Articles - Graeme Fowler

[Perry]

Related media item here.

[orion]

Are Investors paying their fair share?

One of the biggest misconceptions about property investors is that they are all wealthy. While some are, 99% of them are not; they have full time jobs and struggle to make ends meet like any other families. If a tenant doesn’t pay rent or unplanned maintenance needs doing, that money needs to come from somewhere. Sure it is usually tax deductible but you get to claim 1/3 of that back the following year.

The majority of property investors only have one or two properties as rentals. They pay tax on anything left over after the mortgage and all maintenance, rates and insurance which is usually very little - if anything. It usually takes many, many, years of investing in residential property before any real money is made. I know more investors that have gone bankrupt than I know that have been successful over a long period of time.
No investor I’ve ever met has wanted to be an investor so they could pay less tax. They go into it because they want to have a couple of properties freehold when they retire and not have to rely on the government supporting them (other tax payers).

I’ve been investing for about 30 years and started saving (starting with nothing) as much as I could in my early 20’s for a couple of years to buy my first rental. I bought a property with virtually no knowledge after saving $25,000 which was more than a year’s wages as a mechanic for me at that time. Seven years later, I sold the property for a $40,000 loss and ended up with no money once again (I also had a solicitor loan of $10,000 that was paid back as well as a few thousand dollars of principal on the mortgage that had been paid back).
However I did learn a lot from it and rather than giving up, I put what I’d learnt to use.
Now 20 years later, it is a lot easier because of what I learnt. Over the years I also learnt how to buy, renovate and sell properties so have completed hundreds of these over the years, as well as now having 80 long term rentals.
So GST as well as income tax is paid on the ones that we renovate and income tax on the rentals.

Combined, last year I paid several hundred thousand dollars in tax, and over the last 20 years I would have paid more tax than 90% of people would earn in their lifetime. For many people, that’s still nowhere near enough though. When people say pay your fair share, what is someone’s fair share? Tax them until it’s not worth doing any more? That is what I think will happen if yet more taxes, regulations, rules etc are bought in, not only with property investors, but with business owners as well.

If taxes are increased too much, you start losing tax revenue as people are driven out of the market. Government interference and wanting to do good for the very people they have made poor, makes them worse off in the end. With all the changes they’ve already put in place, many investors have sold up and if things continue, many more will do as well. Now there’s a waiting list of 10,000 people that have nowhere to live that the government is paying to have them live in motels, spending millions of dollars a week on accommodation for them. The very people that can rent them homes are the ones they are driving out of the market.
The government spends approximately $80 million every day, 7 days a week on Social security, welfare and the pension.
This is of course only a part of what they spend daily.
As mentioned the problem is getting worse with about 10,000 people now on waiting lists, our tax payer money paying for these people to live in motels.
The more regulations, rules and taxes they introduce will not help any of these people, the problem will just get bigger and bigger until they realise that you just can’t tax a country into prosperity.


Home ownership rates?

If more investors are pushed out of the market, there will of course be even less homes for people to rent; and the emergency housing list of 10,000 people will keep growing.
What happens when someone sells a rental? One of two things, another investor buys it, or a person or family to live in buys it. If another investor buys it, nothing really changes. However if a first home buyer, or buyer returning from overseas buys it, it takes another rental property away from being able to house a family.
So where does the person or family come from before they buy this home? It could be that they had another home and are upsizing or downsizing, or they could have been renting. These situations again will not change anything, as it hasn’t taken another property out of the available houses to rent. However if they have been living with their parents or in a flatting type situation, this will affect the overall houses available to rent. Often a group of young people will flat together and when one of them is able to buy a home, they will move out, leaving the other flatmates. So in some scenarios, depending on where the buyer comes from will depend whether another rental is taken away from the available properties to rent.

If tomorrow I sold my 80 properties, there would be a variation of who the buyers are, but it would take away a portion of the overall properties in NZ that are available to be rented. The more that investors are regulated, controlled, told what they can and can’t do, and taxed, the more they will think it’s just not worth it and sell.
The government is in no position to supply 500,000 of the approx 1.5 million homes in NZ for everyone, if all the landlords decided to sell up, nor would many people want that.
About 35% of the population in NZ rent, which has slightly increased over the last 40 years but not hugely.
Another recent thing that has taken a lot of properties out of the pool of houses available to rent is people using their homes as Airbnb. The income is often a lot more than they would get letting them casually, as they would if they were rented to families on a permanent basis.
There are also a lot of RSC workers that come from overseas to pick fruit for five months of the year and they need accommodation. These again are a group of people that take up some of the available properties to rent.


There’s a Perception that investors are greedy.

I think it comes from a few things, ignorance being one of them.
Another is people’s own perception, or idea of money. The other perceptions originate from the media and the government.
When the government continues to tell the public that what is needed in the economy - ‘is to transfer money from people who are rich to people who are poor’, people over time get the idea that wealthy people are bad.

However, if it wasn’t for investors buying properties or business owners employing people, the country would be in a real mess. The media can often sensationalise headlines and people get a distorted view of the article just by a headline. How do I know that? In various articles I’ve been involved with and talked about topics, people jump to so many false conclusions without even reading further than the headline, then commenting.

