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[OPINION] What to do when you are not buying property

With credit tight, tax rules unfair, weather events happening far too often, and an election coming up, many investors are choosing to remain on the sidelines.

Friday, February 24th 2023, 1:00PM 1 Comment

By Nick Gentle - IfindProperty

There are still a ton of things you can do to review and improve your portfolio, make sure your structure and insurance is okay, increase your knowledge, or yes, even make a deal happen that you would otherwise have not thought to look for.

One thing that separates successful investors and businesspeople is their drive to improve. They are willing to consider new ideas and methods, often challenge their own assumptions, and are always looking for an edge.

The best time to learn and grow is always right now. It certainly does not matter if you are actively looking to buy because there is so much more to property investment than buying an asset. A bit of down time can be the perfect opportunity to up-skill and optimise.

1. Review your portfolio

Stuck for finance? Waiting the market out? Saving a deposit? Reducing debt? If you find yourself on the sidelines for a while, that is the perfect time to review and improve the assets that you already own and ask yourself some open questions.

Would you buy the same property today? Then why continue to hold it instead of something with forward-looking potential?

Can you improve your properties? Why not do it now when you have time to focus on it. In 2023 architects and builders are starting to look for work. It's a better time to get people to focus on your job than during a blistering hot market.

Are there any properties in it you don't plan to hold for the next 10 years? Now might be the time to sell.

One thing I like to do is think about shifting capital into higher cashflow deals. It's not always immediately possible, however regularly reviewing what I own and owe vs my goals keeps my mind open to opportunities.

In 2015 and 2016 I sold three properties and bought another because it had potential to improve more than the smaller ones I sold. I asked myself “if I were to sell these tomorrow, with the opportunity of immediately buying them back or buying something else, what would I do?” I realised that I could put some of my equity to better use. That shifted my mentality from "I'm stuck for a while" to "hey I can do something here".

2. Get some proper financial advice

Before you worry too much about doing things right, it's important to know that overall you are doing the right things.

I am not a financial adviser, but we work closely with a business that does overall plans for folks. They will make sure that you end up where you think you should, identify things that you can derail you along the way, and will most likely be able to suggest an approach to get there faster.

3. Depreciate what you can so you get free money

Chattels depreciation is the closest thing to free money that an investor is going to get. You can no longer depreciate a building, but stuff on this list can be written off over a number of years, and when you replace anything, the remaining value gets written off and the clock starts again.

With interest deductibility off the table for existing properties for now, any reduction on your taxable income is very welcome!

The popular option for chattels valuations in New Zealand is Valuit and iFindProperty referrals receive a small discount when you book your valuation (we receive no financial benefit for this).

You should book a valuation soon after purchasing, but even if some time has passed you can catch back up. I was able to go back a few years and "look through" a renovation, although I wouldn't recommend it!

4. Review your mortgage and insurances

Your mortgage strategy

With interest rates where they are and tax deductibility phasing out, investors will be getting nervous about the debt they carry. Regardless if you favour longer fixed rates, short term rates, interest only, P & I or some kind of a mix, it is:
a) important that you have a strategy, and
b) if you are truly concerned, seek advice and help well in advance

What amount of cash do you need ready access to in the short term? What certainty on costs do you need long term?

If you are unsure, a broker is a great place to start. I formerly dealt exclusively with the bank and moved to a broker after one personnel change too many left me frustrated. I really appreciate the creative approach they bring to the table.

Extra (included because many investors are not aware of it): many banks offer some form of offset loans, where the net debt you pay interest on is offset by your deposits. It effectively means you get (save) your current mortgage interest rate, which will be higher than any term deposit, on your cash. Ask your bank or broker about these.

Review your insurances

One of the best moves I ever made, right up there with switching to a mortgage broker, was to work with an insurance broker.

Old Nick: Call the insurance company before settlement and get reminded when an automatic payment went out once a year. Not thinking about how increased build costs could impact me in a disaster.

New savvy Nick: Find out immediately when costs or coverage change with a summary of other options and a recommendation suitable to my property type. Also, my insurance is in line with replacement value at current build costs.

Having a good broker makes doing project work a lot easier since they do the heavy lifting for you. In 2018 I bought my best ever deal, a remodel project in Wellington. I got project insurance on it during the post-earthquake embargo despite some ECQ hiccups. My broker saw that my home insurance and my builders were both the same company and could set up cover for a large project at a tricky time. Me? I just got an email saying it was taken care of.

In 2023 the cost of building has skyrocketed and Cyclone Gabrielle has once again highlighted how crucial it is to be 100% covered. If you do your insurance on autopilot you properties are likely to be underinsured. Now is a good time to run a calculator and see if you are fully covered.

