Cheap not necessarily best

Tuesday, June 5th 2012, 1:47PM

An article in the Herald on Sunday at the weekend about some of the country’s cheapest houses has generated a bit of a stir. Would-be landlords have been emailing, asking for information on how they can find – and buy – these houses that are on the market for less than $50,000
You can see why. For Aucklanders used to an average house price of $520,000, $50,000 seems ridiculously cheap.

But their interest in these properties highlights a really important point. Too many novice property investors make their decisions purely on sales price. They don’t factor in all the other costs that come up with owning a rental property, and that make a big difference to how successful an investment is.
I know a couple of the properties were in Wairoa – a town with a well-publicised gang problem and an employment dispute at the local Affco. That raises the question: Are property investors who buy in the area going to be able to find tenants? And if so, are they tenants who will pay their rent?
Maintenance will also cost the same, no matter how cheap the property is.
With the drop in interest rates recently and prices easing in many areas, there are opportunities all around the country to get an 8 or 9 per cent yield on investment properties. This is what an investor should focus on when weighing up a potential buy – not what seems to be a bargain pricetag.
Due diligence and collecting as much information as possible really is vital. You can’t ask too many questions. In my experience, some of the best people to ask are those who do it every day and who will have learnt though trial and error exactly what it pays to know beforehand.
If you are considering a property as a first-time investor, check out your local property investors’ association or find a loan adviser who specialises in rental property. There’s no one better to learn from than someone who has done it all before.

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