There are a lot of people that think investors are greedy, pay no tax and contribute nothing to society. If you ask people to write down what is the first thing that comes to their mind when you mention the word ‘Money’, it will usually consist of a list something like this – ‘struggle, broke, hard to get, rich pricks, bills’ etc. To these people, their mindset is that money is bad, so people with money must also be bad! These are often the people that buy lotto tickets hoping to win a million dollars or more. The problem is, when people with a poor association of what ‘money’ is do win lotto, it is often gone within a short period of time. Why? Because they believe money is bad and so they have to repel it, or get it away from them. Wealthy people have a different association to money, so they attract it, not push it away.

When I employed people for a franchise I was in for 10 years, we had incentive targets for the employees. As a result of these incentives, they would often get a pay rise of $10 or so a week (probably $20 in today’s money). Each time this happened, the week after they got another $10, I asked if they now had an extra $10 left over to save. They always kind of looked at me weird and said - No, why??


How long does in normally turn investing into something profitable?

The first 7 years I lost all the money I’d put in. After that, I’d learnt enough to start again.

This was done in 3 ways:-

1. Buy and holds which are a long term investment, and the purpose is to pay the mortgages off over 20 - 25 years and then have the income. Until then, there is often not a lot of profit if any. Many investors will still be running at a loss many years later and the majority never get as far as actually paying their properties off and having the income.
For me, with buy and holds, out of the 80 or so from memory 17 have no mortgage on them and within the next 8 years or so, about 40 of them will have no mortgage. The rest will be paid off in full over the following 8 - 10 years.

2. Trading i.e. buying below market and selling, or buying, renovating and then selling. This can be profitable, however there are a lot more skills needed to do this well consistently. In the last couple of years, we’ve bought and sold about 50 properties. These are taxed at a higher rate than income tax, as we pay GST as well. Many investors don’t see the point in risking money doing this type of property investing, as a huge portion is paid in tax.

3. Wraps or more commonly known as rent to buys. About 20 years ago, I helped about 40 HB families into their own homes with me giving them a mortgage. I would buy the properties at a good price, about 10% below what would be considered their ‘market’ value and then sell them to people who only had around $2,000 as a deposit. A few I also did on no deposit. So I had a mortgage with the bank for say a 7% interest rate and would sell them on at market price to the first home buyer for around 8.5%.
They would also pay rates and insurance to me weekly which was included in their mortgage payment. This worked well mostly as it gave me about $50 a week cash-flow for each property for setting it all up, plus it got people into their own homes.
They could refinance at any time with a bank when they had enough equity, which in many cases was only 2 - 3 years. The problem was, two things happened. The banks decided they didn’t like it, and also the IRD wasn’t that favourable towards them. Some of it justified (because of investors doing things that weren’t ethical or made any sense) and some not. The government made up new rules as well with such things as the credit contracts act, and it just again became not worth the hassle of it all, so I stopped doing them.

Is there an adversarial relationship between tenants and property owners?

Sometimes yes, sometimes no. Sometimes justified and sometimes not.
We have ours managed so the tenants deal with our property managers who are great at what they do. Often landlords who manage their own properties will get themselves into conflicts with their tenants. Either the landlord is way too fussy how they want the property kept, or just don’t have the money for costly repairs. Now it’s getting worse of course with all the new rules with insulation, heating, ventilation as well as other things they keep bringing out. Many rental properties are better places to live than the investors’ own homes now, they just don’t have the funds to do the same things to the home they’re living in. This again is another reason more and more investors will leave the market, not being able to afford all the new government regulations. And of course on top of all that, they now want to tax capital gains.

[orion]

Why We Do What We Do (November 2019).

A little over 6 months ago, Katrina said to me “I know what I’m going to do next”. It took her three days to tell me, as she wanted it to be the right time.
She finally sat down with me and said “I’m going to organise a property seminar for later on this year.” I said “really, why do you want to do that?”
She said it was something she wanted to do and was very talented in event management. I knew that from having her organise our entire wedding from being engaged one day to being married 6 weeks later. We had 80 guests from all over NZ and the day ran as smooth and perfect as it could possibly go.

So, I never doubted that she could do it, but I said to her ‘well, don’t ask me to speak at it because I’m not going to!’ Having prepared herself for 3 days before telling me, she was ready for my answer. 
She said “that’s ok, I’m getting Jolene to speak on manifestation and the law of attraction” I replied “whaaat, not me?” I then said “well you won’t get many people there, how are you going to get anybody to go to this seminar?”
She said “I’m going to put it your Facebook investor group to over 20,000 people! I’ve already mentioned it on my Women’s Property Investing Chat group which has over 1,000 people in it. There are already a lot of women just there that are keen to do it. Jolene messaged me and is going to be one of the speakers for it”.
I said “ok, well I hope it goes well then (not really being serious)”. Then she said “and I’m going to get Phil Thompson to do a talk on negotiations!” I said “whaaaaaat, not me!?” She said, “no, he’s better than you anyway” 
I thought about it for 2 seconds and then asked her “well if I did agree to speak at it then, what would you want me to talk about?” Katrina replied “I thought you didn’t want to talk at it?” I said “well if Phil and Jolene and going to be speaking at it, then it will probably be quite good. If I did agree to speak there, what would you want me to do a talk on?” She said “I don’t know, you’ll think of something.” 

That’s how the weekend conference we held over the weekend was created. We named it “Summit by the Sea” and had the most prefect weekend for it. It was held at the War Memorial Centre in Napier with amazing views out of the room overlooking the ocean. It was a stunning location and conference that Katrina put on.

