Since mid-july when we heard the LVR on existing property would be rolled back to 60%, I have been inundated with questions from my clients. By far the best question has been: “How do we move forward with these new rules in place?”

If you read my recent articles, there has been an underlying theme. In summary I have talked about the value of a coach and getting the basics right, which includes finance, structures and having a very clear understanding of your goals.

I talked about being realistic about the time you have available, not just in a day-to-day sense, but also in terms of how many years you have left until retirement.

Add into that mix your personal risk profile and your current financial circumstances. All these discussions have led to this point: how to make property ‘work for you’ amid an ever-changing environment.

Be Adaptable

The recent LVR changes aren’t the first thing to change and they won’t be the last; as astute investors we need to be able to adapt as the playing field shifts under us. The days of buying below value, renovating to add value, recycling that increased equity and moving onto your next deal, all within three months, may be a thing of the past (for most investors). There is, however, always another way to skin the cat; in my opinion these recent changes may actually be a good thing, in that they will by default create a shift in the type of properties that investors focus on.

Sam Saggers, our Australian CEO recently presented a webinar on the topic of global markets. As part of it he talked about the YouTube clip Did you know, in 2028. If you haven’t watched this, I encourage you to do so: it will be three minutes of your time well spent.

If we start to adopt a more global vision of how the world is changing and what that means for the property market, the way we think about investing will change as well. To be precise – properties in the main centres, as close to the city as possible, which are designed with owner-occupiers in mind, will hold their value over time and become the backbone of a solid portfolio. The concept of “flight to quality” is central to Sam’s philosophy. Well located, well-designed property will stand the test of time.

The Bigger Picture

I can hear you saying, “But what about the cash flow? Those properties by default often have very low yields.” While this is often the case, this is once again the key thing preventing many investors from achieving their goals.

Yes, we all like cash flow, but if you had the choice of an extra $100 a week now, versus a debt-free property portfolio in the future providing a passive income of $100,000 I know what you would pick. So many investors get caught up in the ‘now’ of the deal and don’t look to the bigger picture. For most investors in New Zealand, property is their retirement plan. Their purpose is to focus far more on securing their future and reducing their tax bill than it is about giving up the day job now.

Right Balance Imperative

If we shift our focus from cash flow to servicing and couple that strategy with a focus on growth, we will find that while cash flow keeps us solvent, capital growth creates wealth. I appreciate some investors simply do not have the spare cash flow to purchase these types of properties. That is why, however, a strategy focussing on a balanced portfolio and diversification is so important.

Brand new stock makes sense – being exempt from the 60% LVR rules is just one more reason to add to the already compelling list – for a number of reasons.

All of that is somewhat moot, however, if you don’t actually have a strategy. Recently I met a couple in their early 50s who are about to start investing. They could not see the benefit in seeking any advice on buying property, preferring to have a ‘crack at it’ themselves.

I saw some irony in the fact that the wife is a personal trainer. How interesting that the biggest financial decisions of our lives are not treated with the respect that they deserve.