I saw this comment recently about “The number of Auckland homeowners selling their properties for less than they paid for them has increased over the past year”.
Based on new data from Homes.co.nz, it is reported that 7.2 per cent of sales in the first quarter of this year have resulted in a capital loss for Auckland property owners.
This reminds us that all kinds of investment have risk. Generally, shares are riskier than property and property is riskier than putting in the bank. Property has the benefits that you can get a mortgage to buy the property but interestingly, borrowing costs are at a historical low, so why would you sell a property at a loss?
The main reason could be forced sales. Forced sales are where the vendor has to sell either because they want to move overseas, a change in personal finances (such as getting a new job in another city or temporarily out of work), or even where an owner is overleveraged and needs to sell the property to reduce their debt levels.
How can you avoid getting caught out and selling your property at a loss? Well, ideally you won’t find yourself in a forced sale. Ideally, don’t speculate in the property market. And make an informed decision when deciding to rent vs purchase. If you are not sure about your personal situation, it’s better to continue renting especially if you are not sure if you going to live in the same location for at least 3 to 5 years. If you want the flexibility of moving houses and moving to another city simply by giving 21 days notice in writing, then at least in this current market, it makes sense to rent. Currently, it can take up to 2 months to sell a house and you there is no certainty you will get the price you want. As mentioned before, property is a long term investment. Market timers like to ride the market during the boom times. Developers take the property to a whole new level (but even companies like Fletchers and Mainzeal run into trouble).
While in the long term, property owners have been rewarded with capital gains, this is no longer guaranteed in the short term. In the shot term, anything can happen to the property market particularly if you are caught out in the wrong part of the cycle. Speculators who entered the market recently may have overpaid for their property. Add in the costs of renovation, holding costs, marketing costs, and then it is possible to make a loss. This shows that it is important to view property as a long term investment. Buy and hold strategy has proven to be a sustainable property provided that you buy at sensible prices and in a good location as seen in this post.
If you want some advice on property investing, you can seek out a property coach like Gary Lin. He’s built a successful portfolio through the buy and hold strategy and purchasing at sensible prices in good locations. Search him up on Facebook and add him. He runs a coaching business and you can subscribe to his posts.