Private property issue #19 - your property 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.

Last week, I asked you what your top property investment mistakes were.

… And my inbox was flooded with a whole heap of doozies.

So, here are the top property investment mistakes made by your fellow Private Property readers … and (more importantly) the lessons learned.

Mistake #1 – “don’t go chasing yields…” – Timothy

“Thanks for that. I would say my worst mistake would be not buying my first property in Auckland because I wanted the yield to be higher, and so I wasn't willing to offer a higher price.

“I chased yield because I wanted to reduce my working hours as soon as possible. I'm now in my late 20s with four properties and can't borrow because my income is too low.

“So I have the problem of not having enough yield to borrow more but I also am not particularly wealthy due to limited capital gains since I was chasing yield.” – Timothy,

Timothy has done really well. 4 properties is a good sized portfolio ... especially for someone in their 20’s.

But because he chose yield over capital gains, his wealth hasn’t grown as fast as it could have … and now there’s also a limit to how far he can grow his portfolio.

That’s why most people at the start of their property investment journey start with growth properties, and then transition to yield later on.

Mistake #2 – “always buy with resource consent…” – Colin

“Our biggest mistake to date was buying an off-plan Auckland development that didn't have resource consent. Developer reckoned it would be done in three months. This stretched to a year, then a year and a half.

“Turns out he was fighting with the Auckland Council, which didn't like his plans, which breached a whole bunch of rules in the Unitary Plan. Eventually he threw in the towel, scrapped the development, and gave us our deposit back.

“Sadly for us, this all occurred during the 30 per cent increase in Auckland property prices over 2020-2021. We lost at least $150K capital gain on paper.” – Colin

Now what’s the lesson here? It’s not that you should never buy a property off the plans that doesn’t have resource consent.

In today’s market, many off-the-plan properties don’t have this consent yet.

But, you don’t want buy from a developer who doesn’t have the chops to get a project built.

Basically, anyone on the street can say: “I’m a developer” and then with no experience and with no finance in place, can set up shop and start selling properties for a 200-unit project.

This is why it’s a good idea to do as much weeding and vetting of any developer you work with, before signing a contract.

But to Colin’s point, asking whether a property has resource consent first (and what a developer’s experience is), that’s a big tick.

Mistake #3 “I shouldn’t have sold…” – Michelle

“Selling!

We sold 3 properties, that we didn’t need to sell, between 2016 and 2018. We came out, not having lost anything, but not having made either (after agency fees etc – out up 20k net across all 3).

If I’d held on to them, through this recent growth period, I’d be up over 1.2mil.”

Ouch. This is one of the biggest mistakes property investors make. They buy properties to build their long term wealth.

Then they deviate from the plan, decide that it’s too hard, sell … and then regret it later.

The lesson here is: You only get the long-term gains that come from property investment if you’re in it for the long term. Hold on to your property for as long as you can.

Mistake #4 “I shouldn’t have sold…” – Michael

And I worried about putting this last one in from Michael (because you might think it sounds self-serving). But this one struck a chord, so here are his top 4 mistakes –

“1. Starting too late. Mid to late 40’s (that's late to me).

1. Paying loads for property courses. At the time: Property Apprentice 8k. My Properties 6k. Property Tutors $45k. I didn’t know until I knew that it wasn't necessary.

1. Renovating while doing my normal job. Burnt me out (like the real deal medical burnout).

1. Buying a property not recommended by my Opes Property Partner. My first buy ‘n’ hold new build and the Developers have gone into receivership. Bugger!”

What else do you want to read about in private property?

Really enjoyed reading your replies last week. My goal is to use Private Property to create a community of property investors.

So, what else would you like to learn about in this newsletter? Hit reply, and let me know.

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