The feedback from people has been mind-blowing to say the least. On the Sunday morning after the Q & A session and panel discussion, Katrina had three people come up to her in tears with just being blown away by the whole weekend, and how much it had changed their mindset and how appreciative they were.
I had people come up and talk to me during the weekend when there was a short break, lunch and also at the evening formal dinner, all saying how appreciative they were to be there.
Many of them that came up to me said how much my first book changed their ways on what they were doing, or got them started in property. Also how the second book (20 Rental Properties in One Year) was a book that they’d read several times and was like nothing they’d ever read on Property Investing before.
Others who I’d either replied to an email they’d sent me 10 or 15 years ago and how my reply to them set them off in a new direction and what they’d been able to achieve just from that.
One guy came up to me on Sunday after the event and said he’d phoned me from Napier in 2004 while visiting there and said he’d just read my book and wanted to have a quick chat. I happened to be in the office at Mr Rental doing very little so I said “sure, come over and see me now” I have no recollection of it now, but he said he had this idea or belief that money was bad or evil and that even though he’d read my book (NZ Real Estate Investors’ Secrets), he could see how he wanted to think differently, but was still unable to.
Apparently we chatted for about half an hour and what he told me on the Sunday morning was humbling to hear from him. He said “you changed my whole world in that one conversation I had with you. I have never thought about money in a negative way since then and I’ve done really well for myself since that day.” He said “I was overseas and heard you were going to be speaking at this seminar, so I knew I just had to be there and I really wanted to say thank you in person.”
It left me kind of speechless as I don’t remember meeting him, or for that matter most of the thousands of people that I’ve e-mailed back over the years, that have sent me e-mails.

There was another instance in the weekend when a young Chinese lady came up to me at lunch after my talk on Saturday and said “I was one of the people that had my hand up when you asked the money association question. The first words I wrote down when you said the word were negatively associated with money. It’s the way I was bought up by my parents. I was always told rich people are bad or corrupt and you should never be like that.” Then she went on to say, “I also have the belief that investors are taking homes away from other people, like first home buyers wanting to buy their own home.”
I said “well in reality, it’s pretty much the opposite of that! As far as investors go buying properties, they will usually not pay as much as a first home buyer will. If I was in a multi-offer situation with a first home buyer, they would 9 times out of 10 be willing to pay a lot more than I would, so would be able to buy the home. The issue many young people have is they don’t have the discipline or the know how to save up for a deposit. Everything is so easy to buy these days on no deposit, or credit, pay it off over 5 years. Many of them don’t even understand the concept of saving. They live week to week and so are not able to ever save for a deposit, and as shown on one of the slides in my talk, it was exactly the same in 1996 in that article I showed everyone. People back then said the same thing ‘young people cannot save enough money for a deposit to buy their first home. That was 23 years ago and nothing has changed!

I then went on to say “many landlords are getting rid of their rentals because of all the new regulations coming in from the Government, they don’t know what’s going to happen next and are afraid. The amount of people being housed by the Government is still growing every week. There are so many motels just in Hawkes Bay that are now being used to accommodate all these people that can’t find a home to rent. The Government is paying all these motel owners, motel rates of $1,000 - $1,500 a week for each family! If they had a property they could rent off a landlord, it would only be about $400 - $450 a week. There are at least 12,000 people like this and the list of people that can’t get a property to rent keeps getting bigger. Rather than doing everything they can to make things more difficult for landlords, they should be encouraging them to buy rental properties so they don’t have to put them into emergency housing.”

Regarding this subject, on the Sunday morning with all the speakers at the front of the room to answer the 200+ participants questions, we also had a few questions for the other speakers. One question I had for Jolene which we never had time to ask was this one that I was going to ask her: - “with all the probable changes coming to tenancy laws even more biased in favour of the tenants, what are your views on lobbying against these types of things. The PIA is always trying to fight these types of changes or get petitions started. I have my views on it all, but would like to hear your thoughts about this, as we are both aligned to how law of attraction works”.

Jolene was never asked the question, so I don’t know her response but I think it would be similar to mine. My thoughts on it are yes, I agree that it’s unfair of the government to do this and it could potentially make the situation far worse than it already has. But it’s not my job to push against something I don’t want.
When people understand how the law of attraction works, they realise that the more you shout ‘no’ at something, it doesn’t make it go away. In fact, the bigger it will get and more of it you will attract.
It’s like the war on drugs, the war on violence, the war on cancer and the war against poverty. They keep getting bigger and bigger by the very focus on what they do not want!
Only by acceptance and peace in your own mind, can you deal with it and make sensible choices in the ‘now’. Mother Theresa said “I was once asked why I don't participate in anti-war demonstrations. I said that I will never do that, but as soon as you have a pro-peace rally, I'll be there.”
It’s similar to a yacht making its way through the ocean on a windy day. The person sailing the yacht knows that rather than fighting against the wind, which would have the opposite affect and get him nowhere, to simply adjust the sails.

So, getting back to the woman I was speaking with at lunch, we also chatted about her money beliefs.
By the time we finished talking, our half hour lunch was almost over.
That Money beliefs section was only 2 slides out of my presentation which had 268 power point slides in it. There was a lot of info in that one hour 40 minutes talk and many of them could have been expanded and discussed in a lot of depth.
It got me thinking after that, it may be an idea at some stage to do the same power point presentation, but to do it over 4 hours. Maybe over a morning or afternoon and during the talk, have a lot of discussion and interaction with the audience about all the topics so people really get an understanding of it for themselves.

