Podcast: Coronavirus Update: The Data You Should Look at Based on Your Strategy | Ep. 207

Posted by Ed McKnight on 21/04/20
Coronavirus Update The Data You Should Look at Based on Your Strategy 001
Listen to the Show

Listen to the Show

Show Notes

What's Covered in the Show?

In this episode, we discuss the data you should be looking at based on your property investment strategy.

Renovation – purchase price and how the market is moving (up or down) over the short term Cashflow / yield – interest rates, median rents and the rate at which rental payments are made to you personally long term buy and hold – interest rates, purchase price and long term fundamentals

We also mention the property investment webinar we are holding on Tuesday 7th April at 5pm. If you listen to this episode after the April 7th and missed the webinar, you'll be able to find the recording on our website at opespartners.co.nz


Transcript

Transcript of the Podcast

Ed McKnight: Hello, and welcome along to the Property Academy podcast. I'm your host, Ed McKnight, and I'm Andrew Nicol, and today on the show, we're talking about the data that property investors should be looking at during the coronavirus shutdown.

Now, this is a really interesting topic that's actually been given to me by the Auckland Property Investors Association, and I'm going to be talking to their members, uh, this coming Thursday. USo I'll have to put the link to the hangout in the show notes in case you're interested in that. And what Sarina the general manager of the Auckland Property Investors Association said to me is, "Ed, why don't you talk about the data that people should be looking at, because there are so many data points that get quoted in the media and we've kind of got this overload data overload at the moment. So what should people be looking at".

And I really like this question because it allows me to talk about my favourite topic, which is property investment strategy, because the data that you should be looking at is going to be different based on what your strategy is. And I'll give you a couple of examples to kind of illustrate this before Andrew and I have a discussion about what we're actually hearing in the market as well.

So the first strategy you might think of might be buy and flip renovators. So people who go out, buy a property, do it up, and then sell it a couple of weeks later, a couple of months later. And I think these people will be most interested in purchase prices or the purchase price discount they can get. So if they're able to negotiate an even better price with a vendor, somebody selling their property, if they can get a really good discount off the valuation of that property, then they're going to be really interested in that. So they're going to be looking at purchase price movements. But one thing that also going to be a bit wary about I anticipate, is whether prices keep going down because obviously one of the ways that renovators make money is first of all, instant equity.

They do up the property. It's worth more now, but renovators also often will get the additional benefit that if they're working or operating in a hot market, then they can also get some quick capital gain because the market's gone up. Now, if the market's going the other way, even if they do the property up, add some extra equity or value to that property if the market's depreciating and they try and sell on that market, then they can lose some of those gains that they have made from doing up the property. Now that's going to be, that's one of the reasons why I think that renovators are going to be really looking at month to month price movements.

Now, if I can just contrast that to long-term buy and hold investors, these people are going to be looking at slightly different data because long term investor really doesn't really have to worry too much about what was happening within the data day to day because their investment horizon is over a 20 year period. So you can buy quite comfortably as a long-term buy and hold investor, and some people might, uh, might, might wince when they hear this, but even if the price of the property goes down and then recovers two years later a long term investor is not really that worried about this.

Why? Because their horizon is 20 years and they know over a 20 year period they're going to be okay. They're not, it's not like in the share market where you're potentially trying to buy and sell shares over a couple of day periods or a couple of weeks, which is the equivalent of what renovators are kind of doing. And then the other type of investment strategy that I just want to briefly talk about before we discuss what's happening out in the market, are yield investors.

So I think the biggest thing for yield investors they're going to be considering median rents and also interest rates because a yield investor, while of course you're interested in the purchase price of the property or the value of your property and the rent, that's what goes into gross yield, but a yield investor really cares is about net yield, what's the cash I'm taking out of the property? And that's why they're going to be looking at interest rates really closely. Because if an interest rate goes down, then it decreases an investor's expenses that's going to increase the profitability of those properties, but they're also going to be looking at when they are going to re-fix their mortgages.

Obviously, if the advertised interest rates aren't going down, but they're not able to re-fix, they're on a fixed term for another six months or so, that's not going to be much comfort to them. So they're going to be looking at three things. Well, four things really. First of all, rents, are they going up, down or staying the same? Second of all, are their own tenants paying the rent? Obviously, it's pretty cold comfort to a yield investor if they, uh, if everybody else's tenants are paying their rent, but their ones are unfortunately defaulting. And then obviously interest rates as well.

Are the going up down staying the same, and when are they able to take advantage of those lower interest rates? They might also be looking at break fees and things like that, but those are probably the primary metrics that these three different types of investors would actually be looking at in order to determine how was their investment strategy going to work over the short to medium term. And actually the one thing I'll just add as well, to buy and flip investors or renovators, is also their ability to get building materials out of the likes of Placemakers and Mitre 10 and things like that. Obviously those aren't classified as an essential service, uh, at the moment. And so even if people are out there renovating their own homes that are, sorry, not their own homes, renovating their investment properties, and I've seen some of my friends are taking this time, this, during the lockdown in order to renovate investment properties, but they're unable to go out and get building materials because all of the suppliers are closed.

