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Getting Started in Property Investment by Graeme Fowler (2015)

Updated: Oct 7, 2019

Disclaimer: Nothing is this article is meant to constitute financial advice of any kind, and is the opinion of the author only. Seek professional advice before making any financial decision.

It’s now over 25 years ago that I got started in property investing, and I knew virtually nothing about property – except that I wanted to get rich from it!

I ended up losing about $40,000 on my first property, but luckily I did learn a lot from it.

I made many mistakes along the way and it was really no wonder as I was pretty clueless when it came to all things regarding property investing.

Back then, there wasn’t a lot of information around, so it was more of a trial and error thing for me for a few years. There wasn’t anyone I knew who I could ask about property or get their opinion about something, and virtually nothing written by NZers on the subject.

I remember a friend of mine inviting me to go see an older guy who apparently was very experienced and successful in investing. It was a year or two after I bought my 1st rental and I still knew almost nothing.

He talked to us about property investing and how prices always double every 7 – 10 years, and it was the best thing you could ever do.

Listening to him, it assured me I had done the right thing as well - by at least starting to invest in property.

He also talked to us about commercial property. He had set up a syndicate and was getting 100 people to put in $3,250 (from memory) each into this fund and we would all own 1% of the building. The guy who introduced me had owned property for longer than me and bought two of these units in the syndicate, so I decided to buy one as well.

At the time, the guy running this syndicate already had a building in Central Wellington which was available to buy shares in, and this is where our money was invested.

He also showed us a few other properties he was making offers on and he was going to do the same with lots of properties, as people invested with him.

It all sounded really good, until about 5 years later when I got a letter to say the company was in liquidation. Several years later I got a cheque in the post and at least got most of the money back that I had put into it.

The guy I looked up to who ran the investments apparently went bankrupt.

At the time of hearing the company was in liquidation, it really surprised me. He sounded like he really knew what he was talking about and was a very wealthy man.

This was a long time ago now, sometime during the 1990’s. That was the last I heard of the property investment guru guy that I once looked up to, until a couple of weeks ago when I heard his name in the background on the TV News.

It was to do with a deal he had done in 2008 with his son in law Jonah Lomu. His daughter had married Jonah which I also had not realised until I heard it on the News.

This guy had bought a property for $900,000 and a few months later, while the GFC and property prices were dropping, sold it to Jonah’s trust for $1,580,000. A profit of about $700,000. The property apparently was only worth around $850,000.

While reading about what happened after further looking into it, the property expert I once thought knew it all went bankrupt again in 2012.

I don’t know why he was bankrupted twice, but it is interesting looking back now as to how naïve I was when I started investing in property. Also, just how many beginning property investors often have no idea where to start, who to talk to, or even why they are getting into it.

I think the biggest thing to ask yourself if you are starting is ‘why’?

Is it because it’s a popular thing so it must be good?

Is it because your friends are doing it?

Is it so you can own property for a while and then sell and hopefully double your money?

Is it more of a long term goal to have retirement income, or is it just to supplement your other income?

Is it because you dislike your job?

Is it because you love property and have a passion for it?

There are so many reasons that people have, none of which are right or wrong. However your ‘why’ is essential to know for yourself.

A big enough ‘why’ or reason for what you are doing will get you through when others may give up, get bored or lose patience.

Or you may have made assumptions such as the guy I looked up to had done, that property prices always double every 7 – 10 years.

Here are some things a new investor will probably look at, consider, and ask themselves what is the best option to do here?

This is after they have a big enough ‘why’ they want to invest in property.

1) How many properties do I want to own?

2) In what location(s) will they be?

3) Is it best to buy in my city, or outside my city?

4) Should I look to buy properties overseas?

5) What if my city/town is too small and lots of properties are vacant?

6) Is it best to look for areas that have gone up in value more than others, or areas that have had no growth for a long time?

7) Is it best to buy positive cashflow properties, or negative cashflow properties?

8) Do I need the properties I buy to go up in value in order to be successful?

9) How much cashflow do I want from these properties?

10) Do I eventually want to pay off all the mortgages on each property?

11) What is the best option to finance them – Interest Only, P & I, revolving credit or a combination of these?

12) Should I buy new houses as rentals?

13) Should I buy older character homes for rentals?