So, today only a day after the weekend conference, we have received so many messages and emails of appreciation and gratitude from the attendees. I asked one of the people that messaged both Katrina and myself if it was ok to share his email with others as a testimonial if we ever wanted to use it. He said yes, you can use it whenever you like, so here is his e-mail: - 

“I just wanted to further extend and personally thank yourself and all presenters for such an amazing, insightful and inspirational weekend. I did not know what to entirely expect but without a doubt knew I would be in for a treat. Little did I know that it completely blew expectations out of the water and coming up for the weekend may have been one of the best decisions I could’ve made, worth infinitely more than any dollar amount. I’m gutted I wasn’t able to attend the dinner and Q&A session the following day but can only imagine the amount of knowledge that was further passed around and can see from all of the successful feedback and posts.
I was 110% engaged with every speaker, even on the topics I thought I had no initial interest in. Yourself and all of the community are also so very down to earth, it’s such a pleasure and privilege to be around. You were right about being mind-blown, I spent my entire 4 hour drive back to Wellington after the conference absolutely stunned with so much information to process.
Coming from a Structural Engineering background that I’ve since left, I’m still very early in my investment career. I developed and traded my first property in 2015 with 2 rentals now and 2 new builds in for subdivision consent on one of the existing rentals (all in Wellington). From this weekend, I am applying immediately, everything I learnt and restructuring all of my mindset and goals, which is now so much more clear.
I was going to head out this week to purchase Graeme’s ’20 rentals in one year’ book then saw you had posted on the Summit page that they would be up for purchase after the conference. I really don’t want to bother you further and can imagine how exhausted you must all be after the weekend, your post just had me hooked after you noted that Graeme would sign the book.
Is there any chance I could purchase a signed copy from yourself and Graeme? I would be more than happy to pay retail price + shipping costs. Graeme and yourself are an absolute inspiration and leading role model to me.
Thank you so, so much once again. I do hope our paths will cross more in the future.
Could you please also extend my personal thanks to Graeme. Other than publicly posting (which may have been a little long), I wasn’t sure how to get in touch with him and I have PM’d his facebook account just to say thanks.
All the best,
Mike

That’s just one of the many e-mails, Facebook messages, texts etc we’ve received and it just shows how things like this can really change people’s lives.

The feeling I got many times over the weekend was very much like when I attended the ‘Money & You’ Seminar and ‘Creating Wealth’ by Robert Kiyosaki in the early 1990’s. This was well before he wrote Rich Dad Poor Dad which he did in 1997.
The transformation for myself with those two seminars almost 30 years ago now was most likely how many of the 200 participants over the weekend felt.

It was an incredible event for me, all the helpers and the other speakers to be part of.
I’m thankful mostly to Katrina however, who kind of tricked me into speaking at it

But for the people attending as participants, it was most likely the same kind of transformational weekend for them, as it was for me attending those life altering courses all those years ago.


Safe and happy investing 

Graeme Fowler

[orion]

New Article: -

The Absolute Absurdity of Paying any Attention to House Prices or what’s in the News (June 2020).

Here are a few headlines from various news articles, most of them over the past year or two.
1. Rotorua house prices up more than 25%
2. Rotorua - House sellers cash in, making median $200k as capital gains reach record
3. Tight Hamilton housing market pushes property values up
4. Hamilton’s house prices keep rocketing up
5. Fierce competition for Hamilton homes means prices likely to rise
6. Asking prices for Waikato homes increases 74% in five years
7. Waikato’s median house price climbs $60,000 in a year
8. Tauranga out-ranks Auckland as NZ’s most unaffordable city for housing
9. Auckland – House prices shoot ahead again, as majority of Kiwis say ownership unachievable
10. Auckland – Buyers beware: House prices tipped to hit 7% in coming year
11. Auckland house sales up almost a third year-on-year, data shows
12. Hindsight is 2020: A decade of rapidly rising Manawatu house prices
13. Palmerston North house prices set yet another record
14. Housing pressure ramps up as average Palmerston North asking price cracks $500,000
15. Housing demand heats up as investors look to Wellington
16. Amid soaring house prices and rents, plans for a new Wellington suburb take place
17. Heat still on Wellington housing market and more to come
18. House prices continue to rise as listings fall in Nelson
19. No end in sight for house price rises in Nelson
20. Latest data reveals Nelson house sales up by more than 50% in October
21. Hawkes Bay centre of property price growth
22. Hawkes Bay’s property prices continue to soar
23. Median house price in Taranaki hits record in September
24. Taranaki property market leads country in average asking price increase
25. House prices soar in New Plymouth as new listings drop
26. Home values rise fasters in Christchurch’s southeast suburbs
27. Christchurch housing market is back in business
28. Southland property market reaches all-time high
29. The Hutt Valley, Dunedin and Invercargill have shown the strongest price growth in NZ over the last 12 months
30. Southland Property Market booming in 2019
31. Hastings and Whanganui are the hottest property markets in NZ right now
32. Auckland house prices boom
33. Auckland house prices make biggest jump in two years
34. Otago – House prices grew most in city no one’s talking about
35. Whanganui challenges zombie myth as house values rise 45%
36. Former down and out Whanganui suburb shatters house price record
37. Southland continues run as highest performing region for residential investors
38. The rise and rise of Gisborne house prices
39. Gisborne leads national house price growth as Auckland turnover falls
40. Taupo current values see significant 12 month increase
41. Wairarapa – No let-up in property boom
42. Masterton house prices soar out of reach

What do all these headlines mean?
What are they trying to tell you?
Can you make a decision based on any of them?
What is the intention of all these headlines?
Why do people care about house prices so much?

