Why Property Will Not Make You Passive Income?

Got your attention there haven’t I?  

Yeah, you heard me right.  Anyone who says otherwise is downright lying.  There is nothing passive about property investment.  In fact, I would even go as far as saying that signing the S&P does not make you a property investor.  ‘Property Investor’ is a badge of honour for those who take an active interest in their investments.  As property investors, we are well aware that a secure financial future can only be earned the old-fashioned way, i.e. the hard way.  Those who neglect their rental properties are just people who happen to be parking their money on a property rather than in a bank, they are not investors.   

Property investment shares the same recipe for success as most other things in life: a cup full of diligence, a dash of dedication, all mixed in with a spoonful of decisiveness, and a sprinkling of drive on top.  To coin the term ‘passive income’ in the context of property investment straight away imparts an unrealistic expectation from newbies that all they need to do is get some money together, buy a property somewhere and violà!  Money will fall from the sky… It doesn’t work like that.  Unlike term deposits, bonds, and shares which are relatively immune to the actions of their owners, property requires a high level of control from their investors.  Time and time again at APIA, we witness successful investors sharing one thing in common – no matter what their strategies are, they are always fully in control of their portfolios at all times.  

So here you have it, QED, to get a meaningful return from property, you must be in control.  

Don’t know where to start?  Here are some ideas to bring that inner control-freak out of you:

1. Strategy – Property comes in all shapes and sizes just as investors all subscribe to different strategies.  What is yours?  Do you want to invest in stand-alone houses or do you prefer the input of body corporates on a strata title?  Do you value capital gain over cash-flow?  Be clear on which strategy will give you the lifestyle you want today and in the future and go for it.  
2. Purchase Price – Be an expert in the area you want to invest in.  Find out the market value and projected capital growth of the area and the property itself, the potential rental return and get a realistic understanding the level of tenant interest in the area.  Get friendly with the RPNZ database, regular market updates from REINZ and major real estate agencies, talk to your fellow APIA members about what they are paying at this market and take control over how much a property is worth to you (i.e. how much you are prepared to pay for it).
3. Initial Capital Injection – How much deposit are you going to put down?  Will there be a deposit at all?  To what extent are you willing to leverage yourself to own a particular property?  How much do you have to put down to enable you to keep acquiring other properties?  Speak to your local ANZ Mobile Manager who will give you definitive answers and other funding suggestions to these questions.  
4. Loan Structures – As an investor, you are also in a position to make an informed decision about which loan structure will serve you the best.  Which finance terms will propel you along your strategic vision of your investment?  Have you considered staggering your loan terms so they don’t all come up for renewal at once?  Are you going to fix your loan in this market or do you prefer the flexibility of floating?  APIA TV is now showing a seminal presentation by ANZ senior economist Sharon Zollner on the state of the New Zealand economy and the sustainability of the Auckland housing market which will go a long way into helping you arrive at a sound decision.  
5. Continual Capital Injection – You get to maintain, renovate, and add value to your property at your will.  Be it an extra bedroom, a new lick of paint, regular window washing to improve street appeal or even minor dwelling development in the back yard to maximise your profit proposition, you decide how much you will continue to invest in a particular property to get you the highest possible rental return.  Do you know that as an APIA member you are also entitled to enjoy retail discounts when shopping with DIY giants such as Bunnings and Placemakers?  
6. Tenant Selection And Management – Who do you want to rent your property to?  A student?  A family?  A young professional?  Are you going to manage the property yourself or engage a professional property manager? Are you willing and able to repair and maintain the property or will you hire a tradesman for various jobs?  Don’t be a wallflower when it comes to tenants.  You are allowing your valuable investment to be in the possession of another person, make sure you choose someone who will not let you down.