Financial intelligence
Buying real estate when prices are rising may be dangerous for the unschooled
Graeme Fowler was a 24-year-old mechanic hungry for wealth when he learned his first painful lesson about property investment. With Bob Jones’s book Jones on Property under one arm, and a real estate agent twisting the other, he bought the first property he saw in Wellington’s Stokes Valley. He lost $40,000 on the two three-bedroom flats as rents in the low-end housing area fell year after year.
But a bit of red ink wasn’t going to deter Fowler, who was convinced property dealing would make him rich. Today he’s 40, twice retired, and wealthy enough to make it thrice if he knew he wasn’t going to be bored silly. He lives in Havelock North and has bought 100 properties in the past four years. He currently owns about 60 and deals in both long-term rental properties and do-up sales. He also owns the Mr Rentals home-appliance rental franchise in Hawke’s Bay and has half shares in the franchise in Palmerston North and Wanganui.
Fowler’s first investment bombed financially because he was knowledge-poor and didn’t have investing rules, he says. “It wasn’t failure. It was just what I hadn’t learned.” By the time he sold the Stokes Valley property seven years later he was a high achieving real estate salesman in Wellington and had sold a successful network marketing business. But it is knowledge, not money, that makes a successful investor, he says.
“The higher your financial intelligence, the less money you need. Now, if I lost everything, I wouldn’t need money to make more money. I would start with a business first and build up a good cash flow to put into property. A lot try to make money solely on the property and struggle. If you can’t save you’re relying on capital gains, which I think is very dangerous.”
Fowler, who this year produced a book on property investment, New Zealand Real Estate Investors’ Secrets, banks on a property’s value falling after purchase. If he gets a capital gain, that’s a bonus. All his property loans are on a principal and interest repayment or revolving credit basis, which increases his equity every year, he says. Investors who plan to pay off the interest solely with any capital gain, risk losing any benefit if that doesn’t happen. Continually borrowing 80% to buy and sell in strong markets is also dangerous, he says. If the market drops 20%, you can lose everything when the bank decides you’re overextended.
Fowler believes it’s important to fix interest rates, he doesn’t try guessing what floating rates might do. But if rates rose too high, he might sell some property “just to ease my mind a bit”. When purchasing for a long term “buy and hold” strategy, he shops for a property that’ll need little maintenance and was built after 1960. A sell-on proposition can be a lot older.
Up until recently Fowler managed all his properties. Now he has a manager so he can concentrate on doing what he’s best at — negotiating purchase deals. That’s where the money is made, he says.
Buying real estate when prices are rising may be dangerous for the unschooled
Graeme Fowler was a 24-year-old mechanic hungry for wealth when he learned his first painful lesson about property investment. With Bob Jones’s book Jones on Property under one arm, and a real estate agent twisting the other, he bought the first property he saw in Wellington’s Stokes Valley. He lost $40,000 on the two three-bedroom flats as rents in the low-end housing area fell year after year.
But a bit of red ink wasn’t going to deter Fowler, who was convinced property dealing would make him rich. Today he’s 40, twice retired, and wealthy enough to make it thrice if he knew he wasn’t going to be bored silly. He lives in Havelock North and has bought 100 properties in the past four years. He currently owns about 60 and deals in both long-term rental properties and do-up sales. He also owns the Mr Rentals home-appliance rental franchise in Hawke’s Bay and has half shares in the franchise in Palmerston North and Wanganui.
Fowler’s first investment bombed financially because he was knowledge-poor and didn’t have investing rules, he says. “It wasn’t failure. It was just what I hadn’t learned.” By the time he sold the Stokes Valley property seven years later he was a high achieving real estate salesman in Wellington and had sold a successful network marketing business. But it is knowledge, not money, that makes a successful investor, he says.
“The higher your financial intelligence, the less money you need. Now, if I lost everything, I wouldn’t need money to make more money. I would start with a business first and build up a good cash flow to put into property. A lot try to make money solely on the property and struggle. If you can’t save you’re relying on capital gains, which I think is very dangerous.”
Fowler, who this year produced a book on property investment, New Zealand Real Estate Investors’ Secrets, banks on a property’s value falling after purchase. If he gets a capital gain, that’s a bonus. All his property loans are on a principal and interest repayment or revolving credit basis, which increases his equity every year, he says. Investors who plan to pay off the interest solely with any capital gain, risk losing any benefit if that doesn’t happen. Continually borrowing 80% to buy and sell in strong markets is also dangerous, he says. If the market drops 20%, you can lose everything when the bank decides you’re overextended.
Fowler believes it’s important to fix interest rates, he doesn’t try guessing what floating rates might do. But if rates rose too high, he might sell some property “just to ease my mind a bit”. When purchasing for a long term “buy and hold” strategy, he shops for a property that’ll need little maintenance and was built after 1960. A sell-on proposition can be a lot older.
Up until recently Fowler managed all his properties. Now he has a manager so he can concentrate on doing what he’s best at — negotiating purchase deals. That’s where the money is made, he says.
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