Eighteen months ago when we were in the early days of the Covid Era, the great learned ones in our media were warning us the property world
was going to end and a price crash was coming.
... It turns out that wasn’t quite the case.
Fast forward and here we are with a major lack of housing stock NZ wide (listings in most centres currently sit at about one third of what they were only a year ago). Adding to the fun are the changes earlier this year affecting interest deductibility and the bright-line which certainly threw a spanner in the works.
After the March tax changes it appeared that new build investments were the answer, and certainly for many this can be a good option. However, the immediate increase in demand for new builds along with building materials, cost inflation, and supply chain issues has seen a massive increase in prices in this sector – with subsequent reduced yields and uncertain completion dates.
The lesson is that the only thing we can be certain about is uncertainly itself. The most successful investors I know are proactive rather than reactive. Their investment decisions are not made based on clickbait media headlines, they just quietly get on with the business of finding properties and providing great homes for Kiwis.
Interest rates are (probably) going up and inflation is a real thing. This leads me to think that there is more security in assets such as property, that should hopefully at least keep up with inflation, which is something cash in the bank is less likely to guarantee. The hook here is rising interest rates which you need to allow contingency for in your purchases. If on today’s prices you can buy a property that holds its own, and you can calculate it should do that even if interest rates rise a few points, then you have a deal.
Even better, look for an ugly, “broken” deal ie it’s not yet a “deal”; that’s something you are going to create. Leave the pretty houses for the home buyers, we’re investors, so look for untapped opportunities, which is business-speak for “look for problems you can solve”.
Example: I am currently selling a dual income house in Rotorua in which one of the dwellings has substantial dampness issues. As I’ve advertised this fact, it’s been enough to put most buyers off, but today I took along a tradesman and his partner who had a good look at it, felt it probably wasn’t going to be a major issue and could manage the risk. They were prepared to accept some level of short- term uncertainty to realise long-term gain. This I think is the magic formula.
I was impressed with this couple, both new investors who immediately realised the opportunity after looking and missing out on a number of other properties. Knowing this property and the location, I’m confident they will achieve a 6% gross yield in a good area and create a lot of equity to roll them forward toward their next investment purchase.
In summary, whilst the deals are harder to find, they are still out there. Focus on adding value and solving problems. If you’re on Trade
Me, look for the oldest listings and ask your agents which properties “have issues”. Rather than saying “I can’t”, find the right team and
ask “how can I?” This is a team sport and you’ll hear all of us here at iFindProperty say this regularly; build your team of experts around
you and pay them with gratitude.
This article was published in the September 2021 issue of the New Zealand Property Investor Magazine and is shared here with permission from the magazine.
The magazine is an excellent resource with digital and print options. We highly recommend it.
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