There is a saying that goes “the safest place for ships is in the harbour, but that is not what they were built for”. Imagine having a ship, let’s call it a luxury yacht – big, new and just delivered. It’s big, and it sits in its berth – imposing yet inviting. You can’t wait to take friends and family out on it, explore the islands, and enjoy a glass of wine at sunset. You go onboard, smell the newness, chat to the crew, and check out the navigation equipment. But then you start to worry about all the things that could go wrong with the boat if you take it out of the marina… It could get hit by another boat. What if guests damage the marine grade timber? What if a child falls overboard? What if a storm hits and you can’t get back to harbour? Hmm – you decide it is much safer to stay in harbour, host your friends while your boat is parked up, and just enjoy admiring this amazing asset in the marina.
Sadly, you’ve missed the point of having a boat. Your luxury yacht was designed to travel the waters, to explore the ocean…. It should be a vessel to create great sea experiences.
Is money any different to the ship? A ship is a vehicle (albeit a pretty flash one) to be used. Likewise, money needs to be put to work. What for? To help create wealth or income or both. Sometimes it’s to be spent on lifestyle, kids, and sometimes it’s to be given away.
Locking money away in a vault is not one of its purposes.
So, let me ask – what is the purpose of your money right now? What purpose should it be filling? It is important to ask ourselves this question – especially in times of change and uncertainty. Right now, we have the ‘Healthy Homes’ regulations flowing through, on the back of a raft of changes to the Residential Tenancies Act. On the face of it, these changes seem more in favour of the tenant. We are also in the midst of navigating the Covid world. So, the seas can be challenging and choppy.
How do we decide direction? Let’s ask ourselves – what purpose should our money be fulfilling right now?
1. Do you need a boat to get you to your destination?
You’ve got cash – but you can’t sail to the Bay of Islands on cash. If you want to have good times on the ocean – you need to convert your cash to a vessel and get out on the water. When conducting our property investment planning sessions, we firstly ask clients to articulate their lifestyle goals, at the point when they will no longer have to work. Then we calculate how much income is required, then the equity required to generate that income. Then we check if they already have that wealth/equity. And if not, we recommend investment – striking out from the harbour and putting what wealth they have to work, to create more wealth. Do you have the wealth or the passive income you need to live the lifestyle you want? If the answer is no, then you need to stay invested in your properties and even keep investing. Think carefully before you sell; make sure it is for the right reasons. If you aren’t sure whether you are on the road to generate enough equity – then talk to us because our advisory team can help.
2. Do you have the right boat in the right condition to get to where you need to be?
If you’ve worked out you need to stay invested, you need to check that your boat is set up right. Do you even have the right boat? In a property sense, you may need to do a health check. Are your properties the right type, in the right area for maximum capital growth? Are they in adequate health to prevent unnecessary maintenance? Are they in the right condition to generate maximum rental return? Again, if you’re unsure, please talk to us.
3. Do you need to sell the freighter and invest in a sail boat?
A freighter is a working vessel that helps create wealth. A sail boat is for kicking back on. Residential property is largely about capital growth over the long term. Residential property generally doesn’t produce the passive income (cashflow) required during retirement. Commercial property – whether direct ownership or syndicated property – is more about producing the returns that can fund lifestyle during retirement years. That is a fairly broad statement, but a good starting point. So, you might have a residential portfolio. Are you looking to pull back from work, have more time for golf, look after grandkids, do extended travel when borders open? If so, that may be a reason to sell your residential portfolio. But be careful….when the cash comes back into port, it might be tempting to leave it there – safe and secure, in a vault. But remember, that is not what it is for. Leaving it there will not get you to where you need to go. We need to convert it back into a different boat and get it back on the water. So, before you sell – plan what you will invest in next, write it down, and be accountable to someone.
4. Do you need to downsize or sell the boat in order to buy a …?
The answer to this is whatever it has to be. We should never be a slave to a boat. A boat is for us, not the other way round. We helped a client build a portfolio – bought in Otahuhu and Manurewa years ago. However, they want to sell their home in South Auckland and move to Meadowbank. The client feels torn….they worked so hard to get into those rentals and have seen the amazing equity growth. My advice? That equity is to serve your lifestyle dreams. So get on with selling what you need to in order to get the house that will enable you to create great memories with your kids before they fly the coup. But note that it has to be that in order to achieve the well thought and committed goals. Whatever it is when you’re looking to fund by selling, do take time to think it through. Will that decision still get you to the passive income you need in retirement?
Are there other good reasons for cashing up a portfolio? I deliberately didn’t mention selling because you got scared of a big wave, or you smashed into another boat. When you hit the high seas, of course, there will be some experiences. That’s life – you get some bumps – but without them you won’t get those amazing days motoring along with dolphins, jumping the wake and the sun on your back. Yes, it might give you some headaches – you might have a troublesome tenant, some unexpected repairs, some concerns about interest rates. But can I encourage you to have the boldness and strength of mind to stay the course?
Get some good advice – get your boat masters….let’s get out on the water and stay there.
Invest, grow and manage your property with Intelligence. We're here to help.
Landlords have had to make a much greater investment in their rental properties over the last few years – including meeting higher standards for insulation, heating and ventilation as required…
New Zealand suffers a considerable mould problem in housing, in particular in Auckland due to its humidity. In this article, we’ll go through some facts about mould, the health risks…
Just purchased a new investment property? Now is the time to find the right property manager! Other than owning your own home, when you purchase an investment property you have…