Property Investment
3 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
There are five main property investing strategies I see Kiwis use.Â
But what does it take to make $1 million through each main strategy?
I’ve run the numbers. Let’s find out.
This is the classic property investment strategy. This is where you:
Let’s say you buy a $1 million property and borrow all the money to buy it.
How long would it take to make $1 million?
If that property grows at 5% a year, it doubles in value in about 15 years.
But once you sell, pay the agent, repay the mortgage, and adjust it all for inflation, you’d need to hold that property for 22 years to make your $1 million.
And this is ignoring any cashflow.
Now, some investors don’t like relying on capital growth. They prefer to just look at cashflow.Â
So, ignoring any capital growth, let’s say you own a $1 million property. It’s got no mortgage, and you get a 4% net yield.
So, after you pay your rates, insurance and maintenance, that property produces about $40,000 a year before tax.
After tax at 33%, that’s about $27,000 a year in your pocket.
But to make $1 million from cashflow alone, you’d need to wait 37 years.
(And remember, you’d need to have the $1 million property with no debt in the first place.)
Now, let’s say you decide to flip.Â
You might buy a house for $600k and spend $60k on renovations.
After the reno, the property is worth $750k. That’s an uplift of $90,000.
Just keep in mind that we need to pay the real estate agent, lawyers and other sales costs. That could take your pre-tax profit down to $52,500.
But then you’d also have to pay tax under the bright line test. At a 33% tax rate, you’re left with about $35,000 from the flip.
So, to make $1 million, you need to do about 28 flips.
That’s one flip every quarter… for seven years.
(And they all have to go well.)
Subdivisions can make bigger profits than flips.
But they’re also slower and more complicated.
Let’s say you buy a property for $600k, spend $150k subdividing it, and the final value is $900k.
After 5% selling costs, your pre-tax profit is about $105,000.
After tax at 33%, you’re left with about $70,000.
So, to make $1 million, you’d need to do about 14 subdivisions.
Now, if you can do two subdivisions a year, that’ll take about seven years.
Let’s say you want to become a property developer. You want to build a block of townhouses.Â
You reckon you can sell each townhouse for $750k (incl. GST).
Once GST is removed, the developer keeps about $652k.
If the development makes a 10% pre-tax margin, that’s about $65,000 profit per unit.
At the 39% tax rate, that becomes just under $40,000 after tax.
So, to make $1 million, you need to build and sell about 25 units.
Now, that might be 5 developments of 5 townhouses.
But you’re probably not starting with a 25-unit development. Your first one might be two, three or four townhouses. That could take 12–14 months.
So, you might need to do 5 developments over 7 years to hit that $1 million after-tax mark.
All of these strategies can help you make money.Â
Flipping, subdividing and developing can get you there faster. But they also need much more of your own time and money.Â
A buy-and-hold strategy is much simpler. It doesn’t take as much of your own cash (and is often tax-free). But it takes longer.
| Strategy | Per deal (post tax) | Deals to $1m | Time |
| Buy-and-hold | $1 million (total capital growth) | 1 property | ~22 years |
| Cashflow | $27k / year (cashflow) | 1 property | ~37 years |
| Flipping | ~$35k | 28 flips | ~7 years (4 per year) |
| Subdividing | ~$70k | 14 subdivisions | ~7 years |
| Developing | ~$40k per unit | ~25 units | ~7 years |
Now, keep in mind that my offers help people follow a long-term buy-and-hold strategy. So, you might think I’m intentionally making the buy-and-hold strategy look really good.
That’s not the case. If the outcome of this newsletter is that you decide to start flipping properties, that's okay.Â
What I wanted to show was the different ways to make a million dollars and how the numbers could realistically look.
That way, you can pick the most realistic and achievable strategy for you.
Just keep in mind that all of these numbers are very simple and in the real world they are all a bit more complicated.
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
This article is for your general information. It’s not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isn’t telling you what to do with your own money.Â
We’ve made every effort to make sure the information is accurate. But we occasionally get the odd fact wrong. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
You might like to use us or another financial adviser
