Cash or Capital Gain?

Question from Billy updated on 13th May 2011:

I am a Kiwi but I work and travel overseas. I have $150,000 in a NZ term deposit which is due to end in a couple of months. I am thinking of purchasing a city apartment but am unsure about the return on my investment. Is buying an apartment a good option? What do I need to look out for?

Our expert Ben Turner responded:

Buying an apartment would definitely be a good choice. Bank term deposits are around 3% to 5% for $150,000 deposit with an absolute guarantee of no tax-free capital gains and this would buy you a very small but good-quality apartment with a great net pre-tax return of 7% to 9%, fully managed. Also, apartments have been steadily increasing in value by about 10% a year after hitting the bottom two years ago.

If you choose to get your money back out, it may cost you about $15,000 in real-estate and marketing fees and it may take up to three to six weeks to sell it, settle and get your money… That’s not so good if you were looking at investing for less than a year. Look out for leaky buildings and dodgy real-estate agents. Do your own due diligence and compare apples with apples.

Make sure that you get hold of the body corporate minutes for the past three years for an indication of the building’s condition. Ask the onsite manager about any issues or concerns that you should be aware of.

Auckland Apartments Advice Bureau provides independent advice on apartment investing in New Zealand. Call today for free advice before you sign the dotted line.

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