Calling the Closest Indy 500 in History

[MUSIC] Hello, welcome to the Property Academy podcast, but it was partner's, I'm Yaya, sir, we're going to meet you in the next couple. And this is the show that helps Kiwis go from Serative Fiverr investment property, so you get B financially free, and stick around for the next 15 minutes, because you're going to get 23 years of property investment advice in 17 minutes. The advice that Andrew Gibbs declines, that he doesn't follow himself, and whether the classic New Zealand property strategy still works in the era of higher interest rates. Now, Andrew has been investing in property longer than most people. He bought his first place 19 years old, now he's got 43 houses, and he's spent 23 years in the game. Both as a property investor and a financial advisor, so today I want to really ask him the questions that he doesn't usually get asked. So I don't know these questions yet, either. No, no, no, no, because otherwise, I know you'd come up with some smooth answer, right? I'm curious about the one I don't follow myself, I'd go on. So one question I've got for you is, has your wealth come from being smart, or is it just because you bought it the right time when house prices were gone mental? Honestly, like, I know what you're doing here. You're getting me to admit that I'm a dumb dumb. (laughing) There's no way that my intelligence equals my wealth, and you do it. I know it, we all know it. (laughing) I've been just smart enough to do it, and dumb enough to not overthink things, and so that's what's made me wealthy, probably. So what do you mean by that? So what I mean by that is I know that a lot of intelligent people will talk to themselves out of a deal, time in and time out. So that's why you're engineer some of the smartest professionals out there, will overanalyze a deal, where I will, you know what I do, I get a napkin at a restaurant, I draw up a bit of a plan, and I do a deal or I don't do a deal. So I'm smart enough to know, okay, well these are the numbers that matter to me, but I'm not so smart that I overthink it, and then get in the way of me actually taking action, and then I just surround myself with smart people, and you. So what do you have to say to people who would say, well, doesn't that just mean that your money's come from luck? No, because the more you actually invest, the wealthier you get. Now luck means that you didn't take action to get the outcome. Okay, so let's say that you are looking to buy a property, you just said that your grab a napkin at a restaurant, I've seen it myself, your grab a pen, you start doing it, what are you personally looking for when you're buying a property? So I know we're going to talk about one that I looked at recently in Timorow, so that was a slightly more complex based, but I think we're covering that in another episode, but I'd look at the purchase price, I'd look at how much cash I've got to put in, I'd look in, in that case, at a renovation cost, I'd look at the income that's going to come in, maybe the kind of cost that might be things that I hadn't considered, that was going to be a potential Airbnb, so there are a whole lot more considerations. And really the main thing I want to know is, what's my cash in, what's my money out? And that kind of tells me, yeah, that's a good deal or it's not a good deal. But you're not going to sell that property, right? So when you're saying cash in, cash out, I mean, cash in's pretty easy to understand, which we're about the cash deposit you're putting into the property, what do you count as cash out? So cash out in that case was going to be cash flow. Now I don't normally buy for cash flow, I bought for capital growth, so cash flow's less important to me right now, but in that case, it was a cash flow investment, so I was wanting to know how much revenue would I get per year after all my costs based on the money I put in. And then what I'm laying up is, well, what else could I do with that money? Well, what if it was something that you were going to hold on to for capital growth? How would you do the cash in cash out? Then I'm looking at, okay, well, in 15 years, 20 years time, when I sell that property, what will it be worth? Okay. Now we've seen a few times on the show, 43 properties or 43 houses. What does the cash flow look day to day in terms of managing these 43 properties? I'm not very good at that, if that's what your criticism is. So, so-- So, no criticism at all. Yeah, so, so, so, so, the answer would be that my portfolio, probably if I took a guess, cost me about, I would say, 50 grand a year in terms of cash flow, negative cash flow. So, about a thousand bucks a week. Yeah, about a thousand bucks a week. Now, I know it must be costing me a little bit more at the moment because just in the last two weeks, I had a loop from back, oh, you need to top up that account, you need to top up that account. So, there must be something not quite balancing out at the moment. I haven't done a kind of a reconfiguration. In the last week, I've settled a few properties. So, I probably need to tweak a little bit at the moment. But about a thousand dollars a week, I allocate right now towards my retours. And so, what's that? The money comes in from your salary and then you're like putting that into an investment account. Yeah. Okay. But some of those 43 properties will be cash flow negative. Some of them are cash flow positives and they're kind of balancing each other out to some degree. Yeah, to some degree. So, anything cash flow positive sits within that entity, that money doesn't come back out. So, depending on the group of properties it belongs to, so there are five properties in an entity, three of them make a profit, two of them make a loss. If there's still a profit left over, that money sits there for when interest rates change. If the group makes a loss, then that's being topped up by me. And again, any surplus that comes later on as rates come down, that just builds up on the account. Okay. And so, we're talking about entities here, so trusts and companies. Of those 43 properties, how many entities do you