Okay.
So day one, we're going to cover probably the most fundamental
three things that you need
to keep front of mind any time when you're thinking about property investing.
So the three most important criteria are cash
flow, capital gains, capital improvement.
So when you're looking at an investment, property as an option.
Even when you're thinking about your first home,
you want to be thinking how will this property or these properties
are going to look when you start putting the numbers on a chart.
So cash flow, there's three kinds of cash flow.
There's negative gearing, negative cash flow.
This is when the property costs you money to own.
Now, there's a few different ways to look at the numbers of cash flow.
You can look at the property as if it's 100% financed, 80% financed.
You can look at it well with no leverage.
There's a few different nuances, but it's important to understand the concept.
There's also cash flow properties that they might cover their costs
of owning them
through covering the finance cost, but they don't cover all of the costs.
The rates the insurance, the maintenance.
So sometimes you'll get properties that technically
they might cover the expense of getting everything financed
but when you total it all up,
the numbers go up and down depending on the vacancy rate.
And then there's properties that are cash flow positive.
Now you can get this through gearing, but if you're looking at 100%
financing your next property investment, cash flow,
positive cash flow, comes when it's very obvious that there's
a profit at the end of the year, regardless of the tax deductibility
around the interest costs and regardless of the regulations at the time,
the property makes you money and there's a surplus.
And then from that surplus you get to decide
what you're going to do with that.
Maybe you put it into your mortgage, maybe spend it on a trip to Fiji,
but there's definitely a profit.
So number one is cash flow.
Number two, this capital gains, capital gains relates
to where the property is the kind of property.
And generally speaking, we're looking at historical capital
gains increases in value of properties
in that area by the type.
And we even get suburbs specific.
Now because nobody can predict the future, we can only look
at the past and extrapolate and we can extrapolate in a band.
So we can say with higher level of confidence,
confidence in the next year or two, we know what the gains are going to be
depending on where the property is and what kind of type it is.
But as we get further 5, 10, 15, 20 years in the future,
it's much harder to make those capital gains predictions.
But if you can buy a $700,000 property
in Kapiti or a $700,000 property in Remuera,
if those properties are both exactly the same
and they're returning the same rent, generally speaking,
going with the property in central Auckland is going to get you a higher
capital gain than a property
say, central North Island for example.
So I think with capital gains a lot of people tend to forget
that the type of property is important and you might be looking
at commercial slash residential mix
in the middle of Nelson, for example, the capital gains on that type of property
is going to be quite different from a property in the suburbs of Nelson.
So capital gains is an important consideration.
And number three, capital improvement is around renovations.
It's around spending money to improve the property to get a return.
So what does this mean?
It means maybe you're putting $10,000 in and you're getting a $40,000
uplift in equity gain.
Generally speaking, when you're looking at renovations or improvements to property,
you want high return on your capital invested,
especially if you're borrowing the money as well.
Y'know when you're looking at particular properties as investment opportunities,
you can assess the potential for improvement.
A lot of people don't want to do the work or they're not skilled
and they don't have an eye for detail.
You might be out to see how a wall can come down or a new garden
or a new bedroom or kitchen can be added for 20, 30 grand.
And you're expecting there will be an $100,000 uplift on the other side.
So capital improvement is your renovations
and it's a lot more for the DIYers,
but really specifically just got to be making sure you understand the numbers.
And what what two things
we like to take into account is
if you're trying to figure out is a property that attacking this problem
of how to find a property that covers these three Cs.
How do you find a property that's high cashflow, high capital gains
and with really good opportunity on capital improvement?
That's hard.
But if we invert the problem and we say, okay,
what would what's the kind of investment we don't want?
Well, we really don't want an extremely negative cash flow.
We don't want something in a bad location and a bad property type.
And we certainly don't want something
that's fully priced that there's no opportunity to add value.
So reversing that challenge helps simplify it
and make you feel that, oh, yeah, I can I can understand that now.
And just remember the Meatloaf song that two out of three ain't bad.
Okay.
If you can find something that's high cash flow, high
capital gains, but there's no room for improvement, that's okay.
Any combination is going to work depending on your current stage
for investing your available equity and your borrowing power.
And your aptitude to find deals and your willingness to take action. So
understand these concepts.
Tomorrow we're going to cover two more C's and you just want to really make sure
you keep this front of mind, any property you're looking at,
assess it on its three metrics cash flow, capital gains,
capital improvement, and that'll be a good frame of mind.
Any questions leave them below, and I'll put the day
one of the 21 emails email in the comments below.