-of-charge and can save you much time and money. Be as honest and upfront about your current situation as possible when talking with agents and mortgage brokers. Play conservative when estimating future earnings. There are some great calculators here you can use to get a feel for weekly repayments etc

3) Decide on what you want and what you actually need
Home buying becomes more affordable if you don’t ask for every luxury. Make a list that contains the items and features that are really necessary. It is human nature to think that your money can and should buy you more than it really can. The process of becoming realistic may be hard when you have been used to a much higher standard of living renting.

Looking for a home can be emotionally draining, take up way too much of your weekends and spare time, and can be a little depressing.  Get through the grind and you will come through into a mental space that will allow you to see homes that you can imagine living in with a realistic feel for value.

4) Forget Open Homes, develop a direct relationship with an agent
Agents are specialists in local markets. To start with, visit some Open homes, look in the paper, or ask your friends to give you the name of a good agent. You want someone who will listen to what you need in a house, and someone who you can trust to help you in the purchase of a very big investment.
Choose someone who you feel comfortable with, and pro-actively call them regularly to see if there are new homes on the market in your price range. Be open and honest about your budget and what you are looking for. Give feedback when you are shown houses you don’t like. In this way the agent will get a good feel for the type of home you like. This is the best and most efficient way to view real estate.

Stress the fact that to the agents you have contact with that you will buy when you find the right house.Pick one agent in each agency in your area of focus and call, email, or text this agent first if you see a house advertised by their company that they haven’t shown you – there will be a reason why you weren’t called.If you show loyalty as a buyer you will be treated like a king or queen by the agent and will get the first and best of the new homes that come into the market. The people that make contact regularly with their agent get a head start on everyone else. Using the property press, the Internet and Open Homes is not enough—there is a time lag for the release of print media of between 6 and 10 days—often a house has been on the market a week before it reaches the newspaper and real estate mags.

Nothing beats talking to an agent direct because there are often homes coming up soon that aren’t quite ready for sale or homes whose owners don’t want advertising for one reason or another. Again, If you show loyalty and motivation to buy, you will be rewarded with extra help and consideration, and will get a head start on the rest of the market (from an agents point of view—I cannot stress this point enough).

A quick point about the web. The Internet has changed the way buyers search and filter homes. It is time efficient and anonymous which suits many buyers. But there is a danger that you gloss over homes that would suitable for you simply because the photos of the house on the web don’t appeal. Though the Internet is the primary source of information on houses for sale, it will never replace the vibe you need and can only get by actually walking through the front door. There is also a danger that both agent and buyer see each other as simply a means to an end (ie the purchase and sale of a house). Don’t let the house buying process degrade into an emotionless process of comparing floor areas and GVs vs asking price. Human beings buy with emotion and need trustworthy human contact in the process to feel satisfied with the purchase. Treat agents with courtesy, not as someone who stands as a hurdle between you and the house you want, and you get the same in return!

5) Make the most of inspections
Don’t try to see too many homes at once, by the time you get to the end you’ll have forgotten what you saw at the start. Avoid bringing small children with you, they tend to get bored and grumpy quickly and will put stress on you and the agent.  When you see new homes for the first time, trust your gut feeling, don’t get fixated on the small details, the house either appeals or doesn’t and you will know in the first two minutes. Remember, you can always go back for another closer look another day.

6) Arrange your finance
Having already visited with a mortgage broker or lending institution, when you see a home you plan to buy, check with your bank contact that it fits their requirements for a loan. Get pre-approval if it is available from your bank, it will give you the confidence to act fast when you see the perfect house.

7) Make a formal offer

When no other parties are involved
Once you’ve decided on the house, your agent will show you how to go about making an offer. If you are unfamiliar with the fine print of the written offer, seek advice from a solicitor BEFORE signing. Unless your first offer is a good one, it will not usually be accepted right off. There may be some negotiation before both parties come to an agreement so allow yourself a negotiating margin giving you room to move without going over your budget, but don’t be too cheeky, it will work against you by getting the owners offside and not thinking you are serious.

Making an offer in a competition situation (including auctions and tenders)
When in competition for a house with other buyers, don’t try to play too smart. Eliminate your negotiation margin, go to your best price and cut down the time of your conditions (for examples of conditions view my blog here) as much as possible or eliminate them by doing your homework before offering if you have time. In my experience cash unconditional offers are often worth at least $10,000  i.e. a bidder without an unconditional contract would have to pay $10,000 more in order to make the vendors take a chance on their offer over an unconditional one, I have seen a situation where a $379,000 unconditional offer was accepted over a $405,000 offer with conditions in it).

