Advice for a young investor just getting into property

[TheRealOne]

Hi all, I am currently in my early twenties wanting to buy my first IP. I am currently working full time, while still living with my parents who are charging a small board fee. All of my income has been going straight into my bank account, and apart from small expenses, most of it stays there. At the moment I have a large sum of it in a term deposit which is about to mature soon. I have been working for around two years now and have decent cash saved, and my parents have offered to help me buy my first property. Obviously I will be responsible for the repayments and looking after all matters relating to the property. I am looking for advice on what my approach should be. I can't really ask huge number of questions on one post, but really the following two are the ones I really want answers to.

• People say make sure the numbers work out. Are these "numbers" the gross and net yields, and the repayments being compared to the rent (i.e. negative/positive geared), and the cash flow?
• My investment approach so far has been to look in Auckland only, as I have lived here all my life and know it quite well. I am focused more on central Auckland units which are near good transport facilities, where I can get good tenants with decent rent. However I have read a lot of people saying to look at the regions as the yields in Auckland are too low (which I too have found). The main thing stopping me is that I don't know much about the regions at all. e.g. Just like Auckland has good and bad areas/streets, so will all of the regions. How do I find out this information when looking at the regions? I could go to real estate agents in the regions, but they all work for the seller so likely won't be honest.

I would really appreciate any advice.

[Cpt707]

Forget about New Zealand...buy a Home on some remote Scottish Island....!!

[DaveW]

It is good advice to invest near where you live because it will make it easier for managing and improving the property, learning the ropes so to say. Once you have more experience then you can buy in different locations using hired help.

[Cpt707]

You always Learn" faster by stepping outside your comfort zone...He has "Time On His Side".

[AlexL]

Good on you for starting at a young age, you will do better than most of your peers if you keep working on this - but life isn't a race either!

• People say make sure the numbers work out. Are these "numbers" the gross and net yields, and the repayments being compared to the rent (i.e. negative/positive geared), and the cash flow?

Yes, these definitely need to work and ideally you want the highest yield you can achieve providing everything else makes sense (locations, population etc.)

• My investment approach so far has been to look in Auckland only, as I have lived here all my life and know it quite well. I am focused more on central Auckland units which are near good transport facilities, where I can get good tenants with decent rent. However I have read a lot of people saying to look at the regions as the yields in Auckland are too low (which I too have found). The main thing stopping me is that I don't know much about the regions at all. e.g. Just like Auckland has good and bad areas/streets, so will all of the regions. How do I find out this information when looking at the regions? I could go to real estate agents in the regions, but they all work for the seller so likely won't be honest.

It's definitely easier if your property is in the same city you live in. If you decide to look outside, then it would be a good idea talking to a buyer's agent, for example ifindproperty. Nick G on here is part of that group and I would recommend speaking to him about it.
If you decide you want to stay investing in Auckland, you will need to find very creative ideas to increase the yield, consider; renting bedrooms out by the room, adding bedrooms in large spaces, buying multi income properties, airbnb, renovating with rent increases. Other more advance strategies would be like subdividing and selling land/houses, building multi income etc.
Cpt707 mentioned you have time on your side - they are right, some times just being in the game will put you ahead (capital gains, rent inflation) and can fix the mistakes you will inevitability make.

[Don't believe the Hype]

Buying an investment property is a big decision. Sounds like you've done a lot right up to now. Managed expense, lived well within your means and as a result you has some excess cash. You want to turn that excess cash into more excess cash in order to fund something at some point in the future. If this isn't the case then you have to ask yourself why you want to invest in property.

With this in mind I think you need to start by building your 5, 10 and 30 year plan. What is it that you want to achieve in that timeframe (not just financially) once you've make these decisions you should document them as best you can and review them regularly - i review mine about 4 times a month - some would say that's a bit obsessive but it's worked for me and while there has been changed along the way the broad direction remains unchanged and the outcome has exceeded the original plan (maybe I was a touch conservative).

Understanding what you want to do in 10, 20 or 30 years will help you make decisions about what to invest in (maybe not even property) and even where you want to invest.

My suggestion is don't rush in... you do have time on your side but if you make a misstep early it can set you back far more than any level of property price appreciation in the short term.

As an example - I bought my first property (before I build my long term plan) in Sydney Australia as it was where I was living and I thought it would be easier to manage... I was not from Sydney, my alternative option was to buy in my home city... 6 years after I bought in Sydney the property was still about break even and worth about what I paid for it. It was a small 2br unit so not fit for me to use as a home and I no longer lived in Sydney... not a great outcome.

I was luck enough to have the cash flow to not have this hinder my planning but many wouldn't be so fortunate. We no longer own that unit and while we didn't lose money on it it wasn't the best decision I've made.

Build a clear plan make sure it considers your changing needs and buy an investment that is inline with your plan.