In all my time as an investor which is more than 30 years now, house prices is something I’ve never been interested in or paid much attention to. I’ve never thought ‘should I buy now’ because I just read a headline to say that prices in my area are soaring?
So many people ask me ‘what do you think the market is going to do?’ My answer for the last 30 years has been fairly consistent with replies such as:-
1. I don’t know
2. I don’t care what happens
3. Hopefully prices will drop
4. Why does it concern you?
5. If you did know what was going to happen, what would you do and why?

A guy I know wrote a couple of books about 15 – 20 years ago on predicting what house prices in each area would do. Also various suburbs and all these wide array of formulas, key drivers, indicators and other jargon. He also used a property clock to say where in the ‘cycle’ we are now and what to expect. He sold many books and also had a large data base of people that subscribed to a weekly or monthly update on what he thought would happen. I would often say ‘if you know all this information and what’s going to happen, why aren’t you buying a lot more properties!?’

You would think for example if you absolutely knew for a fact that XRO (Xero) shares that were $30 today were going to be $60 in 18 months time, you would buy as much as you could! You would ‘back the truck up’ and borrow like crazy!! You’d have nothing to lose if you knew for a fact what was going to happen.

So what happened to him? He ended up losing most if not all his money a few years later. How can that be you may ask? It’s not really a mystery to me as I’ve seen so many others do the same thing. They make assumptions based on nothing - and then have plans or strategies based on those assumptions being accurate. I prefer to make no assumptions and have no opinions about the market, so that whatever happens to market prices is okay with me. My strategy needs to work in all markets, not just in a rising market or a static market.

For 8 years, market prices in Hawke's Bay dropped around 30% from their previous high in 2007/2008. I thought it was great! There were so many more opportunities. All those investors that thought prices would never go down and therefore used interest only loans (I/O), thought the sky was falling. They watched their equity reduce rapidly over that time, but hoping and praying prices were going to go back up again.

By the time 2014 came around, I was able to buy a lot of properties for bargain prices as investors thought they would lose even more. That was the year I bought 20 rentals with no money down, using equity from other properties I already owned. The rent had to cover the mortgage on a 20 yr P & I loan, also the rates, the insurance and property management. It was a great year and a huge success, buying all those properties and not using any equity/cash to do so. In fact at the end of the year, I had $20,000 more than the $0.00 I started with.

Many of you will have read the book I wrote a while later detailing each property purchase and the cash-flow/yields etc associated with them.

The book has now become a best seller, selling well over 5,000 copies.

Property Myths.

Myth Number 1.
Generally, investors think that the big cities such as Auckland, Wellington, Hamilton and Christchurch will be better to invest in because they falsely believe that prices rise faster there.

Having talked at most of the property investor associations around NZ over the last 20 years or so, often I would show a graph of average prices in all the main cities in NZ from 1981 onwards. The graph shows how much on average each area increased in value per year. These included all of the above locations in the headlines plus several others.

Over time, they all had a very similar increase in value. From 1981 – 2007 each of these 18 locations increased by an average of 7.1% (Rotorua) and 9.0% (Hamilton) over that 16 years. Auckland had an 8.2% average increase per year, which was somewhere in the middle.

When redoing all the numbers last year (2019) for a weekend property seminar I spoke at, it was all fairly similar.

This time, Christchurch had the lowest increase over the last 38 years and Wellington the highest. Auckland was 6th on the list for the highest increase over the full 38 years.

While prices went up somewhere between 7 – 9% p.a. from 1981 to 2007; in the last 12 years, all locations went up a lot less and were between 4.5%p.a. and 6.5% p.a.

The figures confirm to me that each of the locations above in all the News headlines will fairly closely follow what any other location is doing over time. Sometimes, one area will increase more for a few years, then stagnate and even drop. But eventually any reasonable size city (I’ve often said - invest in any location with at least 100,000 population) will be very closely in-line with any other city.

Even back as far as I have a few figures from 1968, over 50 years ago, the relation to prices in Wellington, Hawke's Bay and Auckland are almost identical now to what they were then.

Myth Number 2.
Number two myth is to only buy property in the best location in each city, not the cheaper areas and suburbs, because you won’t get the same capital gain! Again, simply not true.

If you look at Wellington, the more expensive suburbs compared to Wainuiomata for example, the ratio between the cheaper areas and the expensive areas is the same as it’s always been.

One seminar I spoke at in Wellington in 2015, someone in the audience disagreed and said to me ‘that’s not true!’ So I said, ‘okay, where are your properties located, and what are the prices there?’ He said the location and about $500,000. I said ‘okay, what would it have been approx 20 years ago?’ He said ‘around $200,000’. I said ‘how much was the average price in Wainui at that time 20 years ago?’ He said it would have been about $80,000. I said ‘and what is it now?’ He said – ‘they’re only about $200,000 so they haven’t gone up as much as mine! Mine has increased by $300,000 and the Wainui one only a bit over $100,000.’

I said ‘well yours has gone up 2 ? times and the Wainui one has also gone up 2 ? times. If you had two of your ones in 1995, they would have been worth $400,000. Now the two of them would be worth $1 million, correct? But if you had five properties in Wainui, that would have also been $400,000 (5 x $80,000) and now they would also be worth $1 million.’ Yes, you would have more rates to pay and maintenance, but the yield or rent compared to the purchase price balances that out.

Auckland is the same; the outer suburbs will stay in-line with the inner city prices over time.