In order to successfully get the house, you have to win convincingly. Winning by $500 isn’t enough, the owners will simply play you off against the next best offer, the winning party will usually end up spending much more than if they had lifted their initial bid. You only have to miss out on a home once to realize how important these points are. An extra $5000 is not much to pay in the whole scheme of things to secure the home you really want.
A note on Auctions—In an auction situation, my preference has always been to start bidding late when you feel the other players have shown their hand. Once you have started bidding, follow through strongly without hesitation to your maximum figure—I have seen this strategy work well to psyche out other buyers. As you near your top, don’t be scared to play the auctioneer with a verbal bid in a smaller increment (e.g. a $2000 bid when it has been going up in $5000 lots), this will slow the auction down,  give you more control of the process, and  give you more bids before you hit your top dollar. Once you have reached your comfortable top, think hard about the way the auction has run, are other buyers also faltering? It may only take another $5000 in $1000 lots to buy the home, don’t throw it away for $5000. Another strategy that I’ve seen sometimes work is the “kingmaker” - a bid of a greater increment than the auction has been running at in order to scare other bidders (e.g. last bid was at $385,000 running in $5000 bids. A kingmaker bid would be $400,000 or better $405,000 convincingly breaking the psychological barrier that $400,000 (or any $100,000 increment represents)).

8 ) Seek expert advice
Involve as many experts as you need to make sure you are buying a home that is physically and legally sound. Most offers made in New Zealand are conditional on the purchaser’s solicitor checking the title, a builders report, a valuation by an independent registered valuer, checking the council records, and approval by your lending institution. In a busy market, be careful that you don’t jeopardize your chance of buying by the inclusion of a full LIM report in your clauses. The Wellington City Council takes 10 working days to do these reports. Most vendors don’t want to wait two weeks to see if your LIM is acceptable. The Council also does  an abbreviated LIM report (Property Report) which covers such things as building consents and permit history, drainage plans, aerial photos, etc. Another option is to start the LIM before you make the offer so the amount of days in the conditional period doesn’t work against you. Please don’t get me wrong here, I am not advocating forgoing doing your due diligence on the property. It is simply how things work out in practice when you are in a competition situation. If you are not comfortable making offers without a LIM report, be prepared to miss out on houses to other buyers who have already done their homework or are taking the chance that the home is okay without doing their homework. This is happening regularly in the current market. In an offer, you will usually allow yourself a certain time period to complete your due diligence. At the expiry time, you will either confirm that you are satisfied and go unconditional with your offer or pull out of the deal because something in your homework was unsatisfactory.

9) Arrange insurance
While the risks for fire and other calamities are carried by the present owner until settlement date, it is often wise to safeguard your investment by arranging insurance from the date you unconditionally agree to buy the home.

10) Settlement Date
This is usually the date at which you will also take possession of the house, and is normally between 4-8 weeks after the offer has been made and accepted. In the days leading up to taking possession of the house you will need to talk with your lawyer about getting keys, set up new power and telephone accounts, and arrange a furniture mover to help with the big day. Settlement usually takes place between 11 and 2 pm. You will usually be able to pick up a key from the agent who sold you the house but he cannot release the keys to until the property has settled.
If possible, try to move in the day AFTER settlement. This will save you heaps of stress if the house doesn’t settle on time or the previous owners are still packing up and leaving when you want to get in.

After completing these ten steps, take the next week off and sleep continuously until you start to feel normal again but rest in the knowledge that you are now sleeping in your bed in your new home!

Buying or Selling in New Zealand? Check out the Real Estate Agents Act website and download an info pamphlet

Overseas investors?

Good reasons to buy property in New Zealand

Your reasons could be purely personal as you are about to migrate and live in New Zealand, or it can be part of your asset management to have real estate in an overseas country that will provide capital growth or return on investment or both.

I want to live there full-time   

Yes, you can purchase real estate in New Zealand. You’ll need to apply for permanent residence. Take the first step to permanent residence - click here to find out the steps to take.

I only want to live there some of the time

Many people spend just part of their year in New Zealand and have homes here and in their home country.  You’re still allowed to purchase residential, commercial and industrial real estate as long as it’s in an urban area but it could be subject to certain conditions.(View information “buying land without restrictions, buying land with consent and land excluded from foreign ownership.”) 

