Imagine navigating the thrilling and unpredictable world of real estate investment in New Zealand. Today, we're fortunate to have a guide for this journey, our guest, Ilse Wolff, a seasoned investor, and coach who's mastered the art of property investment in the small island country. Ilse generously shares her personal journey from her first steps in investing to handling multi-family properties and boutique hotels.
We pick her brain about the changing governmental landscape in New Zealand, the fluctuating interest rates, and the new deposit requirements currently shaping the real estate market. Ilse's hands-on experiences with property management provide us with a wealth of insights into the challenges of renting properties to varying tenant arrangements. She also gives us a sneak peek into the complexities of New Zealand tenancy laws, eviction processes, and mortgage lengths, valuable knowledge nuggets for anyone interested in property investment.
Lastly, we explore the financial side of property investment with Ilse. She opens up about her strategies for maximizing rental property yields, managing cash flow, and dealing with property management fees. We wrap up with an intriguing comparison of the rental property scenario in the US vs. New Zealand, shedding light on average property management fees and licensing requirements. Don't miss out on this enlightening conversation with Ilse Wolfe, filled with practical advice and insights from a real-world investor and coach. Tune in now to amplify your real estate investment knowledge!
Imagine navigating the thrilling and unpredictable world of real estate investment in New Zealand. Today, we're fortunate to have a guide for this journey, our guest, Ilse Wolff, a seasoned investor, and coach who's mastered the art of property investment in the small island country. Ilse generously shares her personal journey from her first steps in investing to handling multi-family properties and boutique hotels.
We pick her brain about the changing governmental landscape in New Zealand, the fluctuating interest rates, and the new deposit requirements currently shaping the real estate market. Ilse's hands-on experiences with property management provide us with a wealth of insights into the challenges of renting properties to varying tenant arrangements. She also gives us a sneak peek into the complexities of New Zealand tenancy laws, eviction processes, and mortgage lengths, valuable knowledge nuggets for anyone interested in property investment.
Lastly, we explore the financial side of property investment with Ilse. She opens up about her strategies for maximizing rental property yields, managing cash flow, and dealing with property management fees. We wrap up with an intriguing comparison of the rental property scenario in the US vs. New Zealand, shedding light on average property management fees and licensing requirements. Don't miss out on this enlightening conversation with Ilse Wolfe, filled with practical advice and insights from a real-world investor and coach. Tune in now to amplify your real estate investment knowledge!
So let's say you owe 500,000, is that lender making you insure it for over a million, since it's going to cost that to build it if it did burn down?
Speaker 2:Correct. Yeah, so before you settle or close on a property, the insurance certificate needs to be shared with the lender, that they're satisfied with that. That you need to be well and clear, because the bank will also have what we call a priority amount. So even if the actual dollar value of the mortgages $500,000, they'll obviously account for growth. So legally they'll usually almost double that figure, and then that could get adjusted over time as well. So basically, they can claim more or own more than the loan if they need to cover costs and things like that.
Speaker 3:Welcome to the Everyday Millionaire Show with Ryan Greenberg and Nick Calvis. Alright guys, welcome back to another episode of the Everyday Millionaire Show. We are here with Ilsa Wolff from New Zealand. All the way across the world. How are you doing, Ilsa?
Speaker 2:I'm great. Thank you so much. This is an awesome random opportunity I didn't expect by coming to the US, so thank you.
Speaker 3:We met you at Starbucks today and randomly, you were from New Zealand and have heard of our show before, and then we were like, oh, let's have you on the show. And here we are.
Speaker 2:Yeah.
Speaker 3:Great stuff. So can you give us like a little like elevator pitch on who is Ilsa in the real estate community in New Zealand?
Speaker 2:Sure, so I was born in sort of regional area of the North Island, but basically my adult life, if in New Zealand, has been in Auckland, which is our largest city. I started part-time investing, sort of by accident, while I worked in one of the main retail banks. We only have five banks in New Zealand, so I started there at 22 and through that exposure, had one of those light bulb moments where basically an accounting client took me through this profit and loss and all the great benefits that I think you still get in the US as property benefits, depreciation, those sorts of things. We don't have any of that anymore. But basically he sold me on the idea that that was my solution when I said, hey, look, I get a monthly paycheck and that would basically last three weeks and then I'd have that last week of the month going ah, I need more cash. So that was kind of my first light bulb moment.
