Get smart

Worried about what might happen with Auckland property? Landlords.co.nz has some expert advice on how to future-proof portfolios.

Friday, April 1st 2016, 10:00AM

by Miriam Bell

Property commentator Olly Newland

Dark mutterings, even doomsday predictions, about the future of Auckland’s housing market have been rife over the last year.

Following a lull over the summer months, recent data indicates the city’s market is picking up again.

Accordingly, the “bubble” calls and forecasts of market corrections, if not crashes, have also gained momentum.

It’s enough to strike doubt into the heart of many an investor.

However, smart investors who have made realistic portfolio-building decisions need not fear, experts have told landlords.co.nz.

High profile Australian property investor and commentator Michael Yardney said many successful investors find that timing isn’t really that important.

“There will always be challenges, situations, circumstances, obstacles, fears, doubts and things that you are going to have to overcome. The timing is never going to be perfect.”

Past property cycles have taught him that booms don’t last forever and neither do busts, so investors should always be prepared for the next stage of the cycle, he said.

“You need to take the emotion out of investing and follow a system.

“If you aren’t following a system that works in all market conditions you will be caught naked when the market changes. If you prefer to have consistent profits and reduced risk, follow a proven system.”

Property investment is a business yet, in the last boom, too many investors forgot the age-old fundamentals of buying the best property they can afford in proven locations, Yardney said.

“Instead they got sidetracked by glamorous finance or tax strategies and some lost out. A strategic investor does it differently.

“They make educated investment decisions based on research and buy a property below its intrinsic value in an area that has above average long term capital growth. Then they add value to create some extra capital growth.”

A balanced property portfolio is crucial to surviving the extremes of property cycles.

Positive Real Estate director Campbell Venning said investors should build portfolios that are balanced between capital growth and cash flow.

On top of this, investors should work to bring debt levels down and set up financial buffers.

“This is all to ensure the availability of equity and maintenance of serviceability, which allows you to withstand interest rates going up and property prices going down.

“It’s all about managing your portfolio and your finances well.”

A balanced portfolio also means geographical spread, Venning added.

“Many people don’t like to look too far beyond their own backyard when buying properties.

“But it’s sensible to not make all your investments in one town. Just make sure to invest in areas with high occupancy.”

It also pays to remember that property investment is a business and approach it accordingly.

Veteran Auckland investor Olly Newland said it’s common for people to make emotional decisions, rather than pragmatic ones, when investing.

“They fall in love with a property or they get set on empire building and that means they become reluctant to cut their losses and sell if necessary.”

In his view, investors should be brutal with their portfolios if they end up struggling with cash flow.

“It’s a business so if part of your business is not working, it needs to be revisited. If selling a property means you can ensure the continuation of your broader portfolio, then it has to be done.”

Property is a long term game which means investors have to be patient, hold on and ride out the ups and downs of cycles with common sense, Newland said.

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