Podcast: Listener Question: What Factors to Look for Before You Invest & What to Look For When Adding Value | Ep. 209

Posted by Ed McKnight on 21/04/20
What Factors to Look for Before You Invest What to Look For When Adding Value 001
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Show Notes

What's Covered in the Show?

In this episode, we discuss what to look for before you purchase a property, and in particular what to look for if you want to add value to the property.

We start off by recommending QV, a New Zealand based property website that allows you to check data about any suburb in New Zealand, including seeing what properties have sold in a suburb and for how much. This is very useful when considering what a property is actually worth.

We also discuss the difference between GV/CV/RV and the actual value of a property. Often investors will talk about what a property is worth relative to its Government Valuation. However, because the GVs can be so wildly inaccurate (since they are set by computer algorithm), they can give a false reading for any property that has had non-consented cosmetic work completed.

We also mention the Opes Partners Instagram. Every few days we release a new carousel post that gives you additional insight into the property market. Make sure to follow us there, we are @opes_partners.


Transcript of the Podcast

Ed McKnight: Hello and welcome along to the Property Academy podcast. I'm your host, Ed McKnight, and I'm Andrew Nicol, and today on the show we're going to be answering a question that came through from Instagram over the weekend.

It's from Lexie down in Wellington, and she's been renovating her property with, along with her partner Jake, and they've said, Ed we've got a couple of questions for you. First of all can you talk to us about why is that that some people will pay over GV RV CV even if it is only just been released, what are those, what are those factors that makes somebody do that?

And then what should we look for before we purchase an investment property? And what should we look for after we purchased that investment property to add value? So if we're going to do some renovations to the property, what should we do for it? So we're going to talk about that now.

Andrew, you've been in the property market for many, many years now. Talk to us. What are some of those factors that would make somebody pay over the CV RV GV even if it's only just been set?

Andrew Nicol: So Ed, the first thing is just to remember that GVs and CVs are pretty weak instrument when it comes to determining the value of a house, and I say that, because they're based on a computer algorithm, most of the time, generally speaking, no one comes out, unless you've challenged a GV, you don't have someone come out and actually do an inspection of the property.

So it's a general guide for the councils to figure out how much they should be charging in rates. That's about all it's good for. We actually did a podcast, so you can flick through and have a look at our previous podcast, Lexie, on the different types of valuations and how reliable they are. And it's funny because a lot of times you will hear at investor forums and the like people will have this thought, oh the market's 10% above GV at the moment or 10% under the GV, there is no golden rule.

Generally speaking, it comes down to what is someone willing to pay for it, a valuation is about the only way you can get a more educated guess as to what the market is going to achieve if the house is sold, but the market is the market. If someone's willing to pay a million dollars and the GV 600,000 then the value's a million dollars, maybe only to that one person. But that's what the, what the true value is.

The other thing to remember is because you don't have someone come out and inspect the property, they sometimes miss things like renovations that have been done. Now if you get a code of compliance or you get council consent for renovations, then obviously the council knows that that work's been done. However, if you're doing cosmetic renovations, which is what I've done, which is what I did on most of the properties that I was renovating, then none of that's captured and so it may very well be that I buy a house for exactly GV and then I do a whole lot of cosmetic work, but the council has no idea and then, when I go to sell it, the GV is not going to represent those renovations and so that's something to bear in mind.

Ed McKnight: Fantastic. Well, let's talk about what to look for before you purchase an investment property. And one of the things which Lexie, actually identified that I'm really big on, is looking at comparable sales. What else is going on in the market? So you get a sense of the market. And one of my favourite places when I'm looking for comps is to go to qv.co.nz, because you can type in any suburb. I've pulled up Remuera here in Auckland, uh, just in front of me now, and I can see there were 63 total sales over the last three months. I can see that on average, they were 2% below the, uh, the RV.

