Positive cash flow for first time investors

Banks are keen to lend to property investors, because they make their profits from interest.

At least one third of Auckland house sales are being snapped up by investors. Many Kiwis who aren't on the investment treadmill think they should be.

Property investment can be a great way to build capital and secure passive income for retirement.

Not everyone, however, is cut out to be a property investor and it's not always "as safe as houses" as the old adage goes to invest in properties. Tenants can trash houses and the bank can call the mortgages in if the value of the home drops. And if you do the proverbial "quick flick" you'll be taxed on your profits by the Inland Revenue Department.

Andrew Bruce, president of the Auckland Property Investors Association (APIA) isn't of the "get on the property ladder before it's too late persuasion".

Buying so as not to miss the bus could be a decision that comes back to bite a first-time investor.

If you do want to become a landlord then do your homework. When Bruce started out he made sure he attended each and every APIA meeting to hear the speakers -- even if he thought the subject didn't interest him. Sensible property investment books such as those written by Andrew King and Lisa Dudson also offer invaluable education for first-timers.

Before buying a rental it's vital to "do the numbers", says Bruce. Don't just assume that you're going to make squillions in capital gain. Work out exactly what the property will cost you, how much rent you can expect, what the purchase and ongoing expenses such as lawyer's fees, mortgage, insurance and rates are going to be.

First time landlords are often encouraged by unscrupulous sales people to take on loss-making properties in the belief that tax breaks and the capital gain will make them rich.

However topping a mortgage up month in month out can get painful.

Experienced investors look for properties that are at least cash flow positive, meaning they pay their way, says Bruce.

Banks are keen to lend to investors, because they make their profits from interest. It's up to the investor, however, to make sure he or she borrows wisely and doesn't over commit. Mortgages are half the price they were in 2009, meaning people are borrowing more. "It's not going to stay half price, forever," warns Bruce.

To find high yielding properties investors must turn their emotions off. "If you buy in an emotive fashion you can regret that purchase for a very long time," says Bruce.

It's common for an investor to look at 100 or more properties before settling on "the one".