It's easy to get lost when you're looking for your first investment property.
How you set
your criteria is is going to give you a compounding effect in the long term.
It could be positive or could be negative.
So you want to make sure you do that, right.
What's going on everybody it's Blandon here from mortgagehq.
In this video,
I'm going to share
a framework that you can use when you're looking
for your first investment property.
This is going to help you make a more informed decisions.
It's called the three C's toolkit.
The first C is capital gains.
And when you look at historical data, the largest cities,
you have a consistent population growth and the growing workforce
tend to have a higher capital gains in the long run.
Now, remember, just the population growth alone is not enough.
Understanding what age group that is, is going to help you tremendously
on making a better decision.
One of my favorite websites to check out this kind of data is figure.nz.
It's simple enough
for anyone to understand, and they pull the data directly from Stats
New Zealand, which makes the information a lot more reputable.
And another way to get capital gains is actually buying on the market value.
This is basically just buying something cheaper than what it's actually worth.
And what that requires is a good understanding of that market
that you're working in.
So running comparable market analysis in that suburb that you're buying
is going to be crucial.
Now, you also might get a bit of luck if you work hard enough
and negotiate on more deals.
Some people might just market their property poorly
and you're not getting as much competition.
Some people might just need some money in a hurry.
Some people just don't care about
getting the maximum figure that they can on their property or simply
maybe you can
just give them the terms that they want, which is actually more important
than the price for them.
So there are several ways that you can buy property under market value.
Second C is cash flow.
Now, capital gains is usually the bigger reason why we do investing,
but cash flow is what keeps us in the game
and allows us to use it to borrow more money from the bank.
Cash flow is also one of the most important components in a property
in this current market, especially when interest rates
are sort of sitting in that 4% range and claiming interest
deductions on the existing property is out of the question at the moment.
This actually makes a very small portion of the properties in the market cash
flow positive.
I do think there's going to be
some market adjustment where rental yield has to eventually catch up
to interest rates.
There's a lot of talk that the government
is trying to hold that back, but I think it's inevitable.
Now the properties that usually have a higher cash flow obviously have multiple
dwellings on it, usually called home and income properties or multi-unit.
The other type of property that you might look for is a new build
that is a home and income,
because those ones you do get a tax deductibility on it
and you've got two banks, ASB and ANZ, offering a discounted
floating rate of close to just that 2% mark for the next couple of years.
This becomes a very attractive investment as well.
Third is capital improvements.
If you're in a high cash flow position to begin with, you could consider slightly
lower cash for properties because it's got a higher capital improvement value,
meaning you can add value to that property by investing more capital into it.
This is usually properties
with bigger land that you can subdivide or build a minor dwelling on it.
Potentially you can extend the house as well,
or you have a very spacious floor plan that you can add
multiple bedrooms and potentially add in the suites as well.
Now, not all capital improvement properties have low cash flow.
Again, home and income, multi units can also sit on a pretty big section
that can be potentially developed later on.
And personally I think those properties are one of the best ones to start with
because you get a balance of capital gains and cash flow.
One of my favorite deals last year was a Mt Wellington home
and income that was bought at $1.45 million.
It's got two times
three bedrooms on it, and the total rent that you're getting per week is $1200.
The client bought that under market value by about $200,000.
So that's instant equity.
It's also got the potential to actually build six terraced housing on it.
These are a mixture of three and four bedrooms,
so that would sell at a higher price.
Well, it is a slightly negative test for a property
based on the current interest rate and the current interest deductibility rules.
The capital gains potential and the capital improvement value outweighs this.
Of course, this is assuming the person can actually chip
in 10-$20,000 per year if interest rates were to go up even more.
However, it is important to note when you are faced
with this type of situation where you got 10-$20,000 negative cash flow,
you can actually mitigate this risk by getting a revolving credit account.
Basically it's an overdraft account, that's going to allow you to bridge that
cash flow period until you can up the rent or interest rate comes down again.
So there you have it folks.
If you have found value, please smash the like button for the YT algorithm.
Again, the three C's cash flow, capital gains and capital improvements.
If you put this down on paper and actually write down
the value of each of these C's
on that property, it's going to allow you to make a better informed
decision that's going to allow you to measure your opportunity cost.
So until next time, I see you guys in the next video,