So, how to build a property portfolio. Now remember, and this comes back to some of the questions actually we just covered in the webinar just before. Now remember how I said the majority of the return in residential real estate is in the land.

The land is what grows in value. Now yes, there is growth in rents, but most of the return is in the land. And that's because the costs are just so high on the property. You've got maintenance, you've got mortgages, not always, but you've got mortgages generally especially if you're trying to grow your portfolio. You've got rates, insurance, you've got, you know if you have a property manager, so that eats away at your cash flow return. So, you know, by the time you pay all that, you've got very little left, especially if you're looking at growing your portfolio. So, most of the returns in the land.

Now I've got a case study for you, and it's actually one of my own. With this case study, I basically made all the mistakes, but I did one thing right, and that's what made the whole thing work.

So, I bought a property in 2006 for $340,000. The mortgage was $325,000. You work that out, it's about a 5-6% deposit. It's not much, but yeah, the mortgage was $325,000 and the interest rate was 10.5%. Now that was the going rate in 2006 approximately. Now $325,000 loan in 2006, that was a lot of money back then. That was quite a large loan, okay.

The property that I bought was a standalone house in Beach Haven in Auckland on a full freehold site. So, for those that don't know Auckland, Beach Haven is sort of a lower middle-income suburb on the North Shore across the harbour, but it's definitely gentrified and continues to gentrify a bit, which means tidy up and have nicer properties in there going higher socioeconomic over time. And it's reasonably close to the city, that suburb.

That was a terrible buy at the time. It was way overpriced. And just think of that store analogy that I mentioned previously. The store was absolutely packed. The market was just bananas. I couldn't actually get in the store. I'd get quoted a property and I'd get in my car and go up and have a look. And by the time I got there, it was multi-offer, okay. So, it was a property boom. The store was just packed. It was very little choice. And the economy went into a recession shortly after that in 2008 and 2009. That was the global financial crisis. And that was a bad one for those that remember.

Now property prices went back after I purchased it and I could have purchased the same property four years later for the same price. So, four years later, I had no growth, nothing. I could have basically paid the same price. Prices went down in that period and then went back up to sit at the same level.

So since then, I sold half the site for $500,000. So, it was on a full site. I sold half the site for $500,000 and the remaining house worth $900,000. So total house and the section attached to it is $1.4 million today. Now there was nothing special that I did. It was just held through really bad times. And the patience was there for the last 18 years.

I've still got the property. The rent in 2006 was $280 a week, and now its $650 per week. So, with the growth in the value of the property, I could have paid off the mortgage in five years.

A lot of people talk about paying off your mortgage faster, but I didn't pay off a dollar and I could have paid it off in five years because of the growth. Because I bought, obviously it was good in terms of the land component there.

So, what do you think the mortgage is today? The mortgage today is much higher on that property. And why? Because I've reborrowed against it. And I bought another property in 2013 using the increase in growth in that property. So, I borrowed another $510,000 against that property and I bought another property.

No money down, no deposit. I borrowed the $510,000 against the existing property and against the new property. So, I raised the deposit against the original property, and I used that as a deposit on the new property. So, I didn't put any money down. There's no deposit. And since then, I've bought other properties off that one property.

Now the key here is to buy in good areas and use the growth to buy more. It's too hard to save a deposit from the rents. It's too slow and you'll see you pay tax on it. The hard part is the yield. Remember how I said property is generally low yield, high growth. That's the nature of it.

So, the hard part is the rent. Now remember the rent is average at best compared to the outgoings. Especially at the start because the outgoings are so huge, especially in the beginning as I mentioned, because you've got mortgage rates, insurance, maintenance, and management. They're pretty average, but that's not the point. The $1.4 million is the point. And that has come from the land appreciation over 18 years. And I know it's fascinating if you look at the way things were hundreds of years ago, back in England and other European places, it was always about the land. And that's where the real value was, not what's on top of it. Nothing's changed. So, don't get confused.

Don't focus on the building. Focus on the land, how big it is, where is it located, crucially. A small section in Auckland is going to be worth more than a few hectares in a small regional town. And it's what you can do with it. Hopefully you got some value out of that.

Question: Is the $1.4 million, how much you would sell it for? Or how much you would get per year?

Answer: No, you wouldn't get $1.4 million per year. No, it's not. That's the total value of the investment after 18 years of letting it grow into a tree. So, watering it, taking care of it, being patient through downturns, through difficult economic times, high interest rates. The interest rate was 10.5% when I bought it. Through getting repair bills, I recently had to have that property rewired and it was $7,000 to have it rewired. But I did that because it's a long-term investment and it's investing in the future. Those are the costs. That's why the cash flow is average. You got to come up with those costs. However, the $7,000 is nothing compared to the overall return on that property, which has been really, really good, even though I did buy it at a terrible time when interest rates were very, very high. The cash flow was terrible, and the repair bills were quite large. It was just a long-term hold. So hopefully that answers your question. So, the key is to plant your seed and get your seedlings growing and patience and all those things we've talked about.

