Recently I had the opportunity to sit down and with chat to Bill Guthrie, a seasoned Residential Property Investor, who has been in the property investment market for close to 40 years. Over that time Bill has built a large residential property investment portfolio and was happy to share with me some tips for those considering getting into property investing for the first time.
At 22 Bill bought his first property as a result of reading Sir Bob Jones’s book ‘Jones on Property’. The main message, and a very simple one, Bill said he gained from that book was to simply get enough income from the property to cover all the outgoings.
Bill says “if you manage to achieve that you should get capital gain and rent increasing over time while you are reducing the mortgage. After a while, this ought to provide sufficient equity and cash flow to allow you to leverage off the first property to purchase another and so on.”
He also advised not to get caught up in the concept of negative gearing which was all the rage several years ago when you could claim depreciation on the building. This would often show a paper loss that you could (in those days) offset against your other income. Today you can no longer claim depreciation on the building or claim rental property losses against other income. However, despite that property remains an excellent investment which if purchased well will provide a positive cash flow (which you pay tax on) and good capital gains over time.
Bill says his very first lesson, to simply get enough income from the property to cover all the outgoings, still applies. The skill is to assess the property to see if there is the potential to add value – which will in turn increase the cash flow. This can sometimes be by simply tidying up the property or more complex projects such as adding on an extra room or subdividing the land.
Bill said he also benefited from a business partnership as at times it was the other person who saw the big picture or a different approach to an investment encouraging him to look beyond his own sphere of knowledge and comfort.
Obviously, there are risks with partnerships so getting the structure and legalities set right at the beginning are essential to cover yourself if partnership issues arise down the track.
When it comes to buying your investment property, Bill says it’s not always the big real estate agencies specialising in investments where opportunities are but best buys can sometimes be found through small real estate agencies who may be marketing to homeowners when it could make a great investment property.
Obviously doing your due diligence prior to purchase is important, with Bill saying “homes.co.nz is an ideal site to go to as it is simple to use and a good way to get an idea of the estimated property value using the HomesEstimate, as well as a potential RentEstimate and estimated rental yield. It also gives you access to the properties council records.” He advises asking the agent for a LIM report as government and local regulations are tightening. You need to consider issues such as the effect of climate change affecting flood zones or the ever-relevant weather tightness of a property. As LIM’s are now available electronically, having a LIM emailed to you by the agent and paid for by the homeowner is convenient and saves you money and time.
Finally, as a new investor Bill suggests you find yourself a good builder and valuer to give you a personal assessment of the subject investment property He says agents are known to have ‘tame’ builders and valuers in their networks, so having your own ‘team’ on your side through your purchasing journey is advisable.