Day 4

One of the most popular platforms globally for learning about property investment is the site and podcast at biggerpockets.com – hundreds of free episodes, with success stories and some failures, with forums for learning more about the basics of property investing.

The site is American which does limit you a little bit, but the principles are the same. BRRRR comes from Bigger Pockets. On the Property Formula Workshop Course, we go over lots of case studies from our clients and other successful investors who have used BRRRR to get the wheels of equity growth turning faster.

Ideally, when you buy an investment property, your aim will be to maximise your cash on cash return and to cycle your initial cash/equity out of the deal so you can buy more properties. This is equity recycling or deposit recycling. If you do not plan to invest this way, your ability to keep buying properties is severely impacted and you will stall. Instead of buying 5-10 properties, you may only get 2-3.

If you can get positive cash flow on your investment, without leaving any of your original money in the deal, you have created a cash producing asset for yourself without limiting your future options much. We will cover ‘mortgage coverage’ in later emails. Understanding what it takes to buy more properties AFTER you buy the next property, means you understand the rules of the game with lenders.

The majority of property investors get stuck on 2-3 properties and they cannot buy more because their equity is locked into their portfolio and their yields (cash flow) is not strong enough to enable further borrowing. ‘Yield’ is the key to keep borrowing.

Check out Blandon’s video with over 16,000 views about using some of these strategies.

If you enjoy learning via video and from Blandon. He has created a three-part video masterclass series, one video for each stage of the Mortgage Lifecycle, each class is slightly over an hour. This is the next step after completing the 21 Day course. But you can also enjoy them simultaneously. Every class includes an on-demand video, a slide deck and a custom spreadsheet you can use to lock down your numbers. Register online here.

By reverse engineering from the beginning of the investment planning, we can choose properties that allow you to cycle out equity and enable you to keep buying, playing the long game instead of just thinking about the next property. When looking at listings there should be obvious upside in the form of repairs, renovations, or a proper discount.

The process is simple (not to say that it is easy) – buy well, renovate on a strict budget and add more equity value than dollars spent, rent the property out to good tenants at a high yield, and refinance your equity out at a new higher valuation. Then buy again.

To successfully recycle your deposit (or the majority of it) you will need to get a good price on the purchase. You simply cannot expect to get much of a win if you pay ‘full price’ for the property. This is where a keen eye and quick wit is required to get a property under contract. You can move fast when a newly listed property appears for a price that is well below your valuation because the agent or vendor did not understand the market opportunity you see.

You can also negotiate much harder on price with properties that have been for sale for a long time. Understanding the process of getting a property under contract will play a major role in your success. We will cover that next week.

You might have to put 20 offers on the table across lots of different properties and this might take 3-24 months for something to stick (hopefully not that long but it’s what it sometimes takes). Blandon bought a Manurewa property that had been listed for a long time, and after the settlement, the valuation came in just shy of $100k above the purchase price. This is because he knew what to look for and how to get the property under contract at the right price/time.

If you pay too much for a property, there is very little you can do to quickly recover from surprises and problems. You just have to wait it out or take a loss.

On the flip side though, for those of you who bought property 5-10 years ago, think about the price you paid and add $50,000. At the time you may have been thinking about how stupid it was to pay such a high price, but now it is likely (especially if you live in AKL) that the value is $300-500k more than you paid, sometimes even $500k-$1mn more.

The capital gains do add up quickly and by not investing you do risk missing out on the growth. This is not to say it’s ok to overpay but to reassure you that you can recover if you do.