I was at one of our local HB Property Investors’ associations a few years ago, and the guy speaking up front said ‘buy in Hastings or Havelock North. You won’t get the same capital gains if you buy out in Flaxmere!’ I nearly walked out, and in fact haven’t been to another one since then. I thought, you complete $@!!&%$!!!, how could you think such nonsense, let alone tell 100 people such complete crap.

In 1981, the average price in Hastings was $40,500 and the average in Flaxmere was $24,000. Last year in 2019, the average Hastings price was $505,000 and the average for Flaxmere $300,000. An increase for both of around 12.5 times or 1,250%. Flaxmere has always had the better yields and in most cases is a lot easier to rent properties to tenants than is Hastings or Havelock North.

If you look at any big city in NZ, you will have the better more expensive areas and also the cheaper areas where more people rent than own. The ratio if you look at any of them will work out almost identical over time with any market price changes, up or down.

Myth Number 3.
The third myth held by a large number of investors is that you need capital gains to become financially free or rich. They think that you need gains to increase your equity in order to borrow more. While that obviously does help, it is not necessary at all.

The purpose (to me) of investing is to put up a deposit and then have the tenants pay off the mortgage for you, over time. That’s it. How many you buy is determined by how quickly you can get the next deposit together.

For me in early 2000, I bought and sold (traded) many properties which created deposits for long term buy and holds.

You may also save money from a high paying job, a business you own, working extra hours, a secondary job etc, all sorts of things.
Depending on how many rental properties you want to own, this may take a few years, or it may take a lot longer.

Having prices increase does help for sure, but it should never be relied on, or planned on. If you do get it, take it as an unexpected bonus which may enable you to buy an extra property here and there. But also make sure that the more debt you have, the lower your loan to value ratio (LVR) should be.

Myth Number 4.
Just because your city had a big increase in prices over the last 12 months, 2 years, 5 years or however long – does not mean that it will continue!!

This is what a lot of those headlines are about. In many people’s minds - what has already happened in the past equals what will also happen next year, the year after and the year after that!

Up until mid March 2020, in my over 50 years of living in New Zealand, there had never been a pandemic or a lockdown which prevented people leaving their homes for anything but the bare essentials. So, based on that it would be okay to assume that it will never happen! However, it did happen and sometimes unexpected things do happen to all of us.

So following along with all the headlines about events or occurrences that have already happened, has no bearing at all on what happens tomorrow!

People would have to be very naive indeed to base their investing decisions based on Newspaper headlines - although I’m sure it does happen.

In Summary.

Property is not about timing the market, it’s about time in the market.

It’s not about trying to work out what you or anyone else thinks will happen to market prices in your area.

It’s also not about trying to work out which suburbs in your area will go up in value more than any other suburb.

And it’s not about trying to pick various locations in NZ that you think will go up more than any other area.

There are still people today that haven’t bought anything, waiting for a big crash that may or may never happen. All they focus on is the doom and gloom articles posting many of them to their own Facebook page, or Property investor groups on Facebook, trying to convince others (but moreso themselves) that they should sell everything now or if they don’t own anything, wait.

It is so simple; buy a property that makes sense based on where things are at today!

Does it make sense now or doesn’t it?

Nothing else matters

[donna]

Thanks Graeme - a great read.

[Perry]

An interesting follow-on from Graeme's item, two posts back.

I will head it . . .

Myth No. 5
Economists know better than anyone!

What's really going to happen with New Zealand's house prices?
28 Jun 2020

If you own a house, or are thinking of trying to get into the market, you?ve probably been watching forecasts of house price falls with a wary eye. Stuff asked some of the country?s leading economists what they predicted. Bad news for those hoping for clarity ? there are a lot of conflicting views.

No surprises, there, eh what?

The only person who got it right was 'our' Shammy.

Shamubeel Eaqub said that he had no idea. ?I really don?t know.?

Full marks for that candid admission.

The rest of the e-con-o-mists just filled the air with empty electrons and speculative guesses.

Is it fair to wonder why Stuff didn't ask some property investors?

[BlueSky]

Hi Graeme
Hope things are well. Missed your posts here , how is life in the COVID world ?
If you were to start today what will you do different ?

[BlueSky]

At what point do you say , residential property doesn't make sense anymore, if you have the money buy commercial ?
What are your criteria's for commercial. ?

[orion]

Hi Blue Sky, looks like the website here has changed, haven't been on here for quite some time.
I started a Facebook group a few years ago which is very active, so don't get on here much at all now. It used to have a banner at the bottom of my posts but looks like it has been moved now.
Starting again, I wouldn't do wraps, they were good for cashflow at the time, but not really possible to do now anyway.
I would still do pretty much the same, buy and holds, trades and the only thing different would be to start buying commercial a lot sooner.
Residential isn't as wonderful as it used to be with such low yields, but interest rates are so low that it helps considerably.
It's still about leverage, buying something that someone else pays the mortgage off for you. So in that respect, it would still be the same idea, just may take a bit longer.

Criteria for commercial - location that would be reasonable to re-tenant when tenants move out. I like to buy above 70% NBS, there's money to be made if you buy something under that cheap enough and bring up to code at a reasonable cost.
Look at $ per sqm, is it currently rented at market price, or above/below, Those are a few basics anyway

[donna]

Hi Graeme,

Yes, we had to upgrade the software and we're still getting used to it. I see you found how to add your signature.

PropertyTalk is not Facebook, and your group is fantastic. What we do have with PropertyTalk forums is they're unique in NZ with nearly 20 years of property investing talk.

