Day 10

The list goes on and you probably have some feelings about each category (even if you are confused by some of them). All types of property can be great investments if the price is right and you understand what you are doing. When people make mistakes it is from rushing into buying without understanding the numbers, usually while more experienced investors watch from the sidelines of the auction because of price or the type of property being problematic.

Many investors new to commercial property, for example, buy property without understanding how rents work, what interest rates will be quoted, funding lines available, and the pitfalls of losing tenants.

Try to avoid being the sucker in the room who has not done his/her homework. Be honest with yourself… are you guessing and hoping? You may as well go to the casino. You have to ask yourself “why has no one else jumped on this opportunity before me?” – and if you are confident in your answers then proceed. If you are thinking it’s your special luck or gift then it’s potentially a dud.

Investing without knowing the numbers has worked well in the past for many investors, due to luck and good timing, but there’s no guarantee that blindly investing will work into the future. Take the time to learn the numbers and this will help you confidently invest.

Each property type can be broken into subcategories like ‘new’ and ‘existing’, ‘needs repairs’ and/or in ‘good condition’, ‘small’ or ‘large’, ‘central’ and ‘rural’, ‘proven’ or ‘unproven’ area. The categories are numerous and ever-changing.

Factors to consider when deciding what type of property to look at are first grounded in cost and your level of understanding of the property type. If you are not prepared to read and understand body corporate documents and assess the risks with leaky buildings and shared costs, then (as an example) avoid apartments.

Some apartments can be fantastic investments, my best mate bought one ‘off-the-plans’ because he knew all around Auckland City exactly what was going on with apartments and could compare them. He made $100k+ in a few months buying, settling, then on-selling it tenanted. He knew what he was doing.

Once you understand the strengths and weaknesses of your current circumstances, you can form your property investment plan around them. If you are handy, or understand renovations and can track expenses and professional tradespeople confidently, then buying a property that is a bit run down makes a lot more sense.

As we have talked about, adding value or spotting hidden value, is the best way to recycle your equity/deposits to keep investing. It is very hard to do this unless there is a huge surge in market prices after you buy or you make significant improvements to the properties you buy.

If you buy a new build property, it is extremely unlikely you will be able to add value. The growth in value is determined by market forces that are outside your control. This is why usually we do not suggest new builds unless there is some hidden value or significant discount (as you can often get by signing early because the developer needs pre-sales).

WARNING: Many property investment consultants are simply real estate agents disguised as financial advisers and will push new build properties on you as investment options because they make their commissions selling these properties. Their spreadsheets always show lots of growth because they project out a long time.

Buying new builds makes sense if you are short on time and do not expect much in quick value add growth or capital gains – they are low effort low reward relative to other types of investment options. They are not necessarily low risk though as the land size is usually comparatively small compared to properties of similar cost that were not recently developed.

What the spreadsheets used by others do not factor in, is an opportunity cost when you lock money away and cannot keep investing or buying even better properties. We hope you can buy more than just the next property and do not have to hope the market goes up.

Week 3 of the Property Formula Workshop Coarse goes into more detail. “How To Utilize Your Position For Maximum Results. (Levelling up).”