What’s your next move?

Man playing chess, close-up

It’s been a few years since I’ve spent my nights in the houses of clients who are genuinely seeking advice around what to do and how to grow their portfolio, rather than what’s the best rate. It doesn’t feel like that long ago that I was sitting in BNZ as a Mobile Banker approving an investor’s four properties at 90% LVR…. In reality it was 5 years ago and what a 5 years it’s been. Full of reducing rates and increasing cash backs. I had lunch with a banker only 18 months ago and I said that credit policy, as well as a reduction in the ridiculous cash backs, would see the end of a price driven market fuelled by greed and lack of understanding of what it means to be an investor. It should also be the death of a few cowboys in the industry, but that’s another story. Rates are on the way up and the property market is different across suburbs and regions. Bank credit policy changes have put any significant growth plans to bed, so planning your next move is proving more difficult. There is an undeniable need to be a lot more calculated.

Understand why

Know what you’re investing for. Is it for now, or is it for the future? Are you looking for cash flow? If so, you might want to draw your attention to our capital city where I am seeing countless investors pick up yields in excess of 7% gross. Dunedin isn’t too far behind either; all be it a little cold. Are you looking for capital gains? If so, can you afford Auckland or do you need to look a bit further afield? What do the future development plans of our smaller cities look like and is there an opportunity to pick up capital growth outside of Auckland? Significant motorway developments North of Auckland should lead to easier access to places like Whangarei and therefore population growth. Don’t just throw a dart at a map and hope for the best. Do some research and ask some questions.

Mitigate and Consolidate 

Split your banking relationships. Take control of your next move. One bank’s traps will hinder growth, particularly in this market where credit policy is tight and banks are looking for profit rather than market share. Your bank will look to take as much as they need when you sell and give as little as they need when you’re buying. The banks are looking to consolidate their existing book rather than take on any more risk. Maybe it’s time you did the same? Are there properties that are killing your portfolio? Can you ditch any and replace them with properties that better suit what you are looking to achieve? I would be looking to improve the quality of my existing stock by way of a simple renovation or even a major one if the end result will be an increased yield and lower LVR. If the numbers don’t work, then don’t do it. $40,000 in renovations shouldn’t just add $40,000 in value.

Principle & Interest vs Interest Only

Can you get your portfolio into a position where it can sustain a move to principle and interest? Like it or not, a significant change in bank credit policy is around Interest Only and how long they will allow you to have it. You’re unlikely to be approved Interest Only on your owner occupied lending without a decent reason and this is becoming consistent across lenders. What would happen to your cash flow if even just your owner occupied lending was put on P&I at the next roll over date? Or worse, your whole portfolio? The time is now to be looking for professionals to provide you some advice on where you’re at and what your next move is. Don’t get caught out.