Stress test your position and mitigate risks

The phrase "black swan" comes from a popular book about allowing for negative scenarios that are extremely difficult to predict. Smart investors protect themselves from disaster while remaining able to profit from favourable moves in the market.

I was reminded about this recently by this article on inversion, a critical thinking skill where you imagine where you consider events that are the opposite of what you want to happen and act to avoid them.

Potential risks include interest rate rises (mitigate with a mortgage strategy), tenant damage (check your insurances and look at how you or your PM screen tenants), unemployment or illness (insurances again, also savings), a long vacancy (maintenance).

There are mitigation strategies for just about any risk so take some time to think things through. If you have been caught out by just doing things on autopilot, stop kicking yourself and get a team to help you make sure it doesn't happen again.

5. Learn and Grow

Get studying

I love books. Leaders in their field spend years becoming masters at what they do, distill the essence of all their knowledge in easily readable form and sell it for a fraction of the value of the information.

If you’ve got a spare $20, don’t blow it all on smashed avocado and a coffee. Get to the book store or library.

My current top handful are below, interesting that none of them are property related:

The Obstacle is the Way
The Richest Man in Babylon
Think Again
The War of Art
How to Win Friends and Influence People
Titan
The One Thing

Network and research other strategies

Everybody has a different story and investors love to talk property. If you’re looking for a fresh perspective, why not ask others for theirs?

Somebody has in their own way been very successful in property in every property market in New Zealand. Big cities, small towns, new builds, old and tired properties, three bedroom homes, eight bedroom "rent by the room" houses, warehouses, shops and everything in between. Find those people and listen to their stories.

Opportunity comes to those who are prepared and looking for it. Put some time into understanding strategies that have worked for others and I guarantee something will come out of if that helps you.

Your local property investors association is an easy way to connect with like-minded investors. I've spoken at several associations and they are a great bunch of people. Find one close to you. If you're overseas, Auckland PIA runs a lot of online events and you should join.

Pay attention to what is happening (or going to happen) in your area

Time spent researching zoning rules and changes, plans for schools and commercial precincts, population forecasts will never be wasted. New Zealand’s population is growing and demographics are changing. How can you position yourself to take advantage?

The material makes for dry reading sometimes however knowing the goals of local governing bodies is one more tool for the well prepared investor.

This is especially worth digging into in 2023 because of all the housing density changes and the accompanying infrastructure investment announcements. Learning what is happening and how a project might work is valuable knowledge to have in your back pocket. Keep an eye open for council information evenings or other announcements.

Do our free course

It's free and takes two seconds to start. Register here.

Review your portfolio

Are you too far away, too busy, too uncertain… or for whatever reason have just not progressed as much as you would like? You would then be just like 99% of property investors.

For the DIY number cruncher, our cashflow and equity forecasting tool factors in interest deductibility, which you can adjust for different properties.

Tags: Opinion

« [OPINION] New Zealand LVRs not likely to be loosened this year[OPINION] Ever increasing risk for property investors »

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Comments from our readers

On 25 March 2023 at 6:59 pm Michael Riley said:
Can't believe your recommended reading list doesn't include two absolute essentials: "Rich Dad's Cashflow Quadrant" by Robert Kiyosaki (better than Rich Dad, Poor Dad) and "The Millionaire Next Door" by Thomas Stanley. Checking out the latter, I just found "The NEXT Millionaire Next Door" and I'm about to order a copy.

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 ▼7.45 ▼7.09 ▼6.95
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - ▼6.85 ▼6.49 ▼6.35
ASB Bank 8.64 ▼6.85 ▼6.49 ▼6.35
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - ▼6.85 ▼6.49 ▼6.39
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 ▼7.45 ▼7.09 ▼6.99
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼6.59 - -
Co-operative Bank - Owner Occ 8.40 ▼6.79 ▼6.49 ▼6.35
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.29 ▼6.99 ▼6.85
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 ▼6.69 ▼6.35 ▼6.15
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 ▼7.50 ▼7.25 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 ▼7.75 ▼7.39 ▼7.19
Kiwibank - Offset 8.50 - - -
Kiwibank Special - ▼6.85 ▼6.49 ▼6.39
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 8.74 7.74 7.09 6.95
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 ▼7.65 ▼7.29 ▼7.19
TSB Special 8.64 ▼6.85 ▼6.49 ▼6.39
Unity 8.64 ▼6.85 ▼6.49 -
Unity First Home Buyer special - ▼6.45 - -
Wairarapa Building Society 8.60 6.95 6.85 -
Lender Flt 1yr 2yr 3yr
Westpac 8.64 7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 6.89 6.75 6.39
Median 8.64 7.12 6.85 6.39

Last updated: 24 July 2024 9:31am

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