Five signs you're about to buy the wrong property

Buying the wrong property, as a home or an investment, can do more than just dent your bank balance – it can financially impact you for decades to come. Property investment advisor Ed McKnight highlights five mistakes to stop yourself from making before you sign on the dotted line.

Over the past four and a half years, a New Zealander owning an average property lost $671 a week. That’s just from their house falling in value and is based on data from QV from January 2022 to May 2026.

And while that’s primarily due to one of the longest market downturns in recent decades, it shows just how much you can lose through property.

So, here are five signs you're buying the wrong property.

1. Your purchase is based on the assumption that house values will rise

Despite the past few years, the feeling that houses are a purchase that will quickly gain value is deep-seated in our cultural psyche.

But chasing a rising market can leave buyers exposed when prices run out of steam.

One Auckland buyer found this out after agreeing to buy a property for about $1.9 million near the peak of the market in 2021.

They planned to sell the property quickly for a higher price. The property later resold for just over $1.1 million after costs. That left the buyer liable for a shortfall of about $750,000.

It is an extreme example, but it shows the danger of relying on short-term price growth to make a deal work.

2. You haven’t factored in all the costs

Whether you're an investor or a home buyer, you need to factor in all your costs.

A property might look affordable if you just look at your mortgage.

But you’ll also need to pay rates, insurance, and maintenance. Investors also often pay property management fees, and need to deal with times when they don’t have a tenant.

Those non-mortgage costs can add tens of thousands of dollars a year.

A property that looks affordable at first glance can become expensive once the full cost of ownership is included.

3. Your financial goals are muddled

Many investors expect a property to deliver both strong capital growth and strong rental income. There is usually a trade-off between the two.

A property that increases in value quickly (such as a poky, run-down house in an up-and-coming neighbourhood) will often attract weaker cashflow, i.e. low rent. A property with higher rental returns (an inner-city apartment, for example) will often grow in value more slowly.

The danger is attempting to buy a house in the middle and convincing yourself it does both.

That can leave you with a property that fails to gain value, and produces mediocre rental returns.

Before buying, investors need to know what they are trying to achieve.

If the goal is long-term wealth, growth may matter more. If the goal is cashflow, yield may be more important.

4. You’re buying a ‘gonna’ property

Too many property buyers go for a ‘gonna’ property.

They’re buying it because they’re ‘gonna’ develop it one day. Or perhaps they’re ‘gonna’ subdivide at some point in the future.

Those might be good strategies to make money. However, the problem I see is that buyers purchase a house today based on vague plans that they might put into practice at some point in the future.

If you're going to execute that property move straight away, that could still be a smart decision.

But what I see happen too often is buyers signing up for a bad house today. Then they hold it for five to seven years based on something they probably won't actually do in the future.

This is important because money tied up in a “one day” property cannot be used elsewhere.

5. You’ve skipped the essential steps

Skipping checks before purchase can turn a small saving into a large cost.

Some buyers avoid paying for building inspections, property files or other checks because they want to save money.

But those checks can reveal expensive problems.

A building inspection might identify major maintenance issues. A property file might show unconsented work.

In a hot market, trying to save money by asking your lawyers to do the bare minimum can be tempting because buyers feel pressure to move quickly.

But the cost of getting it wrong can be far higher than the cost of doing the checks.

A few hundred dollars spent before purchase can prevent a much larger loss later.

Ed McKnight is an Auckland-based economist and property investment advisor.

*The advice in this column is general in nature and should not be read as personalised financial advice.