At the end of one year and the start of the next I usually like to set some goals or make some resolutions for the coming 12 months. I find this helpful to guide me through the year and now I’m working full time in my property investment business things are no different. It helps me avoid distractions and analysis paralysis often confronting me in property and ensures I stay focused on my long term goals. I find without goals I can be a bit aimless and lose motivation, excitement and my view of the big picture.
Toward the end of 2016 the Reserve Bank of NZ had introduced new loan to value restrictions preventing banks from lending more than 60% of the purchase price of a property to investors. Until then I had been happily purchasing rental properties to keep long term. My previous 3 purchases had been bought, renovated, rented, revalued and refinanced. I had reached a point where I was getting close to a debt serviceability wall and I knew that the new restrictions meant equity requirements might also restrict my purchase of a further rental investment. My strategies for the coming year would need to be tweaked if I was to stay the course on the longer term passive income goals.
I needed to figure out a way to increase income to address serviceability and to generate some lump sum’s of cash to meet equity requirements so I could channel this into the passive income train; rental houses. I had done one trade property or renovation for sale previously (Sunnynook Road)) but it is still pretty new to me. Ive now subsequently done 2 of these projects (Hauraki Cres).
When setting investment goals I want to build on achievements of the past 12 months but also keep things realistic and manageable, with a balance of work, family and fun. I have settled on the following investment goals for 2017:
- Complete four trades
- Build a minor dwelling at 380 East Coast Road
- Buy one more rental house
At this stage I own 3 rentals and want to keep building this portfolio to reach my goal of six million worth of property in ten years. These goals I set about 18 months ago when working out what our family would need in passive income to replace our current income and become free of any obligation to work. So how to keep building the portfolio when you are hitting a debt servicing wall and now need more cash for each and every purchase.
To improve debt servicing we need to up the income. My strategy here is multi-pronged.
The main household income is my husbands salary, he is in line for a small increase some time this year.
I’m now well through the resource/building consent process needed to build a minor dwelling on the back of a rental property I already own (East Coast Road). I’ve incurred a fair bit of expense getting to this stage but there is probably another $200k to actually get the build completed. This additional door should double my rental income from this property. YAY!
The plan to purchase an additional rental house this year will also give another income stream. My goal with this one will be to keep the yield at 7% or above. I’m not yet settled on details of exactly where this property will be located, but I love my high yielder in Lower Hutt – could do another one like that or perhaps a holiday let property. We likely wont get to this until the end of the year. I’m still investigating possibilities – watch this space.
I will work to maximise income from my existing portfolio. The high yielder in Lower Hutt could do with a makeover and that would definitely warrant an increase in rent. I inherited the existing tenant who vacates next month. Rent was always under-market at $360 pw. After paint, carpet, repairs and a tidy up, we should be able to get $400-$420pw. All helping the income. My other two rentals were renovated last year and rents are at market. Perhaps I might be able to increase around $10 pw per rental in the coming 6 -12 months.
AirBNB have been good to us over the summer, we rent out our mountain chalet while we don’t use it. The summer tourist numbers in that region have made for reasonably high occupancy and healthy rental. We’ll keep taking advantage of that this year. We also made the decision to try letting our city home this summer while we were on holiday with a reasonable result.
My final income generating strategy is homestay. I think they call this house hacking in the US – getting an income from the home you live in. My 2 kids are at Intermediate and High School and we are presented with loads of opportunity to host students for various lengths of time during the year. Not sure we could cope with a full timer for the year but a few little short stays work well. I find I’m working from home, driving to and from school and home outside of school hours anyway – why not cash in on that. So, Ive contacted all the homestay coordinators at my kids schools and sports clubs and we are ready.
Which brings me to my second challenge:
The new equity requirements imposed through 60/40 LVR restrictions mean if I am going to buy any more rental houses, I will need some lump sums of cash for the deposit. That’s not money I have lying around, so how to generate large, quick piles of cash?
In late 2015 I bought, renovated and traded my first ever investment property. This generated an impressive $58k in profit. This is taxed of course, but I can see I could use this as a way to generate lump sums and create a deposit for a new rental house. So my intention is to progressively complete 4 of these property trades in 2017. As I write this I have just completed a trade and listed it for sale this week, so I’m getting more practice and learning more and more about how to maximize profit with this strategy.
I’m now on the hunt for trade property number one for 2017 and hope I can generate around $200k through trading four properties this year. Its never an exact science and I cant be sure if I’ll make a little or a lot. I’ll keep applying the learning’s from previous projects and hope things go to plan.Whatever profits I make will be channeled back to the rental houses, either to build the minor dwelling, buy a new rental house or potentially to pay down debt.
That about sums up my investment goals and strategies for 2017. I’m pleased to be able to share them – it makes me accountable to the plan! I’m excited and impatient to get on with it. Here’s wishing all your New Years goals, resolutions and strategies bring you every success this year!