In this video the Property Editor of the New Zealand Herald, Anne Gibson, interviews best-selling property investment author and leading property strategist, David Whitburn. Anne and David talk about the Retirement Savings Survey results just released and discuss how the importance of having a strategy to provide for your financial needs upon retirement, and types of investments you should be looking at.
The full transcript of the video is below.
Anne: Hi I’m Anne Gibson. I’m the property editor of the New Zealand Herald. With me today is David Whitburn. He is a professional property investment expert. And he’s here today to talk about this Colmar Brunton Retirement Savings Survey that has just come out. It seems that not enough of us have retirement savings. Did that surprise you?
David: It did surprise me a little bit. However, for a long time we haven’t been saving quite enough for our future. It’s really, really sad that after a lifetime of work, too many of our nation’s elder people aren’t able to save and provide the options that they want for the future which is a real shame.
Anne: What should they have done, David?
David: I think that a lot of people should have really thought about what they’re going for the long term. Saving early is really, really critical. Some of our listeners here today might be thinking, “Hey, it’s too late to do things.” But no it’s not. You can always take the right steps.
Anne: So if you’re in your fifties, say, what would you tell people they should do?
David: In a market now where we’ve got some low interest rates, we tend to put deposits and bonds not given the yields there. They do need to take a look at perhaps have a chat with a financial planner and see what do we really need to do. Maybe we need some more growth investments that are out there, some mix of equities and property might be the thing.
Anne: So shares and buying property.
Anne: Okay. So if you had three or four tips for people who are worried about their retirement, finances, what would those tips be?
David: Absolutely critical to have a strategy. There’s a saying there, if you fail to plan, you plan to fail; and I think that’s critical. People must have a strategy. Absolutely crucial to do that.
Anne: So first is a strategy.
David: Have a strategy. The second is having investments that provide passive cash flow. So passive cash flow is cash flow you don’t have to work for.
Anne: Property and shares.
David: Property and shares, critical for that. Also, thinking long term. That’s really important, too. It’s too easy just to have that mentality, “Hey I want this. I want to get it now,” but what about the consequences?
Anne: So delayed gratification. Save the money.
David: Delayed gratification, okay. I don’t want to be so mean and tight up on this because hey, sometimes you don’t what’s going to happen tomorrow as well. But it’s critical to actually think of the long term.
Anne: And what about retirement for others. Are there very good financial options for older people?
David: For some of the older people they can really, really find and live some good lifestyle, and social aspects. Absolutely, my two grandmothers love them. But financially, they weren’t great at all. The occupation licenses were actually quite devastating economically. Recently significant management service fees added in.
I think that that’d be great option if they were three-hold ownership as opposed to either occupation license or lease out. So I do have some real concerns about that model because I don’t think it actually builds well. I think far from it. I think it detracts from wealth of the occupants. And you only need to look at the some of the dividends being able to be paid out by the listed retirement service companies there because someone’s winning and someone’s losing in that model.
Anne: So this Retirement Savings Survey showed that forty percent of people aged fifty to seventy had little or no savings. If you were in this position, you cannot buy shares nor property. What are those people going to do?
David: Absolutely. That’s a real struggle. There is no chance in buying property at all. With some small amounts they can’t be able to do them. There are some smaller managed funds that are available. But KiwiSaver has helped a little bit but those people without savings, it’s a shame because some of them, they get closer to retirement age. The writing is already on the wall and that’s really sad.
Anne: And you’ve written this week’s bestselling book, I see and it’s talking about in investing in property.
Anne: So you’re a real property advocate but the Reserve Bank has been bit concerned about us, about us investing too much in property.
David: Absolutely. The Auckland property market supply and demand drive is so out of kilter right now. The demand is so strong. Auckland council chief economist suggested that we’ve got around thirty seven thousand new Aucklanders this year, 2015. However, how many houses are we going to be building? Maybe about nine a half thousand if we’re lucky. But about twenty percent of the them were built for beach house or not actually built for three-people houses.
Anne: So if you’re in Auckland, should you be buying property in Tauranga, Hamilton, Dunedin?
David: For some people, yes I think so. But this tend to get quite hard and getting quite popular as well. And long term, there will be restrictions would change. The banks might keep them forever.
And look at the fundamental drivers, Auckland is the place that people want to be. It’s the third most liveable city in the world according to most international quality of living surveys for the last few years. It’s an international city. There’s a lot of migration whereas the underlying drivers aren’t the same. I think that the artificial parts of growth in Toronto and Hamilton and the like have come from the reserve bank rules whereas, Auckland’s based on fundaments. There’s such extreme demand of property that they’ve had to try to slow it down.
Anne: So what kind of investors do would you say?
David: I think with investors with a little bit more capital should be investing in the Auckland market. But otherwise if they’ve got a little bit least capital, strongly consider building. Why? Because building is exempt from the land devaluation ratio restrictions.
Anne: Right. So you would build on a new section in Auckland.
David: I’d consider building on a new section and not be in near existing homes and properties.
Anne: And what is it going to cost them that new smaller dwelling David?
David: Now it costs around two hundred forty to two hundred sixty thousand by the time you’ve paid all Council development property.
Anne: And you’re saying gear up your existing house to do that.
David: Consider gearing up your existing house because you will get an average, for the whole year in Auckland, over four hundred dollars per week [on a FUZO granny flat]. And the interest on servicing that [the FUZO granny flat] would be than sufficient to build a passive cash flow.
Anne: So taking money from one pocket and putting it into the other.
David: Absolutely. And that’s where it’s good to have more money in your back pocket at the end of the month than you had at the start, so I think it’s a great strategy.
Anne: And it’s a bit of a secret to not many people think about that.
David: Not many people know about it. Not many people think about it. And I think it’s [minor dwellings or granny flats are] a fantastic strategy. It doesn’t have to just be used for investment either. Sometimes it’s a thing to do put our parents, put our kids in, disabled persons, help out family members. So there are a number of uses for them too.
Anne: Interesting strategy. Thanks David.
David: Thanks Anne.