14) How do I know what type, construction or age of property is best to buy?

15) How much deposit will I put into each property?

16) Will I ever refinance the property?

17) What is my strategy if prices go up?

18) What is my strategy if prices stay the same?

19) What is my strategy if prices go down?

20) What happens if interest rates go up a few percent, can I still pay the mortgage?

21) Should I join my local Property Investor Association?

22) Is trading or renovating properties an easy way to make money?

23) Do I need to review my properties regularly?

24) Do I really believe I can be successful?

25) How will I handle things if I make mistakes?

26) What will my family and friends think of me doing this?

27) Does my partner support me in this, or are they against it?

28) What entities or structures should I use - a trust, my own name, a company or something else?

29) What books should I be reading?

30) Do I need to attend any seminars to help me get started?

31) Should I pay for a mentor to help me one on one?

32) How do I know if the mentor is successful or not - or if they just make money from mentoring me, but not from investing themselves?

33) Should I use a property finder to find properties for me?

34) How much time do I have a week I can invest into learning about property and looking at properties to buy?

35) Should I do the maintenance on my properties myself to save money?

36) Will I manage my rentals myself, or use a property manager?

37) How do I know if I’m getting a good tenant and do I need to do a credit check or any other checks?

38) Do I charge a bond and if so how much?

39) How do I know how much to allow for maintenance on my properties each year?

40) Who should I insure my properties with?

41) Do I need malicious damage cover in case the properties get damaged?

42) How much excess should I have on each property for insurance?

43) How does property compare to shares and how do I find out that sort of information?

44) What yield do I want to achieve (annual rent divided by purchase price) when buying my rentals?

45) What is ROI (Return on investment)? And is it important?

46) How do I know what are the best suburbs to invest in?

47) Do I need to avoid any particular streets?

48) What agents and real estate companies should I be talking to?

49) How do I know if the agents are telling me the truth or just wanting to sell me a property?

50) How do I get them to call me when they find a suitable property and not other more experienced investors?

51) Should I talk to the banks myself to arrange a loan, or should I use a mortgage broker?

52) Are 1brm, 2brm, 3brm or 4brm properties easiest to rent out to tenants?

53) Should I rent the property by the room or rent to one family like most landlords do?

54) Should I buy apartments or houses?

55) Or should I buy multi-unit blocks?

56) How do I get to know and understand market prices?

57) Do I need to pay for a registered valuation, and how accurate are they?

58) What’s the difference between a property’s registered valuation, an E-Value, its government valuation (GV, CV or RV) and how does it relate to what the asking price is?

59) Should I buy properties that need work to be done on them or something that needs nothing done?

60) Is it best to buy properties on my own, or in a partnership with someone else?

61) How do I find good trades-people to deal with?

62) Who is a good accountant I can use that specialises in property investing?

63) How do I find a good lawyer and how much should I be paying?

64) When making offers on properties, how do I know what clauses to use?

65) Do I need to get a LIM report?

66) Should I get a builders report?

67) Do I need to have my finance approved before making any offers?

68) Is there a good time to get into the market?

69) If I wait too long before I start, will I miss all the opportunities?

70) What was my ‘why’ again?

These are just some of the questions a beginner may be asking before they are comfortable buying their first rental property.

Some will want all the answers before doing anything, and may never even start.

Others like myself started with nothing more than a ‘why’ I wanted to invest.

There is no right or wrong way to start and the above questions can be answered in many different ways depending on what you want out of it.

And as you learn more and understand property better over time, there are different levels of understanding to the questions above as well.

So far, there have been seven distinct plans or goals I have gone through over the last 25+ years, and the goals have changed over that time.

Your goals don’t have to be set in stone. They can change over time as you get more clarity and know more what exactly you do want, or unexpected circumstances happen like they did with me.

