A couple of years ago I was approached by an investor who had held some properties for several years but wasn’t getting much of an income
from them. We ran the numbers and found that his yields vs current market values were quite low. The properties were standalone homes in
good condition and made more sense to home buyers than as investment properties in the then current market.
Because our client had bought well originally and had built up to a strong equity position, he had options. We agreed on a strategy to sell
down properties that made the least sense as an investment (if he were to be buying today), and to redeploy the capital into higher yield
The properties he sold and what he subsequently bought had different characteristics:
sold in a main centre and bought in a regional city
sold standalone homes and bought multi-income dwellings.
What it boils down to is he was selling properties at a gross yield of approximately 4-4.5% and at the time the new deals we sourced yielded
approximately 7% gross. There were two sales and then re-purchases and the yield shift equated to a gross cashflow increase of more than
$50,000 for this investor
By shifting his capital from two properties where rent growth had not kept up with value increases, into multi-income dwellings
with higher cashflow income, the investor kept their capital intact and still invested, while significantly increasing passive income.
The new interest deductibility tax rules and rapid price increases realised over the last 18 months will have many investors rethinking
their long-term strategies and goals. I don’t like the new tax rules at all, however if you have had a position in the property market over
at least the last few years then you will likely have the opportunity to be strategic and redeploy your capital in a way that suits your
I am in a similar position with one property that I bought several years ago. After purchase, I gutted and completely remodelled, and have
held for several years since. The values in that part of New Zealand have skyrocketed, and that combined with the new tax rules have me
mulling over a few scenarios, the three most likely of which are the following.
Do I sell and buy two properties in another area where I can build another dwelling on the site? Both increasing likely yield and shifting
debt to a tax-deductible structure?
Do I sell and look to buy another multi-income property with similar potential to the original one and repeat the process?
Do I sell and use the money to buy and renovate properties for on sale (trading), and put off long-term decisions for another day?
#1 and #2 above, if done well, would have me buying and developing to a gross yield 2% higher than I am selling at, and similar to our
client of two years ago, through this process I would increase equity again and come out the other end with a higher cashflow income.
The new tax rules in particular will have many investors in a reactive mindset and wondering how they can continue to make property work,
however it does not have to be that way. If you have a portfolio and are feeling stuck about “where to next”, history has shown that time in
the market trumps just about any other strategy and what you might need to do is to “shuffle your portfolio deck” to position yourself to
survive and thrive through the next property cycle and beyond.
At iFindProperty our first conversation with any investor is to review where you are at and your goals, so we can help decide on a direction
for your next move. I’d encourage anybody who is feeling stuck to get in touch with us, or your own trusted advisers because in most
situations you will be able to do more than you think.
This article was published in the October 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's not just about finding a deal, to truly grow as an investor you need to plan towards your end portfolio and work with people who can help you move towards that vision. iFindProperty has a service that achieves that for clients, and we are excited to share it with you
As an accountant is not a place for my personal political opinions, but professionally speaking I’m pleased with this result, and cautiously
optimistic we might have a friendlier tax environment for the property sector for at least a few years. But what does this mean for property