Podcast: What Andrew Learnt From Owning 38 Investment Properties – 3 Case Studies | Ep. 260


Ed McKnight

Economist, property investor and host of the Property Academy Podcast
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Show Notes

What's Covered in the Show?

In this episode, we discuss 3 past property project that Andrew has worked on, along with the real financial results gained from these projects.

These three projects spread across the main property investment strategies – 2 buy, reno and holds, along with a buy new off the plans and hold.

We also mention our current podcast survey. We want to make sure that this is the best show in the world about investing in New Zealand property ... we love having you on the journey and we can't wait to get your feedback. Once you've taken the survey we will send you your very own Property Academy Podcast mug.


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, Andrew is going to reveal some of his past projects and walk us through how some of his past property projects have panned out.

Now this is a recap of our recent webinar that we did where Andrew outlined what he's learned from owning 38 different investment properties or having a portfolio, I should say, off 38 investment properties.

Now I just want to say before we get into this, it was really cool when I put the webinar together, going through Andrews past projects because it kind of makes you realise just how prolific he has been within the property game.

And I think you're going to get a lot of value out if you listen right to the end about what he's learned from these different projects. But Andrew, walk us through these three different projects with how each of them have worked and the kind of numbers behind each of these

Andrew Nicol: Cool, so I chose three properties that were kind of different models, I guess, for each of my portfolio.

And again, these are at different stages of my life, different stages of experience. And, there are some that I would maybe do again, and there's others that I would definitely not do again.

So, first of all, I'm going to start with a strategy which was hold and then flip. And actually we did some renovations on this property.

This was quite a unique property because it was an earthquake damaged property. So post-earthquake in Christchurch, there was a unique environment, where people who had been paid out a great deal of money from their insurance company and they were selling properties, what was called "as is where is" and that means that it's broken and I'm going to sell it to you broken and you can do what you like with it.

And so there was a good opportunity to make some money here on both sides because often the insurance pay out was greater than what it would cost me to repair a house. And the reason for that is because insurance policies back then entitled an insured party to a as new property.

Now, that was some wording that has now been revised by insurance companies, funnily enough. And what it meant is if you had a broken foundation, for example, then you were entitled to an as new foundation.

Now, if you can't remove the house to fix that foundation, then the insurance company just had to suck it up and give you a big cheque so that you accepted that as fair pay out. Now, let's say you owned a property for, say it was worth $500,000 and the insurance company said, oh, well, you know, the house is worth 400,000 and we, you know, to repair the house can take us a long time.

So we'll just give you a check for 400,000 then the house only owes you a hundred thousand dollars. Now, if that person then sold it to me for say for example, $200,000 they've just made an extra a hundred thousand dollars they've done really well.

And then what I might do is I might find a way of fixing it for 200,000 rather than the 400,000 and again, all I needed to do was bring it to the building code I didn't need as new. I needed building code to have it reinsured.

Now there's a lot of risk with a project like this, so I would disclaimer that firstly, I think that the time of making money in "as is" properties has long since passed that dance has stopped. But there was some good opportunity in the early days because everyone was a bit scared and you make money when people are scared.

So anyway, this is 7 Benjamin Lane in Christchurch, I purchased for $465,000. The repairs in this case were $78,000. So it wasn't significant repairs and they'd been paid out for a few things. I think they've had a couple of hundred thousand from the insurance pay out.

I paid them not market value, but I paid them a decent amount of money, and then the lawyers cost me about $3,000. And then there was some holding costs. So the holding costs were about $6,300. And that's interest, the time that I was having the repairs done. So that was over several months. So I had to still pay interest on the mortgage whilst we were doing the renovations.

Now, the total cost came to $552,300. Now, the value at the end, once we got it valued, and we actually did some really nice tidying up renovations, we re-carpeted, painted, all those kinds of things, it looked much nicer, the valuation came in at $800,000. So I'd created $247,700 worth of equity in that project over four months.

Now that sounds like a lot of money, so don't get too excited. There was a huge amount of risk. If there was an earthquake when I owned that property and it hadn't been repaired, I was uninsured, and you have to have a lot of cash to do that at the start because the banks wouldn't lend on "as is" properties, because again, it's not an insurable asset because of that reason.

And so, at a hundred percent borrowing, when I paid myself back out, it was at 69% LVR. So it was good from an equity perspective. We ended up selling that property a few years later.

We actually achieved above valuation at that stage, but the market had probably gone up. Sold it for $830,000, my real estate agents, which was my own team, took $28,000 of that.

Legal fees took another $2,000, maybe I need to start a law firm as well. There was a break fee, so we'd fixed for five years because we wanted certainty and then just because, this was in a partnership with a couple of other people and we're all doing different projects individually. We wanted our money back, so we had break free of $20,000.

And so the net sale proceeds was 650. With a mortgage of 552300,

Ed McKnight: 750 wasn't it?

Andrew Nicol: Sorry, 750, with a net profit of 552300, sorry, lending of 552300 and net profit of 197700. Now, this was outside of the bright line test, and that's a really important thing to note because if we had have triggered bright line test, and we were doing this as traders, then it would have been GST of 29,655 and then tax of $65,241 so we actually would have only ended up with half of that money give or take.

And so again, I've mentioned it before, the worst silent partner that you can have is the IRD if you're losing all that money. Let me talk about another one. I've mentioned this one many a times, because it's the bane of my life.