My 7 phases so far are as follows:-

(i) Get rich in property – that was it! (approx 1989)

(ii) Have 10 properties fully paid off by the time I was age 45 with each property giving me about $200 a week after expenses, so approx $100,000 income in total (1994 – 1999)

(iii) Own 60 properties, although when I did have 60 properties most were rent to buys, or bought as trades and had not yet sold. About 20 were buy and holds at end of 2005 (2000 – 2005)

(iv) Not go bankrupt! After an appendix operation and 10 days in hospital, I came out high on drugs and bought about $6 million worth of property in less than two months. The following year I lost over $1.5 million because of it, as well as having $70,000 negative cashflow a month for quite some time. Luckily my foundation was solid, but my property portfolio was reduced down to 40 properties (2006)

(v) Consolidate, then starting to rebuild, followed by a separation with a payout to my ex. Now reduced down to 35 properties, 25 of which were buy and holds (2007 – 2011)

(vi) Start to slowly rebuild again . Back to 40 properties (2011 – 2013)

(vii) Use a new strategy with a new trust and buy 20 properties where the rent had to cover the mortgage, rates, insurance and property management on 20 year P & I loans. Now up to 60 long term buy and holds, 70 properties in total. (2014 - 2015)

This is where I am currently, the goal being to have all mortgages paid off on the 60 rental properties in less than 20 years, the others that were bought as trades to be sold.

Over time, this goal may change as well.

I think ‘time’ in the property market is more important than ‘timing’ of the market.

Also, at some point you need to make a start if you are at all serious about investing.

People tend to fit into two categories when it comes to starting out in property investment:

1) Those that just get out there and do it. These people learn fast and are not afraid to make mistakes along the way. They know experience will always beat theory.

Their downfall is that they can act too soon, buy properties that don’t make sense and lose a lot of money quickly.

2) Those that want all their questions answered and then think of new questions. These people often have been conditioned through the schooling system. They believe it’s bad to make mistakes. They do everything they can to learn as much as they can in order to not make a mistake. The fear of making mistakes can prevent them from ever starting to invest, and then come to the conclusion that it’s just too risky.

School teaches us not to make mistakes, but in reality we need to make mistakes and find out for ourselves what works and what doesn’t.

In my book ‘NZ Real Estate Investors’ Secrets’, I interviewed 14 people over the two books, and all the investors do things differently and want different things from investing in property.

Once you so decide to act, you are now taking action and learning as you go.

After a while you will then start to gain traction. After you get some traction, eventually it becomes easier for you, and then finally you have attraction. This is where you really get momentum, and it becomes very easy and effortless.

At this level, people will come to you and ask you questions, what to do, and how to get started.

It’s like a plane taking off on the run way. It moves off very gradually and slowly, it takes a huge amount of energy, noise and effort just to get the plane to move. Then it starts to move slowly along the runway and then starts to develop some speed. Eventually it has enough speed for lift off. It gets off the ground even though it may have a few little wobbles for a while. It is now air-born and flying. Eventually it will get to altitude and be flying almost effortlessly and with great speed. It’s only at that point the pilot can ease back, conserve energy and the plane will still fly easily and effortlessly.

In property investing, most people to want to be at altitude before they even take off the ground. It doesn’t work like that.

My thoughts on the best way to get started are this:

1) Seriously ask yourself ‘why’ you want to invest in property, what is your big ‘why’? A ‘why’ big enough that will keep you going when things get tough and you feel like quitting.

2) Think about what you want from investing, i.e. how many properties you want to own, how much income from them do you want, and a rough idea of when you want to achieve it by.

3) Read what you can on property investing, talk to a few people that have done it and been successful over at least 15 – 20 years. This can be a minefield too. Investors like me that have been investing for a long time can be stuck in our ways of what works for us. You might talk to 10 successful investors and they all tell you something different, so it can get very confusing.

4) Listen to everyone, and then make your own mind up about what makes sense to you.

5) Have a basic plan and a strategy of how you are going to go about it.

6) Start looking at properties that are for sale that may be suitable for investment.

7) Talk to agents, lenders, accountants, lawyers, property managers and start to build up a good network of people that you can work with over a long time.

8) Rethink your ‘why’. Are you really clear before you start investing?

Also, are you happy in all other areas in your life? If not, you may want to sort those areas first as these distractions can cause you many unseen problems. Whether it’s a job you’re in that you don’t enjoy, your health, poor personal money management, or a relationship that’s not working and taking up a lot of your attention. Get these areas working as much as you can before you start.

9) Make a start. At some point you need to put your money on the line and get started.

10) Have fun, celebrate your successes, stay positive and have belief in yourself.

Successful investing :-)

Graeme Fowler

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