Have buying rules, don’t obsess over them. If I were to define a “successful investor” as somebody who has consciously set a plan and executed it well, then almost every successful investor I know followed buying rules to some degree.

Here are some examples of buying rules, also known as criteria. These should illustrate that everybody is after something different.Loca

Location

• Close to a city with 100,000 people or more
• Only buy in a location I can drive to within 20 minutes
• Any town with a university, or several major employers
• Close to shops and amenities.

Type of property:

• On a section with subdivision potential
• Apartments only or stand-alone homes only or multi-income only
• Older homes that can be renovated to increase equity and cashflow
• Brand new “off-the-plans” to reduce maintenance and (you guessed it) increase cashflow
• Centrally located in an area set to grow in value.

Numbers:

• Maximum price $300,000
• Minimum price $800,000
• Gross rental yield of 7% or over
• Cashflow neutral or better
• At least $50,000 in add-value potential

‘We see many buyers who have been through a mentoring course, rigidly following their rules and missing out because of narrow thinking’

A good set of buying rules is a checklist that you can use to scan what is in the market and eliminate the 95% of properties that are not suitable. It saves a lot of time and frustration.

What do I mean by “don’t obsess” in the title? We see many buyers, particularly new investors or those who have been through a mentoring course, rigidly following their rules and missing out on a great deal because their thinking becomes too narrow.

An example of buyer rules used well is when they stop you from overpaying for a property because “you just love it”. A house may have a great kitchen and a lovely back yard, but if the numbers don’t stack up you are simply going to be losing money every year on a nice house you won’t ever get to live in.

An example of buyer rules used too rigidly is when you miss an opportunity because something falls just outside one of your rules, such as a new investor who sees a property that ticks all the boxes … right location, right price, good value-add opportunity, easy to tenant … except, it’s a 6.8% gross yield and their mentor has said they should look for 7%.

When you get to a situation like this, what you should do instead is take another look. I would be asking myself:

1. How much does rent need to increase for the gross yield to pass 7%?
2. Are there any actions I can take to increase rents?
3. What do property managers predict rental demand to be like when the current tenancy ends – is a natural rent increase likely?
4. Are there other positive factors about this property that outweigh the slightly low gross yield?

It’s funny now, but I remember an investor turning down a 7.5% gross yield rental on a large site in Auckland in 2013, why? Because he wanted to wait for 8%. He ignored that the market was really starting to heat up. Of course, yields plummeted as prices went up and he joined the ranks of investors who have talked themselves out of a great deal.

When you are new at looking for properties, knowing what questions to ask, when to stick to your criteria and when to think outside the box are hard skills to master. There is no substitute for experience so consider working with a more experienced investor or a one-on-one coach to help you find your next deal.

iFindProperty is a licensed Investment Property Agency and our clients tell us we are great at helping investors find, analyze and buy great properties to build an awesome portfolio. Our team of Property Finders operate all over New Zealand and each are successful investors in their own markets. Successful investing starts with you and your property goals, so contact us today to talk about what you want to achieve and we will put a team in place to make it happen. Contact:info@ifindproperty.co.nz or 0274 866 146.