There are plenty of books out there on Investment Property. This summarises all of that into a few concise pages.
The first thing to understand is that making money is not easy. Successful investors put the effort in upfront. Simply owning Investment Property won’t make you rich, in fact it the opposite could happen and you lose money!
“Simply Owning Property won’t make you rich…”
Property Circus
New Zealand has a large “Get Rich with Property” circus. Often I think there is more money in talking about Investment Property than actually doing it. Investment Property is a great investment but is hard work and there is no get rich quick formula. If you get involved with a property investment business then make sure you get independent professional advice.
What makes a good property?
Not all properties are created equal. To find good Investment Properties you will have to work quite hard and look at a lot of properties. You won’t find good deals in the glossy section of the Saturday paper.
A good property is one where you make a profit – simple! Some properties will make a small profit from day 1, but ultimately the profit comes from a property’s price going up. This will happen over time on almost any property but can be like watching paint dry. If you want to build up a property portfolio then you need to find ways to fast track this process. You want to find properties you can add quick value to.
Price = Value = NPV (CashFlow)
This could be something that increases the rent, or solves a problem. By increasing the value you create equity which can then be leveraged to buy more properties.
Adding Value:
- Buy property under its true value (i.e. Seller needs to get out quickly, or mortgagee sale)
- Renovate to improve value
- Solve a problem (Resolve Code of compliance issue)
The second key consideration is cash flow. Investment Properties should pay their own way. You should expect a net yield of at least 6%. Net yield is the rent, less rates and other property costs, divided by the property value. In the post 2008 property market negatively geared properties (properties that need to be propped up with additional funds from the Investor) will limit your ability to grow your portfolio.
Property Finders
Property finders spend their time hunting out good properties. You can pay them a fee (usually about $5k) or they will on-sell a property to you at a mark-up. Don’t let this bother you. Successful people realise that the people around them also have to be successful. A good property finder will find properties at prices you will otherwise not find yourself, even after their mark-up. Here are the contact details of a few property finders that we rate.
Multi‐Income Properties
Most successful Investors I meet have multi‐income properties with 2‐3 incomes per property. This
is where you will find the best yields for a number of reasons:
- Often they will have compliance issues (never intended to sell the house so didn’t bother getting it compliant.
- They might be facing cash flow issues so are motivated sellers.
- Multi income properties will only appeal to other investors (smaller buying market.)
- Pricing is rational. The price should reflect the yield and most Investors expect net yields in metro locations over 6% (gross yield of 7.5%‐8%)
Home and Incomes
A Granny flat under your house can be a great entry point into Property Investment. They make
sense on so many levels and can also help you buy in an area you might not otherwise afford. With
my Granny flat we literally target grannies. They tend to value the security of having a family close
by, they are reliable and quiet, and they are much more tolerant of kids and noise.