Property Investment
3 min read
Author: Andrew Nicol
Founder, 20+ Years' Experience Investing In Property, Author & Host
Picture yourself 20 years from now. It’s a Tuesday morning and you’re not watching the clock.
Your money is invested, your mortgage is under control, and if you wanted to drop to three days a week, you could.
Here’s how I’d start to get there on the average Kiwi salary – around $70,000 a year.
A $70,000 salary works out to $5,833 a month.
After tax, ACC levies and KiwiSaver, you're left with about $4,425 a month.
But before you can build wealth, you need to get control of where your money goes.
Too many New Zealanders spend first and save what’s left over. The problem is that there is often very little left before the next payday.
That’s why every dollar you earn should be given a job.
My favourite way to manage your money is with the Barefoot Investor bucket system. This is where:
On the average salary, that means:
| Where your money goes | % of your wage | Weekly |
| Everyday expenses | 60% | $613 |
| Short-term wants | 10% | $102 |
| Longer-term wants | 10% | $102 |
| Your future | 20% | $204 |
Of all these numbers, the most important one is that final 20%.
That's $204 a week for “future you”. That’s what you use to get ahead.
One criticism I sometimes get when I share these numbers online is: “But I can’t live on only $613 a week!”
The average household in New Zealand earns double this.
So in practice, the average family lives on $1,226 a week (plus splurges), not $613.
But I also get that some people can’t do that right away. My main point isn't that you must save 20% of your income today. It's that you need to set up your buckets and bank accounts so that you have a routine when you get paid.
Start with 1%, 2%, or 5% and then work up from there.
Because before you can decide what to invest in, you need money to invest.
Once the money is set aside, you need to decide where it goes. Here’s what $204 a week could turn into.
Say you invest that $204 into shares every week and earn an average 7.5% return:
After 20 years, you've put in $212,160 … but you could have $480,084. That’s over $267,000 you didn’t have to save.
Property works differently. You don't take your $204 and buy $204 worth of a house every week.
So, instead you might use equity in your home for a deposit, then use that $204 a week to help cover the property's costs.
Let’s say you buy a $525,000 investment property and it grows 5% a year. Based on those numbers, you’d have:
How are these numbers so large? The 5% growth applies to the whole $525,000, not just your $204.
Of course, I’m deliberately keeping things simple here. You’d need enough equity for the deposit and a bank that says yes to your lending.
But I'm just trying to show you what is possible, even if you only have a small amount of money to spare a week.
The mistake I see people make all the time is waiting. They tell themselves: “I'll start investing when I earn more.”
Then they get a pay rise and their spending goes up. Maybe it’s a bigger house, a newer car.
Then they get another pay rise and their spending goes up again.
That happens again and again until suddenly you're earning $100k but still aren't investing.
You don't get rich before you start investing.
You start investing before you get rich.
Founder, 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.
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.
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