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You’re Not Buying The Market

Stop worrying about what the BBQ committee says and focus on buying fundamentals, writes Nick Gentle.

By: Nick Gentle

1 July 2020

Congratulations to NZ Property Investor for the fantastic milestone of 200 issues. At a time when print media doesn’t have it easy, it’s a huge achievement.

I thought I’d write about something that hasn’t changed since I started investing and I am sure will still be happening long after I am gone: wouldbe investors asking each other non-stop about what the market is going to do.

I understand the temptation to think of property the same way we look at say, the S&P 500, where you buy a tiny slice of the whole market and your slice is, of course, exactly the same as everybody else’s.

The thing is, property is different. Sure, passive gains benefit everyone, but one of the main reasons we invest in real estate is because you can alter and improve your asset, increasing both the value of the property and the rental income it generates.

You can secure a great buy in a raging hot market where bargains are few and far between and trust me you can land yourself a complete lemon at a time when good deals are falling off the tree.

My best ever purchase was in the red-hot Wellington market in 2018, when most investors thought they had “missed Wellington”, while my worst ever buy was six months into the Global Financial Crisis, when you and your dog were the only living beings an agent might see an open home, with any offer gratefully considered.

‘I have offered on six properties in the past two weeks and once I send off this article I am about to make another’

Crystal Ball Gazing

You already know this. You know that you could walk onto any property and find the deal of the year hidden in plain sight. That’s part of the allure. So why do we go down this rabbit hole of fretting about which way the market will drift?

I think it is because there is safety in numbers. We like to buy when people agree that it is a good time to buy. I’m not sure what is greater, the fear of future loss, or the fear of future embarrassment telling your mates at the BBQ (who know nothing about property) that one deal didn’t go as well as it might have.

Instead of worrying about what the average price of average houses on average streets will do, instead focus on finding something you can improve now, add value and increase rents. If values stay flat or drop after that then you’ll be fine because it’s the extra value you created, and when values rise you will move forward quickly and be able to buy again soon.

The fundamentals have not changed: cash flow positive is cash flow positive; a lot of people want to move to New Zealand; easily maintained houses close to jobs tend to do well in any market.

Buy, improve, profit. As to what is different this time, Covid-19 is an employment crisis and people will want to live in affordable housing near jobs. Most property investment is either affordable housing near jobs, which people will keep, or folks move out of their house and keep it as a rental. The latter is usually a bad idea, because if you wouldn’t walk in off the street and buy a property as a rental, then why on earth would you keep it as one? That is perhaps the topic for another article.

What a lot of people miss is that if you buy a house today at the same price you would have in February, your cash flow looks outstanding and you can lock that in for five years. I have offered on six properties in the past two weeks and once I send off this article I am about to make another. To summarise: boring houses near jobs; add a bit of value; lock in those low rates; other people pay the mortgage for you; keep calm and carry on. Happy investing.

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