KEY POINTS:
It's scary how many novice property investors make their investment choices based on decor or the desire to buy a mirror image of their own home.
Property investment is all about numbers, numbers and more numbers. If the numbers don't stack up, then don't buy. Research, or "due diligence", allows investors to find out the real numbers on a potential investment, to know what they're in for.
Why research?
"Not all houses are good property investments and, just because the market goes up over time, it doesn't mean that you have made the best investment," says author and financial planner Lisa Dudson of Acumen.
Dudson says the key reasons to research are:
* To ensure that you have a good investment.
* To get a better understanding of how much money you might gain.
* To make the maximum amount of money you can.
* To reduce the things that could go wrong - or reduce the risk.
What to research?
Your research will vary, depending on whether the property is being bought primarily for capital gain, rental yield or both. You'll need to investigate:
* Price.
* Potential rent.
* Ease of renting.
* Historical and potential capital growth.
* Planned developments in the neighbourhood.
* Impediments to buying, such as an illegal extension.
* Previous criminal activity in the property, such as P labs.
* The title.
Sources of data
Sad as it may seem, not everyone selling a property is motivated to tell the truth. The reality is what a real estate agent might suggest is the going rent for a property they want to sell may be exaggerated and should always be double-checked.
Thankfully, vast swathes of data and information, once the preserve of professionals, are available to anyone willing to do a bit of digging online.
Invaluable sources of data include Quotable Value (www.qv.co.nz) for: records of property sales and previous capital values; information by address, valuation reference number, local authority or region; listings of properties by comparative characteristics, such as size, capital value, property category, sales dates and more; floor area; construction type; and land area.
At Terranet (www.terranet.co.nz), you can get: detailed valuation and sales data, an ownership register, aerial images and building consents.
Try the Department of Building and Housing (Tenancy Services) at www.dbh.govt.nz for market rentals recorded from bonds.
Another way to check on local rents is to contact the largest rental management agency in the area for a rent assessment or just to pick the manager's brain.
Next port of call is the Real Estate Institute of New Zealand (www.reinz.co.nz) for: trends in the property market; market facts graphs; residential rent review statistics; Massey University Property surveys and AMP Home Affordability reports.
And Statistics New Zealand (www.stats.govt.nz) is a mine of information ranging from regional median incomes to employment rates, percentage of owner-occupiers to population projections.
Other sources of data that a property investor ought to familiarise him or herself with include:
* Reserve Bank (www.rbnz.govt.nz).
* Land Information New Zealand (www.linz.govt.nz).
* Realestate.co.nz (www.realestate.co.nz).
* Trade Me (www.Trade Me.co.nz).
* Landlords.co.nz for forums and property investment data.
* Propertytalk.com forums.
* ERO.govt.nz for schools reports.
* www.hybridgroup.co.nz for its property cycle commentary.
One problem is that much of the data available is historical. Just because a suburb has had a run on prices in the past few years doesn't mean it will be the lead performer for the next five.
One answer is the "trend analysis" website (www.suburbwatch.co.nz). The site takes Quotable Value statistics and adds value to them by using a scoring system to determine signals that rate an area as a buy, buy-hold, hold, sell-hold or sell.
Finally, slicing and dicing all of this information or even just making sense of it can be difficult for a novice.
Fortunately, property investment analysis software can do the job for you.
Software programs such as RentalAnalyst (www.rentalanalyst.com), PIA (Property Investment Analysis) at www.propertyinvestor.info/pia or REVIQ (www.reviq.com) allow investors to enter the purchase price, potential rent, mortgage outgoings, any management fees, depreciation estimates, body corporate charges, their marginal tax rate and so on.
In five minutes or less, your software should able to strip away estate agent superlatives and lay bare a property's investment potential, giving you a comprehensive view of the immediate (first year) performance of any investment property, plus year-by-year analysis of the next 10, 20 or even 30 years.
That is, providing you've researched the right numbers.
* Diana Clement is an Auckland-based personal finance and investment writer