Of course, we've just talked about how that doesn't necessarily mean anything, but I can click through into each of these different sales and look at what price the property sold for and how that compares to the last time it was sold or the last time it was valued by the council or something along those lines. And we can see, well, what areas are selling really, really well and which ones aren't as well.

Looking at comparable sales is really important because that's how, that's the only way you can get a sense of how a market is really working. And whether, perhaps you're getting a really good deal or you're paying a bit more than you possibly should for that. So I'd highly recommend going to QV anytime you're looking to make a purchase, and look at those comparable sales. Andrew, what else are you looking for before you purchase a property?

Andrew Nicol: In this case Ed, this client's looking at actually getting their hands dirty and adding value very quickly so she can recycle her deposit and buy again, and again and again. So what I would be looking for is properties, which I were able to add value to easily without involving the council, because that always slows you down.

So for example, find something that's very structurally sound, but it's got a good footprint, but maybe you could change some things internally about the house. Now when I say internally, it's ok to do things like remove walls, so long as they're not load bearing and you have to apply for a council consent and get it a signed off code of compliance afterwards.

Do things that you can change cheaply, like carpets, curtains, things like the paint. New paint can often absolutely transform a house and add value very quickly. Landscaping, things like the kitchen and the bathroom can be more expensive, but you can get a very good return on an investment. All those kinds of things would be, what I would be looking for in an investment if I were going to go in there and do renovations to add value and recycle my deposit.

Ed McKnight: And similarly, we've often talked on the show previously that some of those really small factors make big differences. So things like light fittings and light switches, if those are getting a bit discoloured, if you tidy those up very very cheap to do or relatively cheap to do, but can make a big difference and the big areas that can add a lot of value. Just to add to that, are things like your entrance ways and street appeal or curb appeal as well. If you can tidy up some of the bushes that are outside or, or change the letter box or some of these small things that help to build more of an emotional connection and, and cosmetically improve the property, those are going to have big differences.

Conversely, if you were to spend a lot of money rewiring the place that doesn't necessarily have a lot of value to somebody valuing the property or who's going to come in and fall in love with it and pay a lot of money for the property. If you were to do a buy and flip in that case, as opposed to a buy and hold and pull your deposit out.

So a lot of the things that do make a big difference are those things that create emotional connection and that change the property cosmetically. Now Andrew, she's just had a question as well lastly about titles, about cross lease versus fee simple. Obviously there is an opportunity to convert a cross lease into a fee-simple if you've got the opportunity to do that. But do you tend to stay away from one or the other?

Andrew Nicol: No, I actually think cross leases are quite a gold one if you can get it right. So, I'm actually doing this process at the moment. I've got a property in a quite a good suburb of Christchurch, but it's on a cross lease property. So, the valuation on that property is probably about 50 grand less than what it would be if it was a fee-simple title. So, I'm in the process of selling that property because it's an older property that's costing me in maintenance now and so what we're doing is we're approaching the neighbour and in this case we're probably be going to pay for the entire cross lease costs, which will be less than $10,000 to turn it into two fee-simple titles.

We will go through the process of getting that done. Now. that is probably, it's a slowish process because again it involves the council, and there's a bit involved, you have to get the neighbours to agree to it, but of course they're going to benefit, and in this case, I'm paying for it. So why wouldn't they? If you've got a bit of time up your sleeve, um, then that might be a way of adding value quite quickly because you can take advantage of the fact that people don't necessarily understand cross leases.

And because of that and that they tend to go for a lesser price than if it was a fee simple title. So there's a way of adding value quite easily.

Ed McKnight: Fantastic. Well, let's wrap it up there, but don't forget to rate review and subscribe to the show. It really does help us get the message out to more people and Hey, if you're interested in learning a little more about property investment, why don't not check out the Opes Partners Instagram, we are at Opes_partners.

Every couple of days we post a new educational piece of content that will teach you something, give you a bit of insight into the property market. So I'm going to link that up there in the show notes. So just tap or swipe over the cover art. It'll take you right there.

Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies tactics and insights to help you get the most out of the New Zealand property market.

Until next time.