Speaker 2:Then later on I was working over in Luxembourg and then I actually jumped into property full time because my mother unexpectedly passed away while I lived over there and that was the massive turning point for me where basically she got robbed of her retirement and I decided then that I was never, ever going to be in that position, or, you know, let that be my circumstance.
Speaker 2:So from 2015, I've been a full-time investor and, as I learned lots of mistakes, lots of different wins, moved from single family to multi-family and now getting a bit more into boutique hotels. In the last three years, I've run a coaching business as well, based on the borough strategy, but I have a trademark called cash flow hacking and there are certain strategies that I implement sort of on top of that to supercharge the yield. So I guess, because of that initial idea thinking, hey, I'll check for I'll focus on equity and capital growth, and then being short on servicing, I then got super obsessed with cash flow, so trying to pull those things together, so you mentioned that you started out in single family and now you're transitioning into multi-family.
Speaker 1:Are you still holding on to the single families? Are you starting to sell those to invest more in multi-family?
Speaker 2:Is this what you've done, because that's a really wise question.
Speaker 1:No, I'm all single family.
Speaker 2:Oh, okay.
Speaker 1:Yeah, just a very small multi-family.
Speaker 2:Okay, yeah, no. So we're the New Zealand property marketers. Right now We've tough interest rates, stagnation of values, but we had a change of government on Saturday and the expectation is they're far more pro property investment, real estate investment. So I think there'll be a ton of buyer activity, a ton of seller activity and prices will start to grow. So I see this next stage as pretty much selling off a lot of my standalone single family properties to move more into multi-families and boutique hotels.
Speaker 3:So when our rates went up in America, is that what triggered your rates to go up in New Zealand as well, or is your rates? How were your rates when our rates were at 2%? Were you guys low like that too, or are you never that low?
Speaker 2:We did. Yeah, I think we lag slightly behind, but a similar pattern, and our rates are generally New Zealanders, or Kiwis, as we call ourselves. We like short-term interest rates and we're always trying to guess. You know, what do you think is happening here? But our one year rate fixed rate came down as low as 1.99 at its lowest, but you hovered around the two to 2.5% for a year or two and then has rapidly escalated up to about 7.2. Currently.
Speaker 1:Currently. You said the government just changed on Saturday. Yeah, how often does the government change there?
Speaker 2:Every three years. So have you heard of Jacinda Ardern? She became like globally famous through the pandemic because she basically locked our country down for three months.
Speaker 3:Yeah, I did hear a lot of like negative flak about New Zealand and how they handled the pandemic. I definitely heard that.
Speaker 2:So basically she unraveled from that point. She was like the hero at the beginning, because we all thought we were protected, but all that did was kick the can down the road. For the actual impact and just a whole series of things, she very. She put the brakes on property because she is far more sort of left-wing, and hiked up deposit or down payment requirements from 20% up to 35, which is huge, a real handbrake and then removed interest deductibility from the profit and loss for existing properties.
Speaker 3:So you can't write off your interest, you can't.
Speaker 2:And so in a country that when you buy a property, about 80 to 85% of that property value is in fact in the land.
Speaker 3:I want to touch on that because you said that in Starbucks and all of us were have been like rummaging this in our head, like I can't figure out how that makes sense. Like you meant you made the example, I think you said like a $650,000 property, $600,000 would be the land. Do you guys get two by fours for like two cents or like how does how does that make sense? Like there has to be building materials, right? Yeah, are you living in sheds?
Speaker 2:That's okay, the housing.
Speaker 2:We are so in deficit of the number of houses we need.
Speaker 2:The government is trying to stimulate new builds, so construction, so the cost of the materials on a new build, as of right now, that proportion of the land sorry, that proportion of the property value would be far more heavily skewed towards the building, or what our valuations call the improvements, so the house and the structures and the sheds and things. However, with existing properties, which would still be, you know, 97% of the stock because of the way that they've categorized, new builds are basically literally what just turned up. Now, those older properties are very much in the land because, as each city or town has extended, the new builds are more on the periphery. So all of the existing builds are part of the original city's infrastructure, are in the prime location. So the land is worth a tonne and the houses, no matter how old they are they could be 100 years old, 50 years old, yeah, like, for example, my property is central Auckland, very central, like Ponson Bay, which is like the place to be. It's about 2 million US, no-transcript. The value of the house is 150,000 of that.
