Beware of banks dangling carrots - property investor

A leading Auckland property investor has cautioned wannabe landlords to be wary of banks "dangling carrots" to make mortgages seem more attractive. Peter Lewis, vice president of the Auckland Property Investors Association, says the recent trend by banks to incentivise mortgages with offers of holidays and free phones might appear attractive today, but when historically low interest rates begin their U-turn, the holiday will be over and the pain will begin. "Many local investors, who are dependant for their income on a return from their accumulated capital have seen their real income from money-market investments drop, and are now moving their capital into residential investment property. Efforts by the Reserve Bank to stem this flow appear to have had little effect, as most of these investors are well funded and financially astute," Mr Lewis says. "This increase in demand has helped fuel the property price boom and has reduced the available return on rental property from a historic 8-10% down to a new low of 4-5%. "While this level of return may be considered adequate by a novice investor when interest rates are at the current levels, those with more experience will be also considering future interest movements. "There are problems within the Eurozone, turmoil in the Chinese stockmarket, and a world-wide downturn in the pricing of commodities. No-one can tell yet how or when these or other as yet unforeseen challenges will affect the economy. Summer does not last forever and eventually the local economic climate will turn." Mr Lewis, a residential landlord for 25 years, says that as a property investor, it would be wise to consider your situation if and when interest rates rise back to the 7% level. "Your tenancy expires, new tenants are hard to find and the place needs some major renovation. There is the myth that all an investor needs to do is buy a house, sign up a tenant, and sit back while the riches roll in. Nothing could be further from the truth. Successful long-term residential property requires planning, preparation, hard work and a careful eye on the political and economic climate." Mr Lewis has always fully managed his own properties and recently he has sold down other business interests to concentrate fully on his landlording activities. To successfully juggle all these factors, an investor needs to listen to others within the industry and learn from those who have many years of experience, both good and bad, he says. He recommends that wannabe landlords first tap into the vast reservoir of industry experience at the upcoming Property Investors Conference before they take the plunge. The conference, staged by the not-for-profit NZ Property Investors’ Federation, will be held at Crowne Plaza in Auckland on 16 & 17 October, featuring presentations from leading investors and the world’s foremost expert, Dr Dolf De Roos - a New York Times bestseller and Trump University contributor. Limited spaces are available for this two-day conference. Tickets from Ticketmaster.