So, misunderstandings about property investment. Now that we've established that investing is about putting money in, to get more money out later. So, compressing time and money, and it's all about patience, I want to cover off the misunderstandings about property investment.

Now, this part took me years to learn, and I learned the hard way. It's so obvious, but such as things that are quite obvious, you know, it can be counterintuitive. But property investing is all about the land. So, property investment is one type of investing.

There's obviously different asset classes, different things you can invest in. So, you can invest in the stock market, you can invest in property, you can invest in things like bonds or businesses. There's a lot of different things you can invest in, but property investment is one type of investment.

You see, a lot of people I see get confused about what type of investing in property is. Okay, they get confused about it. Property investment by its nature is high growth, low yield investment. And what I mean by that is most of the return and appreciation is in the land value, not the building or not what's on top of the land. Yes, building costs go up, but in reality, the building depreciates over time. Seems obvious, right?

Research shows 75% of the return from residential real estate is in the land and land appreciation. Now, it's good if the rent covers the mortgage and the outgoings, but quite often it doesn't, especially if you're a new investor or if you're in acquisition mode, you're trying to buy more properties. The nature of the investment is the cash return, rental income is average at best. Okay, I see all sorts of mistakes from people trying to buy real estate, you know, trying to make real estate a high-income investment. And it's just not.

Now the experts, they can improve the income through various strategies, such as renovations, small developments, etc. But they usually start with the land investment in mind. Okay, they're thinking about growth from the start, but I see all sorts of people, you know, I see people buying in Whanganui where there is no population growth, poor capital appreciation, massive costs. Okay, I see people buying apartments where there is basically very little land component. So, you're basically giving up so much growth.

I see people selling when the market dips because they don't have the patience because they don't understand that the cash flow is average at best. All right, that's the nature of it. And what you need to do is to buy growth assets.

If you want cash flow, start a business or eventually downsize your property investments or become a more advanced investor to improve what's on top of the land, which increases your rents, which comes from experience and taking a higher degree of risk as you become better at investing. So, my suggestion is to invest in property slowly, which is what I'm suggesting in high growth areas with good land component. Okay, either a standalone house or a unit with as much land as you can get.

New build property has very little land component. Okay, they are Lego land in nature. Okay, which basically very easy to duplicate. You know, they're exactly the same quite often or very, very similar colours, same layout. There's very little land component and they all generally look the same. Okay, and also you can't improve them.

The advantage is they're kind of low maintenance, which is appealing. I know there's some tax benefits, although that's being eroded away at the moment. And if your neighbour puts up the property for sale, what does that make your property worth when it's exactly the same or very, very similar? Okay, if your neighbour sells at fire sale prices, what does that mean the value of your property is? It's what he sells for.

So those are my suggestions. If you become a client, we'll step you through when looking at traps, considerations of things to be aware of on a particular property. We've also got contacts in the field.

If you're looking for buyers’ agents, that'll help you. We're also investors as well. We can put you in touch with those.

Matthew Dawe

Mortgage Broker | Financial Adviser

Phone: 027 321 4287

Email: mortgages@matthewdawe.com

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