Expert tips: The new rules for making money from your next home (or perhaps even your current one)

If you got into the housing market before, say 2004, you may be thinking that the glory days of automatically making money on every house are over. And you’d be right. But just because the rules of making money from buying and selling houses have changed, doesn’t mean you won’t make money on your next house – provided you understand the new rules and the new opportunities.

It used to be that you bought a home, and while you were living in it, threw a bit of paint at it, had a few things fixed up and tidied up the section, and made a tidy profit on it. That was the Kiwi Dream – to work your way up the housing “ladder” until you ended up with your “dream home”.

Trouble was, the housing “ladder” was a myth. It was more like an escalator because everyone in your area was going up it at the same speed. Everyone thought they were benefiting from the inflation in the housing market – until they went to replace their home with another one, and found that the next home was going to cost more than they thought.

There were three solutions to this:

1. Buy the worst house in the street and get your mates round to “do it up” (but often the “potential” in the worst house was already reflected in the price you’d paid for it – in other words, the “do up” discount on the price was less than the actual cost of the “do up”)
2. Buy in a cheaper area so you could pocket some of the extra cash you made from the better area (but that would put you back several rungs on the “ladder”)
3. Buy one or more investment houses in addition to your own home and take advantage of all the tax incentives while you waited for your equity in the properties to increase to the point where you could make an ongoing net profit from the rent (“retirement income”) or take advantage of the capital gain on selling them (“retirement fund”).

The smart money was on Solution 3, and although we know many people who have increased their net worth hugely by buying and selling their own homes over the years, the people who have made the most money are those with investment properties.

So what are the new rules for making money from your next (or current) house?

1. It may be too late to maximise your profit from the home you’re in now, but take a long dispassionate look at it and do the maths on whether it’s going to be more profitable for you to sell and move on, or keep and improve – the odds are that the latter will work out better because straight away, you’ll save what could be in the tens of thousands on sales commissions and moving costs  

2. This will sound completely alien and wrong to most Kiwi ears but there is a growing case for renting rather than buying your next home, for which there are no government incentives for owning, and at the same time buying investment property which, despite what many people will tell you, there are still strong incentives for owning

3. If you must keep buying rather than renting your own homes, as most New Zealanders will do because it’s in our DNA, stop buying for emotive reasons (“Oh, I love the kitchen and the way the living area leads seamlessly out onto the deck”) and start being ruthlessly business-like in your decisions (“The kitchen’s falling apart and the layout is all wrong, but the house has good bones and will be easy to make smart alterations or additions to without over-capitalising”)

4. Buy at a discount – yes, you heard correctly, it is possible in this market to buy at a discount, particularly in less popular areas or outside urban areas, or at mortgagee sales, but the only way not to overspend wherever you buy is to do your research on how much you believe you stand to make after you’ve bought the house, done it up and lived in it for a while

5. Last but not least, tailor your renovation to the kinds of people who will eventually be buying your house from you, and don’t skimp on things that will matter to them, as a down-to-earth and obviously very knowledgable reader wrote in response to an article entitled “Turning a dump into a dream” in the Christchurch Press Online (we’ve left the grammar and spelling exactly as it appears online).

If you are looking to achieve a high value home - european standards and add resilience to your home (possobily add plywood in internal walls to increase bracing and mitigate earthquake damage, add insulation in each internal wall to prvent listening to the TV programme of the person next door, put new double glazing, safety doors, tile your bathrooms, have a kitchen with Bosch appliances and add a proper finish to all of it.

You require trades people who have experience, who use more screws than nails, glue and screw gib and not just nail it while you are not around.

You will easily realise that it is not about shopping around or screwing them down on fixed rate for the job as that is what you will get - a quick job that may show problems down the track.

You want trades people who think , who will install your appliances and infrastructure in a way that makes maintenance down the track easy to fix with good access.... you may find material 50% and labour 50% if you go for high tech windows (double glazed wooden or Pvc windows). Never go for the cheap as people who buy are not silly or put their offers low to get a bargain.

There will always be people who appreciate Rimu, Matai, Beech floors and quality and they know the prices and happy to pay if they look for such quality. The reason is that these people often have the $ but not the time or visions to get it done that way. By doing it the cheap way, you may spend $ and never recover them but if you do it right you will find sufficient people interested. Quality always pays off. Trades people with skills cost more but pay off in the end.

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