Speaker 3:How does that? So? How does your insurance work? Cause I'm thinking like, okay, what if the house burns down or something like that happens? Like how does the insurance company pay for that rebuild when the price of the land is so skewed?
Speaker 2:So yeah, that's a great question actually. So there are online calculators Do you have those here where you you raise a quote for your insurance for the house and we call it the sum insured. So if the house burnt down and we needed to like for like rebuild it, it's then obviously at new building prices. So that material cost then comes into play. So the cost to rebuild the house is probably one to 1.5 million at that point and then that would completely change the valuation because it's a new build. At that point that would be a much more high tech, valuable house.
Speaker 1:So you're saying if the house burnt down, to rebuild it it would cost over a million dollars?
Speaker 2:Easily easily, yeah, and my house isn't that big. I'm a super nerd. I put everything into my investment property, so my house isn't fancy, it's. You might need to convert this, but it's about a 120 square meter house. It's three bedroom, one bath, like it's quite simple, but it's the location that is worth so much yeah.
Speaker 3:Wow, and so when you're how many people are in New Zealand in general, About 5.5 million oh wow, climbing out towards that so tiny.
Speaker 1:So very small.
Speaker 2:Very small.
Speaker 1:I have a question in regards to the insurance and you're having a mortgage on the properties. So let's say you owe 500,000. Is that lender making you insured for over a million, since it's going to cost that to build it if it did burn down?
Speaker 2:Correct. Yeah, yeah. So before you settle or close on a property, the insurance certificate needs to be shared with the lender, that they're satisfied with that. That you need to be well and clear, because the bank will also have what we call a priority amount. So even if the actual dollar value of the mortgages $500,000, they'll obviously account for growth. So legally they'll usually almost double that figure, and then that could get adjusted over time as well. So basically, they can claim more or own more than the loan if they need to cover costs and things like that.
Speaker 1:Yeah, so whenever you finance properties in Maryland the way they do it is I only have to insure it for the amount of the loan that they're going to give me.
Speaker 2:Really, yeah, oh wow, so ours is greedy.
Speaker 1:Well, it makes sense though, because, like I said, if it burns down, then they have to rebuild it and they know what it's going to cost at that point. So it makes sense why they do it that way.
Speaker 2:Yeah.
Speaker 3:So you're here in America at a conference that all the speakers are American speakers, talking about American real estate. What are you taking away from this convention, being someone that invests in a completely different market with different? Rules different metrics? What are you here for? What's your biggest takeaway?
Speaker 2:Well, number one was to solo travel and put myself out there. So I'm a property investment coach myself. And number one was to make new connections. Like my philosophy is like you never know what where any conversation may lead, which is why I sort of struck that up with you guys this morning, because you just never know right. And then I find out you have a system and structures and similar ways you could help me, in the same way that I do in New Zealand for my clients. So you know, where could that lead to. Maybe I can invest in the US. So I love the idea of one conversation that could lead to anything. So, definitely the connections and networking. Number one. And then number two because of the size of the US market.
Speaker 2:One, I've listened to American podcasts for years, even when I was back DIY renovating, like 2015. And because of the size of your market, you have so many niches. I think you call them niche, yeah, niches. So like short-term rentals, medium-term rentals, boutique hotels, mtr and STR are relatively new as a concept. In New Zealand we have purely, basically purely, airbnb, like that's what we call it. That's literally synonymous Boutique hotels I only thought about or heard about because of American podcasts. So my goal was to come here and absorb as many different strategies, get access to as much content and information and then work out how to apply that Guinea pig, my own portfolio, when I get home again like liquidating some of those standalone properties I can play around with. Hey, well, take some of these ideas and apply them. So then in turn, I'm more valuable as a coach and can offer other services to my clients as well.
Speaker 1:Can you break down the numbers very briefly on your first rental that you purchased and as far as what you bought it for? How much is it rented for, and is that short-term, long-term and like your cash flow per month?
Speaker 2:On my original purchase.
Speaker 1:Yep.
Speaker 2:So the first property I bought was back when New Zealand banks were doing 100% lending. This is pre-global financial crisis, like 2007,. And did you have that here too, like full lending oh of course, yeah, you did so. That purchase price in New Zealand dollars was $346,000, so that's probably 230,000. This is 2007, and we call these a home and income. So there is a main house or main dwelling and it had a granny flat. Do you use that?
