Kiwis believe in it 100 per cent and they absolutely and resolutely feel that property as an investment "can't miss".
And I like property just as much as anyone else.
SO WHY DON'T I RECOMMEND IT?
* First of all, most people I meet who want investment advice have enough onshore property already.
* New Zealand sits on an earthquake fault line and that can really hurt property.
* Most people I meet who want financial advice don't have enough diversification.
* Too many people I meet have it all tied up in property (plus debt) and have no liquid cash for emergencies.
* A home or rental property usually involves debt, and debt comes with some serious implications.
DEBT
* Debt adds risk.
* Debt adds stress -- not always good if you want a decent lifestyle.
* Debt has to be paid back.
* Interest has to be paid, too.
* Banks can be ruthless if you can't pay. "A bank is an organisation that lends you an umbrella when the sun is shining, but wants it back when it starts to rain." -- Anon.
OTHER PROPERTY ISSUES
Tenants don't always behave themselves, so damage and /or rent arrears are not uncommon.
Sometimes properties do not rise in value. Many New Zealand towns have property values that are the same as 10 years ago. (So much for one local real estate agent who used to tell everyone "property rises 10 per cent per year".)
Some people get caught with leaky homes and apartments and lose big time.
I feel for these people, as most are just plain unlucky.
BUY BONDS AND SHARES IN ADDITION TO PROPERTY
Why? Because quality bonds are low risk and always liquid, so your cash is available any time.
They are a great foundation investment to any portfolio. During the 2009 GFC, quality bonds held their value and carried on through at a return of about 7 per cent a year. (And they were liquid every day).
Shares, just like property, make good money over time (provided you are well diversified on and offshore). But like property, they can take time to increase in value. However unlike property, shares are always liquid, too.
You can get rich slowly if you are patient.
SHOULD NO ONE BUY RENTAL PROPERTY?
I have observed many people doing just fine with their own home, a rental, some bonds and some shares.
BORROWED MONEY -- HOW MUCH?
To get into property most of us will need a mortgage, and that has to be paid back.
If it is a rental the tenant pays some of it and often we have to pay some too, out of our income.
If our income stops due to illness, accident or redundancy, things can quickly turn to custard, hence too much debt can kill us if we are unlucky.
So how much borrowed money is safe? There is no easy formula but clearly some restraint might be smart.
AS WE GET OLDER
One day we will want to slow down or stop work and won't have the income to pay mortgages or top up rental property. As we move into this stage, bonds and shares have some advantages, including no tenants to look after or worry about. A lot is going to depend on your situation, your age, what you earn, the stability (or not) of your income and so on.
Nothing ventured nothing gained, but you need to be pretty smart if you are going to borrow a lot of money.
WHAT LOOKS GOOD TO THE OVER 55s?
I primarily deal with people aged from 50 to 75. As they near retirement or want to slow down a bit, getting rid of debt becomes pretty important.
*Access to money is important.
* Ease of management appeals to them, not troublesome tenants.
* Diversification and liquidity makes sense to them.
* Our banks have loaned huge amounts on Auckland property.
* Our banks have also loaned huge amounts to dairy farmers, high risk all round, so the risks within New Zealand banks is creeping up.
Banks, bonds, property or shares ? A good spread across all of them would be prudent.
WHERE DO I FIT IN?
* Giving advice on your overall situation.
* Looking for things you can do better.
* Suggesting steps to protect yourself against what can go wrong.
* Helping you build your investment portfolio of bonds and shares.
Alan Clarke is a financial and retirement adviser and author. His second book, The Great NZ Work, Money & Retirement Puzzle, is available at acfs.co.nz Alan is an independent authorised financial adviser (AFA) FSP26532; his disclosure statement is available on request and is free.