We will be investing more into it - and aim to have it here as a free resource for many years to come.

cheers,

Donna

[Bluecoat]

I understand you bought a motel, how is that going.
Life has a way of throwing curve balls in the form of Covid this time, that too hopefully will pass.

[orion]

Going really well thanks. A couple of awkward months when I took over as lockdown started, but other than that the lessees are doing an excellent job there and loving it

[orion]

Money Habits, Saving, Investing (Feb 2021).

Money is not a subject that’s taught in schools, nor are money habits, financial literacy or investing.
In fact, if you ask people to write down the first 10 words that come to mind when they even hear the word ‘money’, it often brings up an association with things like scarcity, greed, hard to get, working hard, saving, credit card interest, hire purchase, debt etc. Not words that will inspire, uplift, encourage or motivate anyone at all.
Why do people have such a bad association with it? Some of it may be their upbringing if their parents struggled to pay the monthly bills. Maybe both parents were working 50 hours a week or more just to make ends meet. It could be a wide range of learned behaviours and beliefs, that over time – many people have come to have a terrible association with the word ‘money’.

By far the majority of people will work 40+ hours a week from their late teens to at least when they are 65 years old - and still have very little to show for it.
Some will buy a home when they’re young in their 20’s or 30’s rather than rent, and then may upgrade in a few years time. Often what happens is people trade up a few years later with a growing family and then purchase another home that stretches their borrowing capacity to the limit. So, a few years later when they want that bigger home, they take out another 25 year loan, having paid mainly interest on their first loan, but not much principal. Their original goal of having paid off their home in 25 years has now been extended by several years. And this usually happens many times in people’s lifetime. By doing this (rather than taking a shorter term loan on their 2^nd, 3^rd or 4^th homes), they borrow again to their maximum limit, so therefore taking out a new loan again for 25 years. By repeatedly doing this, not only does the end date of being mortgage free get pushed out each time, but they end up paying a lot more interest than is necessary.

This sort of basic information is not ever taught, nor even talked about when applying for a loan for your 2^nd, 3^rd home etc. By having an original goal of being debt-free on your mortgage on your first home in say 25 years, you would do things differently - if sticking with that plan.
So let’s say, 5 years later when this family wants to buy a bigger home, the automatic question to the bank that people usually ask is “how much can we borrow” instead of saying “we are now going to be mortgage free in 20 years time, can you work out how much we can afford on a 20 year loan please?” Then, if they want to move again in another 5 years time, the question to ask the bank would be “we now have 15 years left until we are mortgage free, could you please work out our borrowing capacity based on that time-frame?”
It will of course be a lesser amount each time that they are able to borrow compared to taking out a new loan for 25 years, but the point is not to buy the most expensive house you can afford, and the original goal remember was to be debt free in 25 years.

That’s all well and good for someone that has been able to save a deposit and actually buy their first home. What about all the people that don’t even get that far? Today like no other time in history, saving for a deposit to buy your first home is getting more and more difficult. Whereas 20 – 30 years ago, pretty much anyone that seriously put their mind to it could save up a deposit of 5 - 10% as a down-payment for their first home. Now, with prices being as high as they are, it’s still possible to do this, but just no-where near as easy as it once used to be.

There are many factors that contribute to prices being as high as they are today, and there is no simple fix that will solve everyone’s problems. Some of these factors are low interest rates, a growing population, demolishing many housing NZ blocks of flats/houses etc and a lack of new houses being built. Also, the human emotional factors including scarcity and the fear of missing out creates a lot of competition amongst buyers, forcing prices up like never seen before. This happens with novice property investors as well. They often ignore the actual numbers that make sense and therefore pay prices for properties seemingly determined by - as much as the bank will allow them to borrow.
Some of the other contributing factors are the many policies the current government introduces to try and fix the perceived problems they see. Unfortunately, almost every new rule, policy or change they make seems to have almost the opposite effect. Given the current government’s history (and most previous Labour Governments) of trying to rob the rich to pay the poor, and knowing what these effects have on the economy and property especially, many property investors I know always vote Labour because of this. Not because they agree with their policies, but because it makes them wealthier. Prices go up and so do rents with seemingly everything they introduce, property wise.

For me, a conversation on house prices or what they might do is very boring and something that has never interested me.
When I buy any property, whether it’s residential or commercial, it has to make sense to me whether the price of it stays the same forever, or goes down. I always assume when buying any property that the value will stay the same or drop, not increase. The first property I ever bought in my 20’s, I sold for a $40,000 loss 7 years later. However, over the last 30 years of investing, generally prices have gone up, and of course there have been times when prices have dropped as well. During the GFC, prices where I live in Hawkes Bay slowly dropped by 25 – 30% over about an 8 year period. Speculators lost a lot of money, as did a huge amount of investors with short term narrow minded thinking. There were so many bargains I bought during that time because many investors thought the sky was falling. They were investing on assumptions and panicked when things went differently to how they thought things should go. For me, knowing that the numbers all worked and the overall purpose of investing, buying at that time made so much sense. Today with prices so high and yields so low, it is a lot more difficult to make it work for the average investor, and personally I haven’t bought any residential properties as rentals for a few years now. Commercial/industrial with the right properties makes a lot more sense to me today.

With prices so high as mentioned, saving for a deposit is now more difficult than ever. There is Kiwi-saver which is very helpful and creates a forced type of saving which works really well. Without this, I think even less people would be able to buy their first home today.