321 Wilson's Road. Now, this was a property that my parents owned. I lived here for a period of time, it is a very cheap property, very old property, a hundred years old, in a fairly lower socioeconomic part of Christchurch. I bought it a long, long time ago. I think it was about 11 years ago, give or take, maybe more than that.

Purchase price of $200,000. That was the market valuation. I didn't rip off my parents in the sale, I promise, just in case mum's listening, you saw the valuation, the repairs were $50,000.

There was quite a lot of stuff that we needed to do to, to improve that property, to get it to a nicer standard to let it out, lawyers of say, $3,000 holding costs of about 6600, and that was because it was a much longer renovation period.

Believe it or not, this was one that I actually got my hands dirty and did a lot of the work myself, myself and Tim who owned the property with me, and so the total costs were $259,563. So, what is my next page on this one? So in that case, we had a valuation of 320, so we'd created equity of $60,400, LVR of 81.3% on that one once it was all finalised.

We've held it for 10 years. Oh yes, it must've been about 10 years ago cause it's still there. And the valuation today has probably $400,000. Now again, we'd probably spent a lot more money on this one than maybe we ought to, because we'd made it seem, it became kind of one of the nicer houses on the worst street.

Well, it wasn't the nicest house on the worst street, but it was a much better house on the worst street. And so the annual growth rate we've only had on that one's only 2.3% so not a lot. It's generated a good income over that time, it's been a good yield.

This is definitely one of those yield properties, but it's been high, high maintenance, low growth, and the rent's been okay. I mean, it's a, it's okay, but it's good on based on the purchase price, but it's low compared to the average across the city.

And look, I guess my reservation, here now looking back is what else could I have done with that money, that one's been a bit of a burden. I actually just did it because my parents wanted to buy another house and they needed to sell theirs quickly.

So I just did the deal and we tried to polish a poo, if that's the right word. And, this was the best we could do. We've still made some money, but it's not the best investment I've ever done it. And we're now looking at developing that site just to kind of get our money back to a palatable amount if we sold it as is it wouldn't be that great.

Last one I want to talk about is a nice, easy one. Now actually, this is probably interesting because. This is kind of when I was figuring out that it can be a lot easier, if you just buy off plans and hold.

And so this was 12 Maple Place in Rangiora. This is a property, actually I bought this one with my parents, because they were very, very nervous about getting into investing, and it took me a long, long time, years to convince them to finally dabble in the market.

So I finally bought this property with them. I think, that dad became the ultimate property investor afterwards, and every time I'd have coffee with them would bring the blue book with houses circled in there.

So this property, we bought off plans and it was about a nine month build, we paid $390,000 for it. Set up costs about $5,000 all up because we had some complex structures to protect everyone. End valuation 370, so the value went down during the build, which was one of those, you know, slightly unnerving things.

However, I'd been investing for a while now. I reassured my parents not to lose sleep over it, and equity was negative $25,000. But, that was just because we bought this, right, we signed in 2007 we settled in 2008 and those of you who are old enough to remember, will know the GFC hit right then, and so it was just an unfortunate timing thing.

Now, this is where I always say it's about time in the market, not timing of the market. I'm, I'm good at investing in property and I was pretty good then as well. Not as good as I am today, but I was pretty good then. However, I'd just lost some money so you could see that as a bad investment. But I disagree because our rent covered all the costs. It's currently rented at $540 a week.

So it pays for all the costs and the mortgage has stayed the same because just paying an interest only mortgage, the interest rates just gone down again. So now all of a sudden it's making money. The value today, if I sold on the market, I probably get 600,000 for it. So there's equity of $205,000.

Now this property, yes there was negative equity due to the GFC, but the positives, such low maintenance. I think I've spent a couple of hundred dollars in the entire time I've owned it. It was self servicing within three years.

So, in the first stages, you know, we made sure we covered for vacancy and maintenance, all those kinds of things, which ended up not happening.

It ended up just paying for itself within three years and it has been really steady growth. And so that was one that I kind of bought and never thought about again. And this is actually cause Ed and I talk a little bit about my investment journey and how it's changed in time. And I have done some of those high risk things like renovate.

I have done those earthquake damaged properties, which absolutely made me some good money. But would I do it again? Unless it was a really good opportunity I probably wouldn't because we also did other projects which lost money just purely because when you actually get that carpet ripped up and discovered, there's far more cracks in the foundation than you thought.

It's very easy to go over budget there and all of a sudden you have to do all that work to get it insured, and if you're have an uninsured property that's not an asset because it's going to go down in value.

Ed McKnight: Fantastic. Well, look, I hope you guys have got a lot out of this. There was more we could dig into and more we did go into in the webinars.

So I'm going to link that into the show notes so that you're able to see that. But I think it is just really interesting, two reasons. One, to hear some of those projects that you've done in the past.

And then actually the other side is to actually just hear the emotional side and soul that we didn't realise Andrew Nicol had when talking about his parents and the wonderful things he's done with and for them.

So I am going to link to that webinar in the show notes. So tap or swipe over that cover art, it will take you right there. The other thing I'm going to link is our podcast survey.

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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, insights to help you get the most out of the New Zealand property market.

Until next time.


Ed McKnight

Ed McKnight is the host of the Property Academy Podcast – NZ's #1 business podcast. He is an economist, having studied at the University of Auckland and the University of Waikato. He's a frequent writer for Informed Investor Magazine and has contributed to NewsHub, Stuff, OneRoof and Property Investor Magazine.