So, I'm just going to share my screen here for the last section of the webinar. So, I want you to go back when we started the webinar, because I've covered off a lot in a short period, but I want you to go back to your why and your dream.

When we first started this webinar, we talked about what does money mean to you and why is it important? And that it's a really personal thing. It could be about family. It could be about not having to work your guts out for your entire career to be left with an old house. It could be you want more time. It could be you want more freedom. It could be the special times with family to provide for children. All those personal things, comfort, security, financial security.

So, I want you to look back at what you wrote down and just remind yourself what will happen if you don't achieve those things. How will it affect your future?

Because the biggest mistake I see people is actually not doing anything. I can tell you out of my client base. I've probably got, I'd say, less than 2% of my entire client base actually choose to invest. Either they're not thinking about it, they're scared, they're either focused on their own jobs and life, et cetera.

So, the alternative is to spend hundreds of thousands of hours at your job, making your shareholders rich because you're going to pay tax on your income, obviously. Take 15 years or 20 years to pay off your home loan. And if you, like we said at the start, if you do nothing, you're going to get what everyone else gets. So, there's nothing wrong with that. I'm just saying.

I could guarantee 95% of you today, if I said to you only 2% of my client base invest, probably it's the same today. If you're watching this video, probably 97% of people will leave today or they'll say, hey that's great information. And then insert their “but why they can't do it”, okay. Or the reason they can’t, or they won't and why others can.

You've got to get annoyed at your lot and you've got to do something about it. Because most people do nothing, as I said, because they're scared. It's a natural human emotion. It's pretty harsh, but true. And that's actually called your attitude to risk. So, your attitude to risk is obviously affecting your returns.

The biggest mistake I see when I'm having financial advice consultations is not those clients take too much risk. It's actually, they don't take enough for their stage of life. Calculated, educated investments over long periods of time to get a nice return and not taking enough risk, not taking action.

That's why it's got to be a stepwise plan to help you move forward. So, you can be comfortable with each step. You also might consider joining a group where everyone else is doing it. There's heaps of groups out there, paid and non-paid, to give you some more confidence. But the worst thing you can do is do nothing.

The good news is that I can help you with this. But this is what I want you to do next. If you haven't already, click and book a 15-minute chat. If you want some help, this is how we can help you get an amazing outcome from me and my team here. Plus, we have businesses that we can refer you to as well, if you're looking for a little bit more personal one-on-one help.

So don't think about the outcome, just think about what's next. So, the outcome is quite scary and the fear of the unknown and all the questions that you have, the key part is just to move to the next step. What's the next step for you? Is it having a chat to us? Is it to keep learning? Is it to drop a plan? Whatever the next step is for you, just keep moving forward.

So yeah, Matthew Dawe, Mortgage Broker and Financial Adviser here. We're accredited with 70 lenders in New Zealand. In an increasingly confusing and mortgage property environment, we help clients get approved, negotiate interest rates and provide help and guidance along the way.

So, what was the most valuable piece for you today?

Question: Do you have a Facebook group?

Answer: Yes. I've also got a private group that's only reserved for clients. So you have to become a client to be part of the private group.

Question: What is the company best to property invest from?

Answer: Yeah, there's heaps of property investment groups out there and they all specialize in different things. The key part is to understand how they make money because if they get paid to sell you properties, are they actually giving you advice or are they actually working with you personally? Sometimes paying for advice is actually best because that person is giving you advice and is working with you like a lawyer would, for example. You're paying fees to a lawyer to serve you. But there's heaps of property investment groups out there. And if you're interested in the topic, there's heaps of information, there's heaps of events you can go to. There's property investor associations throughout New Zealand. Pretty sure they allow new members to attend events. So just get involved.

It's actually a really good question because if you’re interested, being interested in this topic is a big part of being successful. You might not know everything and actually it’s a huge topic and it can be confusing and it's a constant learning exercise. Nobody's really an expert in it. People just know more than others. And if you're interested in it and you're talking to people, that's a big part of it. Obviously, I've been interested in it in my entire career. So naturally, I just enjoy conversations about it. But that also helps me in my job when speaking to clients and helping them achieve their goals. So, if you're interested, that's a big part of it. So just keep learning and take action and get annoyed. It's obviously trying to fit a lot into a short segment.

So, if you would like to talk, just let me know. You don't pay for a consult with myself. We can have a chat and just a general chat as well if you'd like a coffee or a catch up. And how can I do catch up? So, you can book a meeting. We can do a phone, a Zoom or an in-person meeting.

You just book a time and I'll be happy to chat to you. I enjoy talking about it. We can talk about what's available to you as well. It's a good question. All right. Thanks for everybody that attended today. I hope you have a good evening.

Matthew Dawe

Mortgage Broker | Financial Adviser

Phone: 027 321 4287

Email: mortgages@matthewdawe.com

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Book a free consultation: click here