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Finding Diamonds In The Rough

Finding Diamonds In The Rough

An investor who specialises in providing homes for the less fortunate is also skilled at realising the potential of his properties, writes Joanna Mathers. Photography Rachel Hadfield.

By: Joanna Mathers

21 February 2024

‘Iffy’ tenants are not for the faint-hearted. You’re entrusting them with your valuable asset and there’s the potential for skipped rent, drug use, dodgy visitors and terrified neighbours.

But there is a flipside. People who’ve had hard lives are likely to have experienced transient living. Providing a home for someone with a traumatic back story gives them space to grow ... and safe havens can be transformative.

Robin specialises in providing homes for people others may shy away from. He has the gift of being able to see “diamonds in the rough”; his commitment to giving people a chance underpins his property strategy.

He’s a man of faith, but also a savvy investor, and his large portfolio has given him the freedom to leave a stressful job and work at something he loves.

Gap Year

Robin was brought up in Whakatane, a town he also invests in. He spent his school years here but decided to take a gap year after he finished high school to do something a bit different.

“A Christian ship came through Tauranga and my family hosted people from it,” he says. “I had a very strong sense that God wanted me to be on it, to be a part of it. So, I joined them for two-and-a-half years.”

Robin’s journey on the ship (MV Doulos) started in Australia. They initially spent six months up the coast of Australia, then six months around Papua New Guinea, then the Pacific Islands, Philippines, Malaysia, and up to Russia.

Crew were dedicated to helping people in the countries they visited. There was also time for training and Robin undertook a degree course while living on the ship.

Deal has a great instinct for properties that can be improved to add value.

He felt a strong pull to Taiwan and later went there to teach English. But he knew that wasn’t going to be a long-term career so, in 1996, he returned to New Zealand to study.

Robin saved just under $40,000 while living overseas, which he thought would “fund me through university, get me out the other side broke, and I’d get a job and start a normal life”.

But his parents had another idea. “They said to me, ‘The property market’s moving, you should take that money and use it as deposit on a house’.”

It was excellent advice. Robin was studying for a degree in international management at Waikato University at a time when the Hamilton market was still affordable. But he knew servicing a mortgage on a student income was going to be difficult and understood he would need to take in flatmates. So, his first home was going to give him experience in managing tenants. His parents saw the opportunity and bought rentals nearby which Robin managed and had good experience with all aspects of property management.

By the time he found a property in Hillcrest, near the university, he was 26 and married. They would go on to have their first child while at this house. The property was a classic Kiwi quarter-acre on a slope at the crest of a hill. Built in the 1950s, it had three bedrooms, although they added a fourth. At $170,000 it was within his budget and, although it was a bit tired, it served its purpose.

“We stayed there a couple of years, until I graduated and got a job at Comvita, based in Paengaroa.”

Challenging Role

When the family moved they decided to hold on to the Hillcrest house, which they were still paying off. They rented for four years near Robin’s work, and then moved to Tauranga in 2005, where they bought a family home.

His role was becoming increasingly challenging and he was part of the team that spearheaded a move into the Asian market. “Initially the role was mostly domestic, but increasingly it became international, to the point where we moved overseas to Taiwan and opened the market there.”

They lived in Taiwan for seven years, but in 2012 decided to return home. Back in Tauranga, Robin continued working for Comvita for another three years, but during a round of layoffs in 2015, “my number was called”.

“That was a big thing for me at the time,” he admits. He soon found consulting work in the same field, but something was niggling. Surely working incredibly hard to make money for someone else wasn’t the end goal?

“I remembered a book I’d read as a teenager. The first page said something like ‘Everyone desires to have an income without working. Whether you’re awake or asleep, the money just keeps flowing in’.

“Nowadays we’d call that passive investment or passive cash flow. It was a light bulb moment for me. It was just like, yeah … that sounds like a good idea.”

Robin Deal, pictured with his dog Bono, looks for ‘diamonds in the rough’ when choosing his tenants. It’s a strategy that has worked well for him.

Eye On Markets

Robin has always loved economics, finance and investment and has closely followed the markets. In 2015, he noticed something happening in the housing market.

“The market, especially outside Auckland, went down 10 per cent in 2007 and stayed down for about 10 years.

“But about 2015, I could see the Auckland market had really taken off and it was just starting to tip over into other areas.”

Aucklanders were starting to trickle into the Hamilton and Tauranga markets, and local investors were getting in on the act.

So, he bought another rental property (a four-bedroom, early 1950s home, opposite Tauranga Girls High School) for $406,000 and rented to Polytech students.

