By Frank Newman on 10th September 2016
Every issue of the New Zealand Property Investor magazine usually has some interesting content, but the latest (September) issue has two articles of particular interest. The feature article profiles a property investing couple in their mid thirties. In the last 12 years they have accumulated 120 properties, and have a net worth estimated at $20m. How the heck did they do that? It’s an obvious question, especially when you hear politicians bleating on about how difficult it is for people even buy one property! Here are some of the key points about their story.
By the age of about 15, Shannon knew he didn’t want to work in a packhouse or be tied to an employer in the same way that his mum and dad were.
In 2003 he went to California to work on a vineyard for three months and saved enough for a deposit on a house. A year later he and his partner Hayley (who was working as a hairdresser) bought their first home and renovated it. It was in Hastings and cost $120,000.
The property went up in value, which enabled them to buy another house. They did it up too, and repeated the process again and again. So while their 20-something mates were partying and spending their discretionary income, Shannon and Hayley were up ladders at 9pm at night, after their working day, painting ceilings on their investment properties.
“We decided that by the time we were 40, we were going to have 20 houses, a boat and a holiday house. Every spare dollar we put into the properties, and we managed the properties ourselves. Then after four or five houses, we hit leverage lock, and couldn’t borrow any more from the banks.”
The couple either had to earn more money or sell some houses. Shannon found the answer – fattening lambs on orchards over the winter for additional income.
At 23 he left his job at a winery. His boss told him he would be better going out on his own. “You are on the phone organising property transactions while brewing. I’m holding you back,” he said.
Soon after, Hayley left her job and they launched themselves into their property investment business. It involved a large amount of property trading and by 2011 they had 30 to 40 properties.
That year they took another quantum leap by starting their own relocation business – buying homes which they transported and resited onto land they owned (usually buying large tracts to subdivide). They hired people to renovate the homes and bring them up to standard. They now have a staff of twelve.
When asked why they have succeeded in property, Shannon says, “You need a decent team of advisers, lawyers, bankers and tradespeople around you – don’t take the cheap option. Keep debt levels low, have clean strategies and stick to your knitting.”
Their success has not been unnoticed by their bank. “Last year…ASB inducted them into their elite banking group…removing the fees from their facilities, and cutting their interest rates from 6% to a low 3% – freeing up $200,000 of cashflow per year.” That in itself is interesting, especially to those who were not even aware of this “elite” class of customer and the extent of the preferential interest rates offered.
What a great story of success. It’s so much more rewarding hearing about can-do people than hearing from opposition politicians headline grabbing and telling us how bad things are. Ignoring them and looking for the opportunities is a much more enriching experience.
The second item of interest in the magazine was a comment by tax expert, Mark Withers. One of his clients had recently purchased a section, built on it, then sold the development. Out of the blue the client received a phone call from the IRD. “The officer introduced himself as a member of Takapuna property compliance division and offered to meet…to explain the tax laws concerning land, all very up front and helpful.”
That was even before the client’s tax returns had been filed. So how did the IRD know about the transaction and why the phone call?
It transpires that the IRD obtained the records from the land transfer office and has a long list of ‘short timeframe’ transactions. The IRD is being proactive and advising taxpayers of their tax obligations before the tax returns are filed, rather than afterwards, as is usually the case. That’s a positive approach to tax enforcement and the IRD should be complimented for working with taxpayers rather than bashing them with a big stick and harsh penalties years after the event.