have? How many trust companies would you say you're owning those? Even would be my best guess. Seven, okay. So, six or seven? Okay, so we're talking about six or seven properties. On average, six or seven properties per entity, though some will have more than others. How did you decide to be buying in all of those, oh, that's a property, I like that one. I'm going to put that in this trust as opposed to in this company. So, part of that's just been different stages of my investment journey. So, when I'm buying old properties and renovating them, when I've been buying new builds, when I've been doing them with different partners and deals, there's still one leftover which is an old property that has no debt on it at the moment. That potentially that should have some more in it. So, it's really just been an evolution in time. There's not really been a rhyme or reason around that. Okay, okay. That's good to know. Now, what is a piece of property advice that you give to everyday people, right? If an answer advisor doing this, that you don't follow yourself. By only what you need to get you where you want to be. Okay, talk to us about that. So, what I think is my strategy has been just to build my wealth. And there's probably no need for me to keep investing. Other than, I don't want lazy money. So, for example, that property that's got no debt on it at the moment, I'm thinking, well, actually that's pretty dumb. I should be buying more properties in there in today so that I can use that income to fund other properties. Now, do I need to do that to get to my retirement goal or my wealth goal? No. But should I do that to have more effective return? Yeah. Now, I don't think that's right for everyone because lots of people will be sitting on a whole lot of equity in their own house and they might have some good amount of key. We say, we have some good amount of savings or shares. They might only have to buy one or two properties to bridge the gap between where they want to be and where they are now, where they're heading. Now, they might be able to buy 10, but my advice will be, well, buy the two that you need. They might be able to buy 10. Now, for a lot of people, they might think, well, but Andrew just keeps going on doing that. Yeah, but that's higher risk. That's more risk than potentially you need to take on and it could come unraveled for you. So, let me ask you this. When I first, I've got to bits up the chair. I don't think I've told you. At least not on the show before. Which is, when I first met you, I was timid we lad. And it doesn't have a huge risk appetite. And I thought, oh, you know, this isn't the only reason, right? Like, quite likely that's why we're friends. But I thought, oh, if I become friends with Andrew, maybe I can become more risk-seeking because they always say, well, you're the average of your five friends you spend time with. So I thought, well, if I spend more time with people who are risk-seeking, then maybe I will have a higher appetite for risk. So where did you get it from, though? Where did you get your willingness to take risk from? And is it something you've had to learn or was it something you just came out of the warm with? I think that it's just come out of a need. So rather than me being more prepared to take risks, I think that there's a sudden element of that's just in my nature. But more that I knew that without taking more risk, I wasn't going to get to where I wanted to be. Okay, did you ever struggle with it? Or this has just been. Yeah, there's been, there's been, well, there's been, I tell you what I've struggled with, when there was my first downturn in the market and I was faced with the irrelevant deep that I had, that was a real struggle and I thought, well, have I taken on too much risk? Now coming out the other side of that, I would say that this downturn in the market that would just been through, I was far more relaxed than previously, not because I was more financially equipped, which I was, but because I'm just like, yeah, I would've been here before. We'll get through, it'll be fine. Well, this is an interesting point because often what I see is people love risk takers. They take such great risks and when those risks pay off and you make a lot of money, oh, yeah, that person took a lot of risk. When it goes the other way, it's quite difficult to, when you take a risk and it doesn't work out to then be like, oh, well, this is the risk that I've took. Have you managed that? I do think that's just a time thing. Because you do become less risk taking the older you get and like, no, now that I've got a family and I feel more responsible to other people, like, you know, staff and the business, I am more cautious and considered with the risks I take. Having said that, I still take on risk all day every day. Now I got to ask you, what's the strategy that worked say from 2003 to 2018? Your first 15 years of property investing that doesn't work today? Being able to flip properties without major tax implications, like back in the good old days, when you combine seller properties, along with it, you didn't fall into the intention rule, you weren't taxed on the profits. Whereas nowadays, potentially you've got GST, you've got income tax, there's so much of your money that goes to the IRD, when you transact a property as an investment flood, that just kind of doesn't make sense the same way you're taking on so much risk in that process that it all pays off, but you lose 50% straight off the bat. And then I suppose the other thing that's changed there, and we had Steve Gory on the show talking about this, is the Auckland Unitry Plan, which freed up so much more land for developers, which meant that flippers are now competing for the same properties as developers, who can make more money in our bid. The other thing is, like, lending criteria has changed so drastically, that I could buy a property 20 years ago, and it kind of didn't matter as much if the numbers weren't perfect, like you buy something and you'd hold onto it, and the market would kind of just do its thing over the next five years. Whereas nowadays, if