There are two sub-species of the Homo Sapiens race that particularly apply to many property investors at present. “Homo Panic Stricken” and “Homo Unawareness”.
Homo Panic Stricken is typically seen listening to friends in bars and restaurants as they recall tales of massive capital gains they have made on their homes and investment property over the last couple of years. They tend to have stress lines on their brow and look as if they are about to be physically sick after hearing of their friends’ exploits in the housing market. They have usually heard these stories many times over the past year or so and have wondered if the market would continue to increase.
After repeatedly hearing these stories and reading confirmation in newspapers that the market is indeed booming, Homo Panic Stricken decides that they have to buy some rental property straight away. As Homo Panic Strickens are a reasonably cautious breed, they often decide to buy new or reasonably new investment property, typically townhouses or apartments, as there are unlikely to be maintenance problems and you know what you are getting. Yields are low but they are convinced that prices will keep rising to compensate. They would like to buy at bargain prices but the market is booming and this would take too long, so they buy whatever they can. After one, two or possibly three purchases, the bank tells them that is all they are prepared to lend them.
Homo Unawareness is a beast that has usually been investing in property for a while and has around 4 or 5 properties, perhaps more. They are in reasonable suburbs but barely cover expenses and can induce quite a bit of stress at times, especially as some fixed term loans are coming to an end and there is talk of interest rate rises. They are producing tax losses, so Homo Unawareness is looking forward to the end of the financial year so they can put their tax return in and get some financial relief.
Homo Unawareness are humble and do not consider themselves large enough to be part of the main property investors pack (or industry). They aren’t fully aware of how the rental or housing markets have performed over the last couple of years. Their properties are performing quite well and they expect they have gone up in value so are quite pleased with themselves, despite the effort and lack of cashflow.
These two species are at different stages of the property investors life cycle and are in a high need situation for some good advice and guidance.
Homo Panic Stricken should not rush into making any property purchases, as it is unlikely they will look for the right type of property that will match their needs and the current stage of the property market. In all probability many markets around New Zealand are ether at their peak or will reach it over the next year. This means that Homo Panic Stricken has likely missed the boat in this property cycle and should be looking at least five years out towards the next cycle. Rather than rushing out to buy something (Anything!) they should take a deep breath, take a long-term view and realise that time is now on their side for the next cycle and this is the time to start building a solid property platform.
Homo Unawareness needs to take time out to reflect on their existing portfolio and look for opportunities to improve its performance. It may be a good time for some to sell one or two properties or there may be ways to increase the return or capital value.
The biggest thing is to undertake a plan, starting with a situation analysis of where they are right now and what they could be doing. Both these species are at a crossroad and need to consider in which direction they are best to head.