Now, Andrew, just before we jumped online, we were talking about what's actually happening out in the market while you're talking to investors about this sort of stuff what are they saying?

Andrew Nicol: I've had quite a few interesting conversations over the last few days Ed with clients who are existing clients of ours, looking to build their portfolio and also quite a few experienced investors that maybe have done one thing for a long time who are now thinking this next market might not be right for their initial strategy particularly around the renovation side of things.

So I spoke to some people just before, earlier on today, and they were talking about how they were, their plan was to do some renovations to their existing rental properties and sell them off. And, um, they're gonna put a pause on that because they think there's going to be bigger opportunities and buying some quality properties that they can hold onto. These guys are entering into retirement, some better yield properties and, and so they're gonna put a pause on the building, and actually an interesting part about that Ed is the building supplies.

When we do have access to Placemakers and Bunnings and all of that again. I wonder whether or not there are going to be some gaps in some builders supplies, because I know developers that I've spoken to, a lot of them are hoarding supplies now because they've got big projects that are playing for the next wee while, and so they're going out there and they're buying and hoarding a lot of their supplies.

One of my developers I spoke to the day of lockdown said we're sweet for paint we've just bought out Placemakers supply of paint. Uh, so that might mean that other people doing smaller projects that don't have as much, uh, grunt with Placemakers, might not get access to it. Now, I don't know, that was just kind of a general conversation that we had, but I wonder whether or not they will be a flow on effect for that. Sorry, Ed go ahead.

Ed McKnight: And you can imagine as well, as soon as the lockdown was announced, we all ran off to the supermarket so that we could get what we needed. You can imagine as soon as the lockdown ends that everybody who needs building materials floods into all of these places, like your Placemakers, your Mitre 10, Bunnings buys everything up and it's going to take some time for those stocks to renew as well.

Andrew Nicol: And Ed, as you are making your comments around those different strategies, I was just kind of making some notes around some things that I might be a bit more wary of and this coming market. So, with the buy and flip model, I think that a major thing to be wary is that the expectation of a soft market, so all the negative media that's gone out there, and these expectations of lower prices that creates a soft market.

So if you are buying something, you really want to be buying under value, if you're going to do a renovate and flick, because if in three months time, there is some momentum with people selling off some stuff at lower prices if that happens then the market, it fulfils that expectation of a softer price, and so all of a sudden your buyers will be making lower offers. And, and my biggest tip there would be, have a plan B.

This is not a market that I would be interested in getting into personally right now. It's not really my method of investing any way nowadays but I would always have a plan B. If I cannot sell it at the price that I need to, to make this worthwhile, what is it gonna look like as a normal rental have that plan B now so that if you are stuck holding the baby, you've got to, you've got a plan B and you can rent it out and it'll be a good rental.

Ed McKnight: When you talk about not being interested in getting into the market, kind of now you're talking about selling or buying?

Andrew Nicol: I wouldn't be wanting to buy and flip if I were a, I wouldn't be wanting to enter the market as a buy and flip investor right now, I would be sitting on my hands a little bit. I think that absolutely as a long-term investor this market's awesome. My next four weeks in isolation is getting clients ready to take advantage of that six week window that I think there's going to be where there's going to be some great deals.

And so just jump to that, that's the long-term investors, my word of caution and my advice here is don't just buy anything because now that rates have come down, I think there will be investors that go out there and don't get advice, and they'll just buy anything because the numbers look good right now. But you need to look at those numbers because it is a long-term, investment, as okay, well what, what do we look at when those rates go up? What do we need to consider later on? Don't just go and buy a lemon because one lemon can ruin your entire portfolio. So that's my word of caution there.

Time heals all with long-term investment in property but let's be strategic about this, let's get ready, let's get advice let's get knowledge so that we can buy the best possible property when we come out of this because there'll be some great deals. And then on the yield front, just to cover that last one, one word of caution there. Don't be too focused on Airbnb. I think that's a market that's going to see some changes.

So I think that that would be a really, uh, important consideration if you're going out and your buying high yield and you're thinking about all the international travellers, maybe just consider that maybe an alternative thing, like students for example, rather than AirBnB, at least in the, in the next 12 months.

Ed McKnight: Fantastic. Well, let's wrap it up there, but don't forget to rate review, and subscribe to the podcast. It really does help us get the message out to more people and hey, if you're interested in the impact that coronavirus might have on the property market, why not sign up to come along to our webinar. It's happening this Tuesday, the 7th of April at 5:00 PM and we're going to be looking at 165,000 different data points.

We've got data for every suburb in the country with how prices have moved over the last 20 years, and we're going to be talking about the lessons we've learned when we analyse it and look at what happened during previous downturns. We're going to try and identify the areas in New Zealand that are going to have the deepest downturns and the speediest recovery. So I'm going to drop a link to that, to that webinar in the show notes, just tap or swipe over that cover art. It'll take you right there.

Also, just head along to the Opes Partner's website, you'll see it right there. Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol and we're going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.