What really matters when buying an investment property?

Posted 9 Mar '21

by Nick Gentle on
Article appears under: Investment Strategy

As one of the owners of iFindProperty, an agency that helps people to buy properties, I have a lot of conversations with people where we naturally try to predict the future.

Where can I buy that will really grow in value?

Will this property attract good tenants?

Is this renovation going to be worth it?

Should I buy in this city or the next one over?

What will interest rates do?

What will the government do?

Will the population grow?

Looking forward, there is always a degree of uncertainty and if you worry equally about every part of a property purchase, you will easily burn yourself out and find it incredibly stressful.

A large part of what I do is to help people get a sense of perspective and narrow in on the 2-3 things that they need to get right about a purchase (and leave the rest to us), so they can stop being overwhelmed by everything and actually enjoy themselves.

I’ve been investing for a while now and I believe property and business to be a mental game. You have to take action, sure, but it all starts in your head. When you are projecting forward into an uncertain world it is easy to talk yourself out of something that you will regret not doing later.

What do I mean about the “2-3 things that we need to help them get right”, mentioned above?

I’ve done a lot of property deals over the years and what I have worked out is that all of the moving parts involved in doing a deal can be roughly divided into the following groups:

Group 1: Big stuff, very important, hard to fix later

Group 2: Logistics. Important to get right but can be handled as part of process. Easily confused with group 1. Don’t let this stop you from investing.

Group 3: Trivial in the big picture.

When you start, it is natural to think of every aspect of a deal as crucial, which is why many new investors never buy; they put as much energy into analyzing their insurance pricing as they do in the value-add potential of the deal.

Group 1: Big Stuff.

  • Does it suit your strategy/criteria – what does the investor want to achieve from property investment (and by when)? Does a particular deal move you towards your goals or sideways/away from it?
  • Funding – can you buy it? If you do, what does your future funding look like? It is good to think multiple deals into the future.
  • Major structural aspects of the property. Foundations, roof, walls etc. For some deals, this might not be a major consideration (if you plan a large project for example).
  • Location - hard to change that. How much sun the property gets is another fairly permanent feature.

Group 2: Logistics. 

  • The cosmetic condition of the property and healthy homes requirements. Anything can be fixed, it’s just a number.
  • The current tenant situation. A good property manager and time helps.
  • Immediate availability of tradesmen.
  • How far away is it.
  • Need to get the property managed.

Group 3: Trivial in the big picture.

  • Am I getting the absolute cheapest XYZ (shop around if you want, but be careful of cheap).
  • The condition of the grounds.
  • The cost of due diligence.
  • Long term hassle of future maintenance.
  • Extra costs in funding to secure the deal.
  • Small variances from buying rules. I still remember people turning down 7.7% gross yield deals in Auckland in 2011 because their coach had said they must achieve 8%.

Did you notice that the second group are issues that can be worked through with the right help, while the third are mostly one-time cost items?

A key reason iFindProperty is able to consistently help investors, is that we focus the client on the first and most important group, introduce them to the right team to navigate the second, while giving them a sense of perspective on the third (which comes from experience).

If you are talking yourself out of purchases because of items in the second or third list, it might be time to step back and have a mental re-shuffle. Working with a mentor or a buyers agency to guide you through the buying process can be the difference between landing a deal or that eternal game of "it's just not quite perfect enough".

Nick Gentle
Business Owner & Operations Manager
027 358 3855

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