As the immigration rules often change it’s best to check the time limit for living in New Zealand without permanent residence.
click here for more information

I want a long-term investment

The good news is that there is no tax on capital gains unless you buy with the objective to sell some time in the future and make a profit. And, there’s no time limit. If you invest to hold the investment, capital gains tax should not be a problem.

What about a speculative investment?

Capital gains tax is payable on business profits from property speculation, because it’s regarded as a normal business income.

Capital Growth

Buying land in our country is ideal when you have capital growth in mind. Click here to view what Dolf de Roos said about the prospects in New Zealand.

Return on Investment

 You can earn an income stream from purchasing residential real estate, a commercial or industrial building. If you want to buy a farm, you’ll have to show that you can substantially improve the present income from it and that you’ll employ significantly more people, to get the Overseas Investment Commission consent you need.

How can I keep my tax bill down?

You should get advice from a tax specialist, but there are quite a few expenses that are tax deductible e.g. interest, legal fees for arranging the mortgage, rates and insurance, normal repairs and maintenance, travel expenses, agent’s fees and commission for property management, accounting fees and depreciation.  

What expenses aren’t deductible?

In New Zealand your mortgage repayments are not tax deductible but your interest on the mortgage is. Neither is the purchase price or the legal fees in buying the property tax deductible.

How do I claim depreciation?

The government is going to review the current depreciation rules, so you will need to keep informed on this one.

Presently there are two formulas that you can use: Diminishing Value Method and the Straight-Line Method. The two methods will still be available according to the discussion paper released by the Inland Revenue Department and New Zealand Treasury. The proposed rate for diminishing value is 3% and for straight-line 2% of the depreciable asset. click here for more information

Managing my property

Property management is a tax-deductible expense.  But, it’s extremely important to do your homework before you hire a property manager.  While there’s protection under the Real Estate Agents Act, if you hire an unlicensed property manager you face considerable risk if they go under, or don’t do their job. Because they’re not covered by the Act or the Real Estate fidelity fund, the Real Estate Institute of NZ has no obligation to recompense any losses you sustain. So investigate the property manager’s credentials thoroughly before you hire.  We can point you in the right direction.

I want to retire in New Zealand

As an investor, New Zealand can provide a great retirement lifestyle. If you can’t invest and migrate under the investor category you will not be able to retire in New Zealand.  

Allowing overseas people to retire in New Zealand has been discussed for many years. The pluses are that this would bring influential and wealthy immigrants to the country. They wouldn’t take any jobs but would spend a significant amount of money supporting the local economy. But on the downside, the risk that elderly people could be a burden on the health system has prompted the Government to dismiss this option.

But, if you have investments you can bring here, you can retire here under the investor category.

Business Category to obtain Residence

This category, which allows people to gain residence on the condition they invest in New Zealand, has been operating in various forms since 1978.  

The Minister of Immigration said the rules had been tightened to make sure only genuine investors who will contribute long-term to the New Zealand economy and society gain residence.   "The changes bring the Investor Category into line with the Skilled Migrant Category, where applicants submit an expression of interest and the Department of Labour selects the best candidates.   "Rather than passively accepting applicants, investors will now be selected on the basis of what they can contribute to New Zealand."  

• The main points of the new policy are: ·       
• The minimum amount to be invested has increased from $1 million to $2 million ·       
• Funds will be transferred to a New Zealand bank account in the applicant's name for verification ·       
• Funds will then be transferred to the government to invest in infrastructure projects for five years ·       
• At the end of this period, applicants will receive their money back plus interest based on the rate of inflation ·       
• Half of the funds can be withdrawn after two years and transferred to another government-approved investment ·       
• Applicants must be 54 years or younger, with at least five years’ business experience, and willing to make New Zealand their main home by the end of the investment period ·       
• Health, character and English language requirements have not changed.  

Under the old policy, applicants were granted residence if they could reach a pass mark by accumulating points for business experience, the amount of funds brought into New Zealand and their age. Applicants falling short on the business experience and age criteria could compensate by bringing in more funds.   It was also difficult to verify that the investment was genuine. Applicants could put their money into any investment they chose and these often did not directly benefit New Zealand.   "The new policy will make sure applicants will be quality migrants with proven business experience and who will contribute to our economy and settle successfully," Mr Swain said.   Expressions of interest under the new Investor Category will be accepted from 4 July 2005.  For more information click here