After a few weeks of uncertainty and poor activity levels immediately after Lockdown 1, Tauranga auction rooms are once again a hive of
activity. Any sparks of a buyer's market emerging were quickly extinguished with the reserve bank lowering the OCR in March ... and here I
was getting excited.
In the past few weeks, I’ve seen clearance rates around 50% with the majority of the remainder immediately going into post auction
negotiation. Moving higher end homes and lifestyle properties seems to be more of an ask at present, but at the investor/first homebuyer
level, competition is fierce.
It’s a similar story at open homes - social distancing is proving to be challenging when you’re faced with a dozen other parties lining the
street before the agent turns up.
Multi income residential properties are selling in the 4.5 - 6% gross range, the spread is an indicator of the quality. These types of
properties are a good target if you want to avoid the competition in the FHB price bracket, and still generate solid cashflow. Right now
5%+ gross is still achievable with stand alone homes in certain areas, but if last year's OCR drop was anything to go by, I suspect these
will get thinner on the ground as the effect of lower retail interest rates are felt.
Do-up properties are out there, but in my opinion, we’re still suffering the hangover from over five years of renovation shows, as most sell
with little to no margin for the woodbe renovator/trader. There are good deals out there, but good luck finding them if you’re not prepared
to be at the coal face every day. The desirability of Tauranga has always made cashflow a tough ask, so the recent drop in lending
rates has been a welcome gift to investors who are out in force, competing with home buyers for properties.
When you stop to think about it, the current activity levels are hardly a surprise. We have unprecedented demand and historically low
listings. Money is cheap, if you can get it.
To put that into perspective, $500,000 of borrowing will cost you around $12,500 p.a. Median rent for a 3 bedroom in Tauranga is now $580
pw, or $30,160 p.a. If you assume other expenses of around $7,500 (rates, insurance, maintenance etc), that leaves $10,000 of positive cash
flow to bank.
Then consider that the same $500,000 is likely to earn under $8,000 p.a in the bank, does not have the benefit of leverage, and worse still,
is losing purchasing power every day. All in all, you can hardly blame people for wanting to put their money into bricks and mortar, or
rusty iron and asbestos in the case of my last acquisition!
Then comes the inevitable question, “what do you think is going to happen to prices”. Well, I can 100% guarantee you that I don’t know, and
neither does anybody else for certain. But, property is a long term game and over time, the property investor is exposed to both ups and
downs in the market. The problem with trying to pick either the top or the bottom of the market is that in either case you won’t know for
sure until after it has already turned - it’s about time in the market, not timing the market ... and right now with
interest rates at record lows, those who are already in the market are enjoying the benefits.
The ‘secret’ is pretty simple - take action. Whether that means educating yourself to become a better or more confident investor, or
leverage the services of others who have the experience to mitigate the risks and help you achieve your goals faster. If you desire the
security and additional income of owning multiple properties for retirement income, waiting around for the deal of the century to fall at
your feet definitely isn’t the answer!
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