Buying Rules for Property Investment

It’s not enough to create magic. You have to create a price for magic, too.You have to create rules.
— Eric A. Burns

There are many formulas and theories for property investment nz success and one of the most fundamental lessons is to treat property investment as a business and use a mentor to help, guide and coach you along the way. Once you have a property mentor (If you don’t already have a coach or mentor, visit and find out how you can hook up with one), you need to sit down and set your buying rules.

I believe the top two rules are A Property yield must be minimum 10% and you should Buy at a Discount.

A Property yield must be minimum 10%

I will not buy a property to hold in my portfolio unless it yields me 10% or more. It’s easy enough to work out the yield on a property as follows:

Yield = Weekly Income x 52                    
Purchase price + renovation costs;

The reason I decided on 10% is because that was one of the rules I was taught, and at the time I started investing it was not that difficult to find 10% deals. I subsequently made up my mind to stick with it, and even though it has become harder to achieve, I have still found lots of way to make it work, e.g. buying properties with dual income streams.

There are definitely 10% yield properties still out there; you just have to know how to find them and how to negotiate them. Having said that, it is not often that I find a property advertised for sale that is returning 10% at asking price – it’s more likely to have a 6–7% yield. The way to get the yield up to my required 10% is to negotiate a discount or to renovate after purchasing then put the rent up. Sometimes it’s possible to combine both steps. Most of the time, though, you will not be able to buy a straight 10% yield. Instead you will have to create it, and this sometimes takes a bit of effort.

Not every property will yield 10% but if you work on averages across your portfolio you should aim to hit that target.

Buy at a Discount

Another of my very important rules is to buy at a discount, which not only helps to increase the yield I get on a property (the lower the purchase price, the higher the yield), it also keeps me moving forward with my investing. In order to build a significant property portfolio you need to be able to get the money used for a deposit out of a property and into the next one as quickly as possible.
The way to do this is to increase the equity you have in the property, starting with buying it under market value. As mentioned earlier, another way is to add value somehow, e.g. cosmetic improvements or renovations.

I have bought the vast majority of my properties at a discount, and I will explain some of the ways I have been able to do this, looking at individual deals further on in this book. Having immediate equity in a property by buying under value gives you a fantastic head start towards having enough for a deposit on your next property.

It is all very well setting the rules for buying, but it is all about sticking to the rules, even when the going gets tough, this is where a mentor will come into their own and support and guide to remain on track and within the rules.

The above post is based on the book “The 15 Million Dollar Man” by Sean Wood, to read more click Property Investment and download 2 free chapters.

Tags: , , , , ,

About PropertyTutors

“PropertyTutors Limited believes the information in this publication is correct, and it has reasonable grounds for any opinion or recommendation found within this publication on the date of this publication. However, no liability is accepted for any loss or damage incurred by any person as a result of any error in any information, opinion or recommendation in this publication. Nothing in this publication is, or should be taken as, an offer, invitation or recommendation to buy, sell or retain any investment in or make any deposit with any person. The information contained in this publication is general in nature. It may not be relevant to individual circumstances. Before making any investment, insurance or other financial decisions, you should consult a professional financial adviser. This publication is for the use of persons in New Zealand only. Copyright in this publication is owned by PropertyTutors Limited. You must not reproduce or distribute content from this publication or any part of it without prior permission.”