Saving money is a big subject in itself. Lots of people will save for something, like saving a deposit for their first home. This is a good use of savings. Others will save to spend, in other words save up for something and then spend it on a holiday, a car, or something for the house etc. It’s not really saving as the end result or intention is still to spend it. Then there’s saving for one’s retirement, so ‘saving to save’ and then spend it many years later. Saving for this to me has always been fairly pointless, although better than doing nothing of course. By understanding the concept of money, investing and leverage, it makes a lot more sense to put these financial principles into action, as opposed to saving a few dollars each week.

By learning about these things and putting the fundamentals into action will over time likely be far more rewarding than saving. If you do not understand leverage, you work too hard and most likely will work for your entire life. A lot of people are happy to do this as they see investing, owning a business, buying rental properties etc as too risky and rather stressful. That is perfectly fine as we are all different. But for those that do want more, they can still work at a job they love or even simply tolerate, as well as understand about money, finances, leverage, investing etc.

I haven’t had a job with paid wages now for 30 years. This was back when I was a mechanic at age 26, having received my last pay cheque. I learnt early on about finances, leverage and investing principles. And although there have been times I have lost huge amounts of money, I learnt each time from it, making me wiser and more financially intelligent. I loved being a mechanic, but at the same time I was also enjoying learning about basic financial skills, skills and ideas that are not talked about or taught in schools.

To give you an idea of the saving dilemma, let’s say you had a fairly good paying job and were able to save $1,000 a week. That may sound like a huge amount of money to save each and every week, regardless of your expenses. After a year you would have saved $52,000. Sounds ok, but not really that much. After 10 years, that’s a little over $500,000 and just over $1 million after 20 years of serious saving (you would have the same result of saving $500 a week for 40 years, an entire working life almost).

That may be enough to live on for a quite a few years, but do you know many people that could save $1,000 a week for 20 years?!
By using and putting into place over the last 30 years the financial principles I mentioned, my financial position now is equivalent to saving that $1,000 a week for 500 years (over $25 million). It would also be the same as saving $500 every week for 1,000 years.
There is nobody on earth that is going to even live to 500 or 1,000 years old, nor would they probably want to, but it shows there is a huge difference between saving and investing.
A quote I remember from many years ago from Robert Kiyosaki in his teachings in the early 1990’s was ‘savers are the losers.’ What he meant by that was by trying to save money - you are actually losing it. You lose the value of it by inflation eroding it away. So, he didn’t have a very positive view of ‘saving’ money; if that was indeed someone’s way of getting ahead or planning for their retirement. While it’s no doubt better than doing nothing, there are better options if people do want to learn more.

A very basic overview of one of the principles is this.
You can do four things with both time and money:-

1. You can spend it – self explanatory
2. You can save it – save money, also save time by doing things faster
3. You can invest it – invest time into education, learning, reading etc, invest money in various ways.
4. You can leverage it – leverage means doing more with less. For example, people who run a business leverage their time by having employees do work for them, so they don’t have to do it all them self. By charging their time or making them more productive than what it costs to hire them is ‘time leverage’. When you have rental properties whether it’s residential or commercial, the rent that the tenant pays you helps to pay your mortgage(s). This is also time leverage.

You can leverage your money by using a small amount of your own money to borrow a larger amount of money from the bank. This may be to buy a property to live in, or a residential/commercial/industrial property, business etc that someone else helps you to pay for.

By understanding these concepts, especially ‘leverage’ and using it correctly, you will be well on your way to having a better understanding of money.
You want to be a good custodian of money, not an enemy to it. Many people today have a very poor association of money and think it’s dirty or evil. By having that kind of association, they think it’s bad to have it, and so have to get rid of it as soon as they can. This results in spending money as soon as they have it, and often before they have it. In other words, putting depreciating items such as furniture, TV’s, washing machines, cars etc on hire purchase, credit cards etc. Compound interest according to Albert Einstein is the 8^th wonder of the world. Used correctly, it’s incredible what compound interest will do. Unfortunately, many people use it the opposite way around and start creating unnecessary debts using credit cards, hire purchases etc which also compounds meaning they can never get out of debt. Again it’s all about education; using very simple techniques and habits that can make the difference between being forever struggling financially and in debt to creating financial abundance.

I think the majority of people today want a comfortable, easy life with not too many dramas, hassles or stress. For this reason, they do not want to learn about financial matters, money, investing or even talk about it. That is perfectly fine and there is nothing wrong with that as everyone has different priorities in life. But there are a few basics that everyone can learn that over time, will make a world of difference.

For those people that are motivated to want to learn & understand more and are not afraid of being wrong at times; learning about money and finances can be very rewarding. It may mean going outside of your comfort zones at times, taking a few risks here and there, getting comfortable with large amounts of debt and also possibly making mistakes along the way. Maybe your friends or family will laugh at you and think you’re crazy and try to talk you out of it. Usually, it’s more to do with them and their own insecurities, possibly even thinking to themselves ‘please don’t leave me behind’.
To me, the negatives are very small compared to the potential massive rewards that can come from educating yourself about money and finances.

Graeme Fowler

[PC]

Thanks Graeme.
Some great words of wisdom there.

[McDuck]

Yes, a lot of very useful stuff in that piece.

I don't agree with most of it, but hey, everyone has their own take on things.

Poor impulse control was one of the main things I noticed about people in debt.
Second thing was denial and refusal to listen to good financial advice.

so .. it's almost impossible to change ingrained behavior, financial or otherwise.

And just out of curiosity, I asked people what they associated with " money"
most people had positive connections. words like holiday, car, work,clothes, goals etc came up.

so you know.
You've told one side of the story only.

Balance gives credibility to a piece.