KEY POINTS:
Property investors this year can expect a return to the days of positive cash returns for the first time in more than five years, say market watchers.
It's one of three market certainties investors can bank on as interest rates fall and house prices are tipped to slide another 5 to 8 per cent.
The second certainty is don't bank on values rising - for at least another 12 months, probably longer.
And the third is that house sales will pick up - not to the cracking pace of 2006 or early 2007 - but to surpass last year's dismal tally of fewer than 60,000 sales.
The chief executive of realestate.co.nz, Alistair Helm, said sales last year were 50 per cent down on 2007 and the lowest in 20 years.
He predicts an increase in listings simply because life must go on.
Home owners who have been sitting tight, unwilling to take pain in the pocket for more than a year, will decide they must push on after a big think over the Christmas holiday.
They will accept the need to take a drop in price, so they can shift city or country for jobs or lifestyle, or try for that bigger - or smaller - house in that nice suburb that's on the market for a good price.
And among this year's fresh crop of sellers will be the new breed of "reluctant landlords", says Kent Leicester, director of property investor trading website Property Billboard and investment strategy company Polaris Group.
These are home owners renting out their properties through necessity because they can't sell for an acceptable price since the market downturn.
"A lot of people who held out last year - by February, March or April they'll have had enough of being a landlord and decide to sell.
"And there's a whole run of mortgagee sales to come."
There will be "exceptional buying" for investors who've been sitting on equity, says Leicester.
He's picking the property market will "stabilise" in the late third or the fourth quarter of the year.
Investors should only shop for property which has neutral or positive cash flow, he says. That means the potential rental return can outstrip the interest you pay.
"People don't need to be buying negatively geared properties any more. That's where a lot have been stuck."
Leicester advises buying in suburbs where the average house price is $350,000 or lower.
Investors have to think of their exit strategy should the need arise, so should buy in areas likely to sell more easily.
The director of property investment company Catalyst2, Tanya Kwasza, has firm tips about what not to buy during harsh economic times - even at "bargain" prices.
Avoid vacant land, second homes, beach houses and coastal properties, unproductive farms, second-class properties, such as high-maintenance or leaky buildings, or those with weak tenants - commercial or residential.
Instead, look for positive cash flow properties - in prime locations, under $500,000 and mid-range value, new or near-new properties with multiple income streams and properties with secure tenancies.
Kwasza advocates investment in properties leased to Housing New Zealand because market rent is paid for fixed periods, which can be up to 35 years and damage by tenants is not the investor's responsibility to fix.
She is working on a financial model that will show Housing NZ properties with lengthy fixed-term leases produce a better net yield than cash deposits in the bank.
Ray White chief executive Carey Smith says other good news for investors is that there will be more tenants this year because it has become much harder to borrow for a first home.
Tougher lending criteria also affects investors, but Auckland property investor Ron Hoy Fong, who's been a landlord for 40 years and has many rentals, recommends buying now "while there is still some credit around".
He says investors with equity in their own homes or rental properties should seek, or maximise, revolving credit agreements with their banks "so they have the cash power when the right time comes [to buy]". Hoy Fong's "golden rule" is to buy one property a year and he believes an economic recession should not stop that.
Auckland Property Investors Association president Sue Tierney urges investors to "think creatively" about how to buy in a recession.
"You don't have to own everything on your own. Go into partnership with family or friends," she says.
But never enter such a deal on a handshake: draw up an agreement covering future valuation and sale terms before you buy.
Tierney advises investors shopping now to first find out what tenants want. "Speak to property managers and valuers and find out what tenants are looking for.
"Suddenly it might be bigger homes because two families are moving in together because they can't afford a house of their own."
Leicester says getting a new valuation before buying is a must - valuations should be no more than three months old.
He teaches clients not to buy a house unless they can get it for 10-15 per cent less than the new valuation.