you make a wrong move and you buy a property that holds your back, it could be seven years, 10 years, before you're buying the next one. And if you bought a data, and it's not really going up in value over that 10 years time, then you've put a whole lot of cash flow into it for nothing. Well, let's set back, because we know that 77% of property investors just own the one property, the one investment property, right? So let's say you've got your own home, you've got your first investment property, what moves does somebody need to take to get to two investment properties and then three investment properties? I think LVR restrictions really hold people back if everything's with one bank, and it's not structured correctly. Now, split banking's great, but you don't have to have split banking to get ahead. However, with the LVR restrictions, it might. So sometimes you want to think about your lending structure and your security structure, and maybe you need to move something away so that it frees up equity in your house to keep repeating the process. The other big thing, so someone I met the other day said, "How do I keep buying properties?" And my advice on was, "You need to earn more money. You need to find other ways to increase your income." And if you can do that, then the bank will lend you more money. If the bank will lend you more money, you can carry on investing. Okay, there's so much property advice all over the New Zealand, right? Whether it's from your uncle, Lister, or TikTok, and Instagram, and podcasts, and YouTube, and we're at a lot of these places as well. What actually matters and investing? And what advice can you ignore? Because if all of that advice that's out there, there's probably only a couple of things that are really going to make the difference for people. I think the biggest thing is there's so much pressure around the cash flow side of things. And I get it because cash flow that happens today. But if you get so focused on today and forget about the growth in the future, the growth in my experience, that's what makes someone rich. That's what gets someone a head. Now that might mean you have to give up a bit of cash flow today, but that has a way more meaningful impact on someone's wealth in the future. If you can do it right, and I see lots of these property people come out and they've got these courses and I'm going to teach you how they get them. It makes them cash flow. And then I actually look at some of the deals that happen. It's such nonsense. In fact, what do you mean by that? So I always see people that are advertising these courses and will help you get a cash flow positive property. And the cash flow positive property is your buy and old dunger. There's going to be a mason that's nightmare. Your chuck 14 cabins on it. Now I've got all this money coming in. It's not worth anything to anyone really. Like it's maybe to another investor. But when you think about like you should generating an income today, but it's probably by the time you pay your mortgage and all your cost, you know, it might be a few hundred bucks away, 15 grand a year. Woohoo. Right? I'd rather have millions of dollars later by buying good, solid assets. And yep, that comes at a cost today from a cash flow perspective. But kind of property isn't really that complicated. And the more complicated you make it, the more restrictive your market is when you sell that property later on. Okay. And if you could get an automachine. Oh, wow. We're back in 2003. Yeah. Buy Apple stocks. Oh, here's 19 year old Andrew. Hello, Andrew. What do you want? We want to give you some property investment advice. What are you going to tell your younger self? I probably trade lease. I probably wouldn't sold as many. I probably would have held on. Don't tell me. Tell 90 year old Andrew. He doesn't listen to anyone. He thinks it's a bloody expert. No, I think that some of the good properties that I had I let go of too early. So I probably would have found ways of keeping those ones. But if you didn't sell those properties, would that have stopped you from doing other things you did? In some cases. So I do think selling down some was the right thing to do. But definitely like, if I think back to the interest to the activity changes, I saw a lot of properties at that period of time because outside of Brightline, I wasn't sure when the rules were going to change or if they were going to change around interest activity. And the model no longer worked on that basis. And so I probably I did. I made maybe a bit more of a knee-duke reaction than I would have had I known that a couple of years later, National Woodcoming repeal it. Oh, so you might have held on to some of those more. Yeah. That's interesting. And I suppose one of the issues is that in an ideal world, our future selves would jump in a time machine, come back to wherever we are now and give us that advice with the benefit of that extra 23 years experience. But unfortunately to the best of my knowledge, we don't have time machines yet. As much as I keep on rewatching back to the future to try and invent one myself. So if you want to get the benefit of somebody who does have 23 years experience or 15 years experience, what do you think is experience? You might like to book a session either with Andrew or one of the financial advisors that he has trained at OpenSpartners. If you want to book that free session, a portfolio planning session, we'll drop a link down in the show notes and description so you can check that out. Over the last 15 minutes, you've got 23 years of property advice in 17 minutes. The advice that Andrew gives to clients that he doesn't follow himself. And what did tell 19-year-old Andrew if he could go back in time? Right, let's wrap it up there. But please don't forget to rate, review and subscribe to the podcast. Really does help us get the message out to more people. Thanks for listening to the Property Academy podcast. I'm your host Timidnight. I'm Drew. We're going to be back here in two or three more daily strategies. Hexon and science help get the most of the news and we'll be back. Until next time.