More than half of New Zealand property investors own fewer than five properties, according to one survey (thanks for the commentary, Troy!) but we think it’s probably a lot higher. The people responding to this survey are interested in investing; there’s a massive number of ‘accidental’ and uninterested landlords who won’t have been caught up by this research. If we had to guess, we’d say this follows the old 80-20 rule: 20% of the investors are buying 80% of the investment properties. And 80% of investors own just one or two properties.
How does this happen? Leaving aside people who aren’t interested in buying more, why do so many ‘mum and dad’ investors own just one or two rentals? One of the main reasons has been an adoption of negative gearing over the past five years. Investors, particularly in Auckland, have seen such enormous capital gains that paying more money to top up the mortgage each week has been a good investment. How long that can continue nobody knows, but buying negative cash flow properties seriously hampers your ability to grow your portfolio.
Given Auckland’s high prices and low yields, even someone with a strong earning ability quickly runs out of servicing power when they’re paying an additional $1,200 a month on a negative-cashflow property as in this example. You’re going to need an enormous salary to buy more than two properties with that kind of negative gearing.
So how do people manage to keep buying? There are several strategies, most of which someone in our team has used at least once to help build their portfolio. These include restructuring your portfolio, trading for cash, and a wide range of ways to add value to your existing properties – like renovating, adding a room, minor dwellings etc. Give the team at FUZO Property a call and let us talk to you about reaching the next level of success.