I wanted to share a
quick little presentation I did with some of the team the other day
because I understand that feelings amongst our young staff
and a lot of the clients and people we've been talking to has been a bit flat
because of what's been going on in the economy,
people are locked up at home, so people are starting to feel,
well, they're feeling quite flat about everything.
So I want to help you understand what I'm lucky to have
as a mindset of positivity and growth and opportunity.
And I want to go over some of the things that I know that suck at the moment
and why I think it's actually good or even potentially awesome
that they suck at the moment because I can see the other side of it.
So at the moment, for businesses and for investors,
there's a lot of competition and costs are going up.
So costs are going up for marketing costs are going up for building supplies,
costs are going up for everything and this could suck in the moment.
There's new debt to income ratios coming in, which means maybe used to be able
to borrow, say, $1,000,000 and now you might only be able to borrow $800000.
And the test rates
that the banks are using for servicing about calculations or borrowing power,
they're going up.
So it's pushing your borrowing power down.
It's pretty much impacting everyone.
Confidence in the business, in the economy, and for individual
businesses, confidence for property investors is dipping.
That's because there's so much uncertainty
because of what's been going on in the last 10, 15 years.
There's a cycle in confidence and it's definitely
getting to a dip if it hasn't already.
Inflation is kicking in.
We're seeing a lot of news bites about inflation being at record highs,
you know, over 6% in America
and potentially over 6% in New Zealand.
The thing with inflation is the way they track it is they track previous
quarters using data that might take a little while to come through.
So if you see inflation at 6%, actually that's the data from beforehand.
So the real inflation rate that we have on this day today might actually be higher.
Like I talked about before, there's potentially a bubble in the property
market at the moment, so it's quite easy to get down about that.
You might own properties had good gains there, but you might not be
that motivated to buy a property because you think they're overpriced.
You know
what's what's what sucks at the moment is the COVID situation.
A lot of fatigue about being at home.
I can understand why that's getting to people.
And the social, political and legal environment
definitely is not helping business owners, not helping investors,
though socially, there's way more people
getting assistance from the government than there ever has been in the past.
Politically, you know, the government
rule changes definitely working against
employers, against investors, making it more expensive,
more difficult to operate the way that you probably would want to.
So why is all this negative stuff actually really good?
And like, why do I even see that it's awesome?
Well, with competition and costs go up, what you're forced to do
as a business owner or an investor is to focus more
on value, the value of what you're getting and what you're giving.
So if it's harder to attract clients, you have to give more value
than you used to to attract those same clients.
And that's going to be a better thing for the client.
And it's going to mean
that some businesses don't make it because they don't offer the same value.
The debt to income
ratios and test rates going up now, if you're an investor
that can't borrow as much as you want to, well, it's going to force you to do
focus on your income and on properties that you actually can afford.
So in a way,
what they're trying to do is protect you from yourself, from overleveraging.
There's not much you can do about it.
You can joint venture.
You can try and find ways to increase your income.
But you know,
you really are going to have to double down on the options that you've got.
And you might need to go out regionally for your investing.
The confidence side of things, what is going to happen
is if you're a contrarian investor or business owner,
then what are you going to do is you're going to spot opportunities.
When everybody else is scared, then you're going to be greedy and vice versa.
Now I believe that when everybody is feeling
like it's a terrible time to buy, that's probably the best time.
So read up about contrarian investing, and I think you'll be pleasantly surprised.
Inflation, why I don't mind inflation is it erodes
the proportional impact of your debt.
So if you have $1,000,000 of debt on a 2 million dollar portfolio
and the inflationary environment pushes that property
up to 3 million in value, then your debt doesn't go up.
So you have 50% gearing, you got 33% gearing.
There's a lot of complicated stuff, but
the feel good factor is definitely there when you're proportional, debt
has gone down without too much effort from yourself.
Property bubble, this is a big one.
Now, if you look back to 2008, 2009,
even when New Zealand was hit with some decreases in property values,
it didn't really last more than, say, 90 days.
And if you look back over the last ten years of what's happened,
you'll see that property values climb significantly.
So property bubble don't focus too much on it.
Think about your 20 year horizon.
If you don't have 20 years, maybe five to ten year horizon.
As long as you're comfortable
that property prices will be more than they are today and five, ten, 20 years.
It's never going to be a bad time to buy as long as you don't overpay.
Y'know, the
COVID side of things, it will be over eventually.
You know, I was reading about the pandemic influenza, you know, 100 plus years ago.
These things come and go and you just got to get on with things
can feel like they're going to drag on for years and years and years.
It's going to be lingering effects, but we will be back into the swing
of things eventually.
And it takes me to probably the most important part is,
you know, even though we've got a lot more reliance on the government,
in terms of financially speaking, taking,
taxing the rich and giving to the poor,
that's inherently not a bad thing, but it can be overdone.
And you've got to remember that even though the rules and regulations
and social environment as working against, say, investors at the moment,
politically though we will probably see swings in the not too distant future.
There's a lot of
love lost for the current government.
Maybe some of that's not their fault, but it doesn't matter.
The circumstances might push
new parties into power, and they might end up reversing
a lot of the negative impacts that you're seeing in that space.
So if you can try put a spin,
a positive spin on the situation
and keep that growth mindset, it's always going to be a good time to invest.
If you stay motivated and focus on finding the right deal.