Speaker 3:price. We call it Mother-in-law Suite or ADU.
Speaker 2:Oh, perfect, okay, so it's very similar. It was also part of the original build, so technically at that time it wasn't a legally separate dwelling. So I underwent that process to separate them and basically have two dwellings. That ancillary dwelling in its own right can be tenanted under our tenancy law to a separate tenant. Until they're separate legal dwellings they must be one family unit. So that added a ton of value.
Speaker 2:But I definitely fumbled my way through and, to be honest, I was led heavily by my boyfriend at the time, because he was this ideas person and was really a driver there. I dabbled in some basic painting and fixing up weatherboards and that sort of thing and landscaping bits and pieces, and then, by adding that as a whole, separate second income that almost doubled, also refreshing the original house as well. It almost doubled the cash flow return. So my strategy initially from that point became to buy home and income properties to supplement and split that cash flow risk, which did prove quite handy. But I did have a really expensive mistake before I did that, though, which was I did tenant out that whole property to one extended family, and it's a really sort of strange thing. I don't know how, looking back, how I could have anticipated it, but the letterbox that came with the house when I bought it had a lock and A letterbox like for a cat.
Speaker 2:Oh sorry, letter mailbox.
Speaker 3:Oh, mailbox okay.
Speaker 2:Yeah, and it had a lock.
Speaker 3:Yeah, sorry, that's the accent. I was like who would lock up their cat's litter box right? That doesn't make any sense.
Speaker 2:Makes no sense. Yeah, it's the E, isn't it? I spell my name I-L-S-E. You hear A?
Speaker 3:Mailbox. We got it. We got it okay.
Speaker 2:So yeah. So basically, in a really short version of the story, turned out that the father so culturally the father and this family was supposed to take care of all the finances. So he said, oh, I'll rent out this whole property, I'll put my 20-year-old daughter and her partner in the ancillary out the back Again because one related tenancy and turned out that he was completely overstretched. But no one knew this, his wife didn't even know this, and he became like two, three months behind on rent For myself as a new investor 22-year-old you know, walk in there, blonde hair, like look real young or whatever. He absolutely just kept giving me all the answers and push back when I would go and say, hey, look, you're a week behind, you're three weeks behind, keep fobbing me off.
Speaker 2:But no one knew of his financial issues because he'd locked the mailbox and so even his wife didn't know that they were behind and had all these creditors. Turned out he'd been gambling and then just getting short-term loans, expensive loans, to pay off the one that was shouting the loudest. So I learned I think I ended up about 15,000 in rent arrears at its worst point. And then the way our tenancy law works is we have to attach an order to their pay after a really long process. So I got that back at $50 per week over years. So that really hurt when I was trying to start out.
Speaker 3:Yeah, so what does it look like? Like the eviction process, like through, you know, is it easy? He said it's long Like. What does it look like?
Speaker 2:Yeah, it's very difficult. Again, with the previous, the Labour government, it was more and more leaning towards the tenant, which is great. Like you know, everyone should have their rights, and it should. But it should be balanced. It's become very difficult to be an investor the last six years, but there's a whole process.
Speaker 2:So we have the tenancy tribunal. When a tenant starts a tenancy they pay a bond, but we don't, as landlords hold the bond. It's usually four weeks of rent. It goes to the government in a basically a trust account and then the tenancy tribunal is the ultimate rule and decision on any disputes. But the length of time so say, for example, a tenant is one week, a couple of days in arrears on rent, we can issue a 10-day notice for them to remedy and then from that point, if they don't catch up, we can apply to tenancy tribunal. So that's actually with an adjudicator. They'll try mediation, but the delay to get in front of a mediator can be up to two months. Meanwhile that's two months of risk while you're still trying to navigate the situation and then from there, if the mediation isn't successful, then that leads into court and that again can be a one to two month wait.
Speaker 3:Wow. So you're like four or five months minimum.
Speaker 2:And even at that point the first judgment they will order hey, whoever needs to pay, who net net? That's just a decision. But if that tenant and I've seen this many times myself if they don't pay, then you have to repeat the process to go back a second time. It's at the second judgment. They put the attachment on their salary.
Speaker 1:So you guys collect rent weekly yeah weekly yes.
Speaker 2:And then our mortgages. We can choose to pay half monthly or monthly.