His interest in property had been piqued again, but he was “literally working my guts out”. He ended up in hospital, which effectively ended his work contract.

During the six months at this contract job, he had noticed something: the house he’d just bought had risen in value by the same amount he’d earned in his day job.

“And those earnings were just the capital value, not including the rent, the yield.

“So, it was like, okay, if one house can out-earn me, then why stop there? What about two, three, four, etcetera? This was another one of those pivotal key moments.”

From that point he decided property should be his focus: he would have time for family, wouldn’t have to work for someone else, and would be better off in the process.

Robin and his wife bought another house in 2016. There was a lot of talk at the time about debt-to-income ratios coming in and he felt that if he waited, he would be over the DTI limit for buying another house.

They bought a 1990s-era house that stood alone on a section with a duplex. It was in “perfect condition” and had street appeal; they purchased for $500,000.

But while it looked good from a cosmetic perspective, it’s been the worst house in their portfolio.

“The capital value hasn’t increased very much. And because it’s on a small section, there is zero development potential.”

Robin’s Parkvale rental is the first house built in the district.

Strategy Rethink

Robin knew he wanted to make property his career, but had no overarching strategy. He was just buying what he thought looked good at the time.

Then he read Graeme Fowler’s book 20 Rental Properties in One Year and “the book revolutionised our strategy”.

“Graeme was talking about buying for yield, buying low-priced houses, doing them up, getting a good yield, and holding them forever. And it just made so much sense.”

Armed with this knowledge they decided to purchase again. A six-bedroom property in Tauranga; they paid $500,000 for it in 2017.

“There’s two storeys above ground and a basement below, and it’s halfway between the Polytech and downtown campus,” he says.

The Hamilton house had been a student rental for years, and this new property was bought with student accommodation in mind. They were able to rent it for $720 a week (now $915).

With houses in Hamilton and Tauranga, Robin turned his mind to a new locale.

He always returned home to Whakatane for Christmas, and one year he found two houses for sale for around $95,000 each in the local Property Press.

“I said to my parents, ‘This would be good buying’. They said, ‘No, you don’t want to be there. There’s so much trouble in that street, you know, you’d have no end of trouble’.”

A year later other houses in the street were available for $110,000. “I said to my parents, ‘Look, these have gone up $15,000 in a year. That’s more than 10 per cent’, and they said the same thing – don’t touch them.”

Shortly after more properties came up for sale again ($120,000 and $130,000) and Robin decided to act. “This was about a kilometre from where I grew up. So, I knew the area pretty well. This time I jumped at it.”

One of the properties had garnered three offers, but the other had a tenant with an ankle bracelet and this put most people off. So, Robin made an offer for both of them.

“I knew I could have got one, but I said to myself, what’s the point? I’m driving 100 kilometres there and back just for one house.

“So, I made it conditional on the other.” He purchased both the two homes for $250,000. These now rent for $1015 a week.

The Sparkly Stuff

Robin has always self-managed. Working in Taiwan, he employed around 40 people, and says he’s always able to spot potential. “I would find diamonds in the rough. I’d select staff, give them the opportunities, some training, management, and they became superstars. And I found that also applied to my tenant selections.”

One of his tenants was an immigrant family man unable to get a rental because of what he perceived as racism by Tauranga landlords. His story appeared in the New Zealand Herald, and Robin decided to give him a chance.

“In theory he could have been trouble, he could have gone to the paper about something, but he’s been great and he’s still in the house and since bought his own rental!”

Robin has multiple properties in gang areas (in Whakatane and Rotorua) where he has kept buying. These are houses others had turned away from, but he’d seen potential.

A lot of property management companies have told him they won’t touch those streets, and he’s had maintenance people refuse jobs because they don’t want to put their staff at risk.

“Most of my tenants in those locations are involved with gang members,” he says. But he’s invested in the communities and the properties – adding value and giving people a chance. He’s experienced hostility, but he’s countered this by explaining he owns properties here and was living in the area before these people were born.

“People think, ‘I may need to rent a house off this guy some day’ and it tends to calm things down.”

Family Help

Robin’s baseline yield used to be around 3 per cent net. But with the removal of interest deductibility, this is no longer the case. “So we’ve been quite happy to sit on the sidelines and just work with what we’ve got.”

He is about to finish a new project – installing a relocatable home on the section of a property he purchased in Rotorua for one of his sons.

He’s purchased three rentals for his children, aware of how hard it will be for the next generation to buy a home.

He continues to work closely with his tenants to ensure they have a good experience of renting. And his portfolio provides the lifestyle he wants for himself and his family.