Olly Newland, veteran property investor, shares his life lessons learned and points out common mistakes any potential investors should be wary of.
From an early start people have asked me, “How did I get into property investment?”
From a very early age I found that I loathed working regular hours. How this came about is a complete mystery as I came from a family that respected hard work, security and jobs for life, and property was never a topic of discussion.
I think it was the advent of Rock ‘n’ Roll in the mid-50s that did it. Everyone wanted to join a band. I had learnt piano and luckily had a musical ear. I become rock drummer (pianists were a “dime a dozen”) and had the best years of my life playing gigs in rock, jazz, and rhythm and blues bands.
With that came independence, enormous fun, and more money from playing 1 or 2 gigs a week than a lot of other workers. I bought my own car aged 16 and a section by age 20. Working a regular job was unthinkable.
Around that age an advert in the paper caught my eye: a house in New Lynn for £3,000 on £500 deposit and the balance at 1%. Within 18-months I has trebled my equity by paying the mortgage down and re-sold it for a £1,000 profit. The cheque I received after settling all debt was more than 3 years average salary.
I was hooked and went on to buy, do-up and re-sell scores of houses in the following years. That is, until I discovered the joys of commercial property and that’s another story.
The current property boom in Auckland and some other areas is unprecedented, having gone on for so long compared to other booms. It will continue so long as the economy is sound, immigration continues to flow in, and interest rates stay low.
However, I detect a weariness among investors who simply cannot make sense out of the numbers when it comes to price versus income.
Home owners who are moving up or down the ladder are far less likely to be concerned about their homes and its potential rental income, but investors are acutely aware. So are the banks who are not happy to lend to investors who need to prop up a property investment that is cash flow negative.
The weariness will be reflected in the eventual slowing of price increases, although home owners will off-set this to a large degree.
History teaches us that one day there will be some event, either locally or internationally, that will slow the market more rapidly.
I am picking that deflation will be one of the drivers of any slow down. If you think inflation is bad, just wait until you get caught in the quicksand of deflation.
Is investing in property a goal for all Kiwis? For me, everybody should own a piece of land they can call their own. It creates a more stable society and gives people a sense of achievement and a place to call “home”.
Sadly many more people are forced to be renters because of various regulations promulgated to hold prices down. But you cannot impose controls on a part of the market without distorting the rest of the market.
People can make horrendous mistakes when buying property of any class. The most common mistake people make is to fall in love with a property and pour in money with no regard to what value they get in return. It matters less if the property is your home, but for an investment it can be fatal.
I have seen investors duped into thinking that if they renovate a rental property it will automatically increase in value. In many cases the money is wasted, and if the property is rented out any upgrade is reduced inside 2 years as tenants are notorious for not looking after a property that is not their own.
Another common mistake is not to check the LIM reports properly and the type of title (unit, strata, freehold, leasehold, cross lease etc.), which can make a big difference to value and saleability.
With commercial property, a common mistake is not to read the fine print of the lease and overlook what are the responsibilities of the tenant and the landlord, especially when it comes to who pays what for outgoings and expenses.
Westpac has info and tools to help you navigate the house hunting process: