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Ed McKnight: What hosting the #1 business podcast has taught me about NZ Property Investment

Wednesday, January 22, 2020

IMAGE CREDIT: UNSPLASH

5 months ago, I was working out at the gym, earphones in, listening to my favourite podcast.

It's a daily show featuring 2 digital geeks talk about what's happening in the digital industry ... I'm secretly a nerd.

It got me thinking that a similar format could work for property investment in New Zealand.

Fast forward 5 months and the Property Academy Podcast has over 124 episodes and has had 21,699 downloads at this exact moment of writing.

We even hit the top of Apple's business podcast charts, beating out the likes of Gary Vee, Tony Robbins, Rich Dad Poor Dad and Radio NZ for the top spot.

APIA has asked me to share my top 5 learnings for property investors after hosting over 20 hours and 24 minutes of podcasts.

1. Every strategy can be a good strategy, depending on the circumstances

Property investors love to talk strategy – and to talk about each other's plans.

The truth is: the right property investment strategy for you has got less to do with the market, yields or changes in government policy and more to do with you.

For instance, a prolific Hawkes Bay investor recently featured on the cover of Hawkes's Bay Today. In the article, he shares his strategy of finding and structuring deals so that the investment breaks even on Day 1, even while paying down a 20-year principal and interest mortgage.

He has over 80 properties in the Hawkes Bay and is a full-time property investor.

It's a great strategy. It works for him, fits his level of ambition, risk appetite and the time he wants to put into the portfolio.

Let's consider an alternate situation. Consider a Mum and Dad investor couple who both work full-time, love their jobs and have no intention of leaving them to become active investors.

Their ambition to maintain their lifestyle in retirement (rather than get real rich) could mean they only build a portfolio of 4 properties. Their risk appetite allows them to rely on capital growth while topping up a negatively geared property in the short run. At the same time, their limited savings means they have to leverage their own home to fund the deposit.

Both of these strategies are equally valid. They give the investor the best shot of getting where they want to be, given their circumstances and allow them to sleep at night.

And through talking to a range of investors, I've learnt not to ask "which strategy is better?" and instead ask "who is this strategy better for?"

2. Some of the traditional advice about property investment doesn't stand up to scrutiny

There's a lot of traditional advice about property investment that doesn't always stand up when you start looking at the data.

I've heard it said that areas with high rates of homeownership will get more capital growth than areas with low rates of homeownership.

I haven't found data to support this. Let's look at a small example.

53% of households in the Orakei Local Board area own their own home (2013 census). It's an affluent area, with the highest median personal income of all local board areas. Suburbs within this local board could be considered 'owner-occupier areas'.

Over the last 18+ years for which I have data (Jan 2000 - Aug 2018), the suburb of Orakei increased in value by 8.91% compounding year on year. The near-neighbour suburb of Saint Johns, which is also in the Orakei Local Board area (so we'll assume similar levels of homeownership) appreciated at 7.88% compounding annually.

Compare that to the suburb of Otara. The Otara-Papatoetoe Local Board area has homeownership of 27.5%, almost half the rate of Orakei. It's a relatively low-income area and can be described as a 'renters area'.

Despite this, over the same period, the median house price in Otara increased at 7.98% compounding year on year – slightly more than Saint Johns.

This alone doesn't disprove the claim that areas with high rates of homeownership tend to attract higher rates of capital growth. Still, as I explore housing market data, I am yet to see a correlation be shown.

Just because a tip or piece of advice is repeated, doesn't make it right. Look at the data and make your own assessment about what you think is true and accurate.

3. Data is useful, but averages can be unhelpful

As a property investor, the average house price in New Zealand doesn't really matter to you. What really matters is the value and yield of the properties you've purchased.

Property investment is a discrete investment.

We're not all lumping our funds in a specific stock or fund. We're all buying different properties in different areas, and your properties might go up in value faster than mine.

The average house price in New Zealand increased by 5.9% compounding every year from Nov 09 - Nov 19, rising from $355,000 to $630,000 and earning homeowners $275,000 in the process.

However, that is of little use to me if I bought the average home in the West Coast, which increased in value by 0.96% per year for a total of $19,000 over the same period.

Just because the average property increased by 77.5% didn't mean that my one did.

You can't just buy anything and hope the market will take care of it.

You've got to really put in your due diligence about every property you buy because you're buying a specific property. Your fortunes are tied to what happens to this individual property, not necessarily the market in general.

4. There's a lot to know. But, you can't let that get in your way

There are so many books you could potentially read about property investment. By the time this article is published, we will have released over 24 hours worth of podcast content.

If you read everything there is to read and listen to everything there is to listen to, 2 property cycles could be gone by the time you finish.

Property investment is an iterative process. You don't need to know everything there is to know to get started, and you'll get better at it by doing.

The successful property investors I've had on the show have all become successful at investing by actually doing. There is only so much you can learn from reading and listening.

If you really want to learn how to invest, you've got to start by doing it, and supplementing your knowledge with experts who can help and teach you.

5. It doesn't matter if people think your strategy is 'risky'

We each have a different perception of risk and what appears to be 'risky' or not.

There is no set measure of risk – it's not like dollars or centimetres.

Some investors will consider buying in Auckland too risky, for fear of a price bubble.

Others will consider investing in smaller towns risky because small towns tend to rely on a few big employers, which if closed, could impact property prices.

Either or both of these perspectives could be valid.

The trouble starts when we get scared or become paralysed in our approach because someone else labels our approach as 'risky'.

That discussion is not useful. It forces you to think: 'is it risky or is it not?', when it's more valuable to discuss:

  • 'What are the risks?'
  • 'How likely do I think the risk is to happen?'
  • 'How much would that risk impact me?' and
  • 'Am I willing to take that risk for the potential return?'

These sorts of questions help us to understand one another's investment approach even if we wouldn't personally undertake it.

Bonus: Kiwi's are head over heels in love with property

We already know that it's true, but it's worth repeating.

I've amazed by the number of people who message our website or get in contact to thank us for the podcast.

Incredibly, Kiwis across the country tune in every day to learn about property.

I can only put this down to the fact that Kiwis love property and are attracted to the stable returns this investment class provides, and long may it continue.

If you'd like to listen to the podcast, you can find us on your favourite podcast listening app here. Or, head to wherever you listen and search for 'Property Academy'.

 


ABOUT THE AUTHOR

Ed McKnight

Ed is the Resident Economist at Opes Partners Limited as well as the host of the Property Academy Podcast

 

 

 

 

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