Private property issue #18 - andrews mistakes

Private Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

I’ve made so many mistakes in property investment. So, to help you avoid making the same ones, this week, you’ll get the real story.

Here are the top 3 mistakes I’ve made and (more importantly) the lessons I’ve learned.

Mistake #1 – “but at the seminar, they said …”

At some point, the bank will stop lending you money. I got there in my early 20’s, only 2 or 3 properties deep.

They said I didn’t have enough equity to keep borrowing … and this was back in the days when you could borrow with less deposit than you can now.

I’d been to every property investment seminar under the sun at this stage. They all said the same thing – “chase yield”.

So my portfolio was focused on properties that provided an income. But, it was a piddly amount, and these properties weren’t building my wealth.

You see, chasing yield doesn’t make you wealthy. Property going up in value makes you wealthy.

So the lesson is that property investment isn’t one size fits all.

If you’re early in your investment journey, you’ve got to focus on capital growth to keep growing.

If you already have some equity and are later in life, that’s when you focus on yield.

Mistake #2 – “and then the bank said no …”

After getting over the equity hurdle, I was trying to buy up half of Christchurch. And as luck would have it, I had the best banker at ANZ – Mark.

I’d call him up, and he’d just get the loans approved. It was greatPrivate Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

Then he got promoted.

And Jeremy turned up. PAINFUL.

The LVR restrictions came in, and Jeremy called. He started switching all my mortgages to principal and interest, which put me in a challenging financial position.

You want to use your money to keep growing your portfolio. And here I was, putting every cent I had into paying down debt I already had.

Now, what was the issue? I thought Mark (my original banker) was my friend.

So, I was totally reliant on one guy at one bank. When the bank said jump, I had to say, “how high”.

That’s why, today, when I’m talking to property investors, we aim to use two banks as much as possible. That way, one bank can’t dictate your property investment journey.

Mistake #3 “this one nearly crippled me …”

And finally, the one mistake that nearly crippled me.

I started investing in 2003, and for the next 7 years, I’d been buying up a storm in Christchurch. I got lucky. Things had gone well.

Then in September 2010, the first earthquake hit the Garden City. Houses were severely damaged. But it was the second one that really messed us up.

I had tenants who couldn’t stay in their houses. They had to move out, so there was no rent coming in … but the mortgages still needed to be paid.

On top of that, I was a mortgage broker. My business stopped the day the earthquake hit. I couldn’t write any loans – the banks weren’t lending money.

But the big mistake was that I’d only ever invested in what I knew – Christchurch.

Had I owned properties around the country, things still would have been hard ... but would have been much easier.

Think about it, there was no way for me to sell a house in Christchurch at that time to free up money. Nobody was buying anything.

But, had I a few properties in Auckland – the property market was still functioning, so I could have sold a few to ease the cash flow.

So the lesson is, you need to buy property around the country.

If you live longer than 50, you’ll have one of those “once every 50-year” events in your lifetime.

What’s your biggest mistake?

I don’t have a monopoly on mistakes, so what I want to know is … what’s your biggest property investment mistake?

Hit reply and let me know. I’ll collect a few responses and talk about them on the Property Academy Podcast over the next week or two.