Speaker 3:And the mortgages before you mentioned about, like I think you said, a one year rate lock. Do you not have like 30 year mortgages?
Speaker 2:No, this is why it was really interesting to hear yesterday. The market here is sort of stagnant because home owners won't sell right, because they're locked in for your on a two year interest rate. Like I would love that. I would love that. No, we have a 30 year term for a home loan. So whether it's your own home or an investment property with a main bank, so top tier lender that would be 30 years. And then our rates. We have a floating rate which is basically you can move to another bank and refinance without penalty. That's our floating rate. It's usually about 1% over all the fixed rates for that freedom. So the rate lock or fixed rate starts at a minimum six months and then maximum five years. But Kiwi's generally jump between the one and two year fixed rate mark depending on what they guess is going to happen.
Speaker 1:Wait, so it'll go adjustable after that.
Speaker 2:Every yeah, so you have to refix every one to two years as the usual pattern and we'll lean on our mortgage broker. What do you think is going to happen? I mean, everyone's ultimately crystal ballgasing, but it's sort of you lean on the financial advisor and Kiwi's just have this pattern, but we don't have an option for over five years.
Speaker 3:That's crazy Because here, like especially with single family homes, like Nick's, got a ton of single family homes that he could figure out his cash flow from now to 30 years from now and only the only metric that really changes is when his rent goes up.
Speaker 3:He makes more money and same with any single family homes for you to be able to only see five years in the future If you bought a house like this is why I'm scared to get into big multi families here, because anything more than five units you can only lock in for five years. Sometimes they have 10 year rate.
Speaker 3:But single families you could do 30 year rate locks. So even at a high interest rate environment, if I figure out that my cash flow is good, I know that for 30 years it's not going to get dropped off. But had I bought houses four or five years ago and now the rate is coming up and I bought them at 3% back then and they went up to 8% now, I'd be losing my ass.
Speaker 2:Right and that's right.
Speaker 1:A lot of multi family investors are losing because, well, shortly coming up, because of the interest rates are going up higher, they have to refinance that five year note and they're going to have to refinance to a higher rate and it wasn't underwritten at that higher rate. So they're going to lose cash flow.
Speaker 2:Oh, so it's the multi family. Now, thanks for explaining that. So I realize, though. So here the multi family investors are more at risk than standalone house investors, but this is the difference.
Speaker 3:So here a single family house is valued on comps.
Speaker 1:Right.
Speaker 3:So if that, house across the street sold for 300, this one is going to be valued somewhere around 300, with multi families anything more than five units. So anything four units and less is considered the same as single family five units and more. So they value it as a business. So they do it based on your rent and your NOI. So what's good about that is that in a five year term, if you put in a 5% which is our max increase in rent in Maryland anyway if you put a 5% increase every year on your rent, naturally the appraisal in five years is going to be a lot higher. So then you can refi and pull a bunch of money out. But that only really truly works when the rates either stay the same or go down a little bit. When they double. Now you're there. Either the bank's going to ask you for a big fat check at the refi table or you got to sell it or liquidate it because the value is so much less Like. Once those rates go up so high, the value comes down.
Speaker 2:Yeah, so the cap rate increases and the value drops. Oh my goodness, that's incredible. I've never thought about that dynamic. In fact, the whole reason that I migrated into Multifamily, I mean we have the same interest rate structure. So whether it's standalone, so residential, own home, holiday home, investment properties or commercial properties, so five plus very much the same. But for residential purposes that's all still clustered in the same framework of fixed rates six months to five years, 30 years.
Speaker 2:Sorry, multifamilies may be a shorter term, like 20 or 25 years, and sometimes a portion of that will be principal and interest, depending on how leveraged the investor is. But the reason I go into multifamilies and now boutique hotels is because the cash flow was so much stronger. So you know a typical gross yield, so annualized rent divided by the purchase price of a standalone house is typically around three to 4.5%. In New Zealand I help my clients achieve 8% plus through my strategies. But on multifamily I expect double digit yields all day, every day. If I can't get that out of the deal for myself or a client, we don't go ahead because there's an easier, better deal down the road. But that in itself should be more robust to withstand interest rate changes, I would have thought, and also, if they're cash flowing that well here which it sounds like if they're done well, they do does your cash flowing so much so is it that investors are not banking up enough of that residual cash? It's all being spent or reinvested into other assets.
