Property investment basics from a long-term investor

Have a plan

Back in the 1990s when rents were around $200 per week for the average home in Christchurch I envisaged owning 10 investment properties. My thinking was this would give me a gross income of approx $100,000 per year and with costs roughly around 50% that would leave me with a net income of approx $50,000 – not bad as a passive income I thought at the time. As critical as having a plan, is executing that plan. I still have clients thinking about committing to investment property 20 years after our first discussion!

 

The bank, the tenant and the tax man

These three will immediately put their hand up to help you build a property portfolio. With reasonable capital/equity and income most banks will back you to buy investment property and with current interest rates so enticingly low, it’s really a no brainer. Add to that national population growth which equates to tenants never being too far away from knocking on your door needing a roof over their heads. They too, driven by their need for accommodation will assist with your property investment plan. Then of course there is the tax man. While he plays strictly to the rule-book there are still good tax incentives for owning investment property in New Zealand. All your related expenses are tax deductible and with owning investment property is also likely your overall taxable income will reduce too. This makes it even more attractive if you are pulling a reasonable income and are on a higher tax code.

 

Using somebody else’s money

Property is one of the few investments I know of that you can actually make money from debt. While if you are only buying property for capital growth reasons you may be disappointed with the short term growth rate, it is interesting to note that over the years property typically doubles in value every 7-10 years in New Zealand. Getting a return on little or no cash down is about as good as it gets and it is important to remember that capital growth is based on market value not the size of your mortgage.

 

Good debt – bad debt

This is probably the most profound advice my accountant has ever given me and I have never forgotten it! I still find myself applying this principle in business and investment decisions. In a nutshell, good debt is money borrowed for assets that appreciate in value, while bad debt is money borrowed for assets that decrease in value. For instance a car loses value the moment it is driven out of the showroom while real estate largely increases in value. It’s not that difficult to determine which will bring long term benefit. Remember this basic investment principle and you are well on track.

 

A mortgage can be great savings scheme

Paying a mortgage can often be better than paying into a saving scheme. One, it is compulsory, two, it doesn’t get bigger (smaller if you also pay off principal). Thirdly, the cost of the mortgage you are paying off is offset by the return you are getting on that money. With property yielding a much better return than term deposits, it makes total sense to keep or invest in real estate in this low inflation, low interest rate era.

 

Not a get rich quick scheme

Property has never been a get rich quick scheme and my experience is those that are normally implode before you get the time to check out their validity or typically don’t stand the test of time. As above, with national population growth placing increasing demand on housing stock and with no more land being made, unquestionably pressure will remain on available real estate. An investor with a steady hand on the tiller and focus on the distant horizon is unlikely to go wrong with a long term focus.

 

Christchurch ideal for property investment

Clearly in the post-quake rebuild phase greater Christchurch now has a property surplus. On the scale of larger cities throughout the country, Christchurch has some of the most affordable real estate currently available and it is my belief it will not be sustainable for this to remain at such levels for too much longer. It is also my professional opinion that as the current heart and vibe of the city continues to build it will sell itself both nationally and internationally resulting in strong attractive growth. Investing in Christchurch sooner than later makes total sense for the astute and those poised to take action. Personally, I plan to hold my local property portfolio as I strongly believe we are on the cusp of another growth phase, besides I am struggling to find anything better to sink my funds into.

 

Right now I’m thinking that investment in bricks and mortar is a better option than money in the bank.

Term Griff has long term experience in the property investment market and are happy to assist you with devising a plan to build your property portfolio. Coffee is a great place to start!

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About Peter Griffioen

Peter Griffioen - or simply Griff to those who know him - has an established reputation as a high-producing Harcourts Canterbury salesperson. With a focused approach to customer service you can rest assured that you are in good hands, whether it be a relaxed chat about the state of the market or an in-depth discussion regarding your next property transaction. The key advantage of engaging Team Griff’s services is their local knowledge and experience. Currently in this post-seismic era, it is vital to have true professionals working on your behalf, ensuring that you are guided through the process professionally and with a caring approach. The advent of the ‘as is, where is’ market means specialised expertise are required and Team Griff has taken it on themselves to both understand and explain the pros and cons of this now accepted sale/purchase option. For over 26 years the Griff brand has become synonymous with achieving results. Griff now prides himself with his five member team and takes much satisfaction from empowering them to both achieve and reach their own goals. A team with a proven track record placed with the highest ranking Harcourts Million Dollar Club members, exceeding the $275m level. Such accomplishments highlight the team’s exceptional marketing and negotiating skills. Team Griff are recognised as industry leaders for their online presence and regular blog posts of current and relevant real estate information. E-marketing and readily available property specific detailed info means Team Griff’s clients have the edge when it comes to selling their homes, not forgetting purchasers who benefit first hand. A simple Google search says it all – the Griff brand ranking with the most frequent. Griff’s life focus extends beyond business, with quality time and fun being high priorities, while mountain biking, boating and fishing provide that vital time out. His Christian faith is his anchor for daily living, and his community is important to him. For a team approach to optimize the result for your next property transaction, be sure to talk to this award winning team - synonymous with hard work and results! Griff and his trusted team welcome your enquiry today.

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