Do’s and Don’t’s of Buying an Apartment

Do's

Be clear about the reason you want to buy an apartment. The clearer you are the quicker you will find an ideal apartment. Do you want something to live in, a crash pad, or an apartment to rent to provide cash flow or potential capital growth? What everyone wants to live in is often different from an apartment that simply represents a good investment.

Get your finance in place as in the current market, good apartment stock is snapped up fast. You will be in a better position to get a good deal if you have your finance sorted. If you are buying with a mortgage, get that pre-approved. If you need to pull cash out of term deposit etc and there's a mandatory processing period, get it underway.

If you plan to buy for investment, in working out prospective cashflow, allow for at least two weeks vacancy, management fees of anywhere between 8-10%, and body corporate fees to increase by the rate of inflation.

When you have found an apartment that seems to tick all the boxes and you're ready to buy…

Step 1: Make sure you obtain a copy of the pre-contract disclosure. In 2010 the Unit Titles Act was amended to make the buying process more fair, open and transparent so before a buyer can purchase they must have sighted this disclosure. It lays out what the annual body corporate fees are, any maintenance the body corporate intends to take out over the next 12 months, the balance of the body corporate fees owing, and most importantly whether the building has been subject to a weather tightness claim.

Step 2: Obtain copies of the Body Corporate minutes for the last three years. Some people may prefer to get their solicitors to do this for them. These just tell you about any issues that have aired annually and also what levies were set each year at the AGM and any potential upgrades or maintenance that has not yet been budgeted for and could result in an extra one-off charge.

Step 3: If you find an apartment you like, don't dilly dally, do your homework and if there are no known issues, make an offer pretty smartly. In the current market, there's lots of buyer competition for the best stock. If an apartment gives a good return and looks likely to be good value in the current market, it is quickly snapped up.

Once you've bought, if you keep your apartment well maintained you will generally attract a better quality tenant.

Don'ts

Don't buy leasehold unless if it's for you to live in and it's a lifestyle decision. For instance, there are no freehold waterfront apartments in the Auckland CBD but if you've got a boat nearby and love the lifestyle the location offers, then obviously buying leasehold is going to be just the ticket for you.

Don't buy an apartment that has been leaking unless you are prepared to be hands-on in doing the due diligence and you can quantify the actual repair costs and build it into the asking price. Generally, these are not for the faint-hearted and it's best to steer clear of them.

Look out for unfavourable long term management agreements. At face value, they're attractive in guaranteeing a net return but the small print can contain various fees that can significantly reduce that net return.

Grown Ups does not recommend any financial product on GrownUps or a site which Grown Ups provides a link to.  No articles or linked sites are financial advice for the purposes of the Financial Advisers Act and should not be relied upon in making an investment decision.  We recommend that you seek professional advice from a suitable authorised or registered financial adviser which takes into account your personal circumstances before making an investment decision.  Do not sign any document without taking proper advice from a professional and competent person you trust