All right, is it the right time to buy property? Property prices increase over time. Generally, the average is about 7% growth in the value of the property and a 4% rental yield. Basically, the last 70 years. Okay, that's the average.

You can look back at history and get those numbers. They're approximate 7% growth, 4% rental yield. That's through, I think, 14 recessions. There's every war, Vietnam War and global financial crisis. Everything you can think of. 1970s oil shocks, stock market crash in New Zealand. There's always some war going on. There's always something happening. That's 7% growth and 4% rental yield. That's the long-term trend.

But who knows? In any given year, who knows what the return will be? In any given year, it could be 20% growth, or it could be zero. Or it even could be a decline. I'm going to use this analogy to answer this question.

Let's say you were standing in front of a store. Okay, let's say it's an electronic store. They sell TVs in there or a bunch of any electronic goods. And we know prices are down inside the store. Okay, there's a sale on. But we do know that prices increase. Let's just say we know that prices increase about 7% every year on average. And that's a very, very long-term trend.

So, we know generally prices go up. There's hardly anyone in the store. There's heaps of choice. Okay, heaps of stock available and great prices. And you can take your time in there and have a gentle look around. There's deals everywhere. Everyone just walks past the store thinking, oh there's no one in the store, it must be a bad time to buy.

Alternatively, you can wait until the store is full of people. Okay, where it's crazy. Everyone's trying to get in the door. There's hardly anything for sale or anything that does come up for sale is immediately gone. And there's heaps of competition. And when there's very little stock, okay, massive competition and prices have already risen a lot. And that's when people overpay. People overpay when they walk past the store and see everybody making money and try to get in. And there's just no room. And prices have overshot.

So don't wait for the herd to try and get through the door. And the newspapers are screaming that price are rising as you already have given up a lot of return. Don't wait for the sale to end, okay.

I've wrote myself a little note here. But Matt, interest rates are so high, I'm waiting for them to come down. If interest rates come down, prices will go up, meaning you will pay more for the same property, which means you have to borrow more unless you can save really a lot, which is really difficult to do. So, you end up borrowing more. So, you end up your repayments being the same as if you'd waited anyway. After all, this is a long-term investment and decision. And as long as you're thinking that way, you'll be fine. Patience is a virtue.

The biggest mistake I see people making is not taking action because they think it's a bad time to buy or they're speaking to Uncle Gerald who said it's bad, or they're reading junk newspapers, headlines, or interviews when they've got no experience investing. They don't know the history.

So just with this graph, this graph actually only goes up to 2016 as you'll see. So, it's way out of date. And I did that on purpose to show you the trend line in prices since 1963. The graph goes from 1963 to 2016. In 1963, the price was so low it's actually hard to show that on a graph here. And then the price in 2016 shows that the average price was $495,000 in New Zealand. That's the whole country.

Now we know today that the average price is much, much higher than that. So, depending on what measure you're using, there's different metrics out there, but we know the price is a lot higher than what this graph is showing. But let your tree grow. Water it and take care of it and hold on to it.

At Matthew Dawe Mortgages, we take you through each step of the process to help you succeed. And we also have contacts who can point you in the right direction as well if you need it. So hopefully you got some value out of that. Let me know if you did or if you have any questions. Like I said, you can book a 15-minute chat as well if you'd like to talk it through.

Question: Is it best to loan money or invest or use my own money and invest?

Answer: Yeah, really good question. That's one to book a chat because it depends on what you're personally trying to achieve.

Question: Should we invest in property or shares? or both?

Answer: In my opinion, they're really good investments. I'm not giving you investment advice today because I don't know your personal circumstances, but shares are just a different type of investing. They're just another option. What's best for you depends on what you're trying to achieve, what you feel most comfortable with. I like both. Obviously, I really, really like property. That's no secret, but I also really like shares and I think in New Zealand, they've been underpriced for a long time. Yeah, not investment advice, obviously, and we don't give investment advice on that.

Question: Is it better to get good capital gain or good cash flow?

Answer: I think I've covered off that question. You invest in property in particular; you're investing in the land. So, the primary mode of return, 75% of the return comes from the land, which is growth, which is not cash flow. The main reason you invest in property is for capital gain. That was in fact a big part of the entire presentation because that's when people get confused.

Question: What area in New Zealand is the best place to invest in property?

Answer: That's a really, really good question. I think we've covered off that in detail and you can book a 15-minute chat. I'll post that again for you if you'd like to book a 15-minute chat there. We can answer those questions a little bit more in detail.

It's good that you've got lots of questions and hopefully you got some value out of that.

Matthew Dawe

Mortgage Broker | Financial Adviser

Phone: 027 321 4287

Email: mortgages@matthewdawe.com

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