Speaker 3:Yeah, I think there's. I mean, I think that's definitely part of it, right Like you gotta have some sort of you know reserve. If you're buying those assets that you know in five years they could be doubling and you could be needing some money Then, yeah, I think that's on the. You know that's on the investor to make that right financial decision.
Speaker 3:But I also don't think that people here, especially new investors, thought that we were gonna get to a point where it was 2%. Now it's 9%, like we didn't think we were gonna. I don't think any of us thought we were gonna get there.
Speaker 3:So you know, again, without a crystal ball or something, it's gonna be really tough to kind of make those business decisions because at the same time when you're buying a 2%, maybe they just wanted to buy more, like at that point. So all that money's going back in, you know to buying more and with those big multis, you know they can ask you to stroke a giant check and it's or they're, or you're gonna lose the asset.
Speaker 2:So does that basically mean that you need to be able to add value quite rapidly, right? Can the bank also?
Speaker 3:That's the whole point of multifamily is you gotta be a value add and you gotta raise the rent Every year, or over that five years you gotta get. You have to do the math to figure out. Okay, how much do I have to raise the rent? So then at my next refi table they're gonna give me money and I don't have to give them money.
Speaker 2:Can they lean on that future value? So can you provide a rent appraisal and say, hey, I'm going to add value? These are the post renovation rents, extrapolate the cap rate and then lean on that future value to draw the cash down to renovate with.
Speaker 3:So they do that. I actually I just did a build for somebody that refinanced it based on the future rents. But again the issue is is they're only willing to go like so far out because it's again adjustable. It's gonna be changing. So, yeah, it's definitely. It's interesting to. So that brings me to my next question how many of you are there? Are there full-time real estate investors? Is that like a popular thing? Is that a popular business to be in with all these tough, you know regulations and rules?
Speaker 2:It's very difficult to be a full-time investor because of the difficulty to scale a portfolio in the first place. So 75% of Kiwi investors have one property and then 85 in total, so only 10% more of the market gets to two. So if you have three rental properties, so three standalone single-family properties, you're in the top 15% of investors. So it doesn't take long to get there, because also we have this thing called tool poppy syndrome. Have you heard of that?
Speaker 1:No.
Speaker 2:So it's about like when you start to have success it doesn't sound great for Kiwis, but we have this really bad overall attitude that when someone gets successful, where we celebrate them for a short period of time and then we kind of get sick of them and we start to pull them down. It sounds terrible, but that's kind of how the view has been cast over property investors. It's not great. And the thing is we provide 85% of all the rental demand, so our government can only supply 15%. So it's really ironic and strange that they make it so difficult for Kiwis to provide homes and the regulations on the quality of the rental property you provide is so high now that these places are nicer than my home, it's like we provide dry.
Speaker 2:we call them healthy homes. That's literally a formal standard. So heat pumps, extractor fans, bathroom, kitchen, any sense of draft coming through older windows, you have to close that up Like there's a lot of cost and maintenance that won't necessarily equate to value add but you have to pay for as a landlord.
Speaker 1:So what are the rents on a property $600,000 rental that someone purchases there.
Speaker 2:So yeah, so this would be that kind of price.
Speaker 2:Would be like Hamilton, which is one of the largest three cities and that's say an hour and a half drive from Auckland, which is our a third, almost a third of our population, and that would be a standalone house, say, four bedroom, two bath, pre-renovation probably $500 a week, but after renovation maybe $670.
Speaker 2:So there are some good gains but even then, like that yield is probably about three and a half, four percent. And whereas how, if I work with an investor and they like the systems I offer, which is sounds like they're similar with yours, is I help them remotely invest anywhere in New Zealand because I have the team so they can have true confidence in existing suppliers. I call them power teams. So I will take that same budget and challenge them and say let's go to another regional center where there's still great population growth, variety of economy and employers, that sort of thing, all that good stuff, but with subdivisible developable land, and create an 8% gross yield. So literally, dollar for dollar, I can get more than 670 per week and a property including a full renovation spend for less than 500,000. So immediately that's like doubling the yield.
Speaker 1:I feel like here we yield more on single family houses than multifamily.
Speaker 3:Really yeah, as a cash, like a cash flow, is typically a little bit higher per property, but there's more like there's other there's different, there's more to manage like individual ones versus. But multifamily has different benefits, I think, and it's mostly that raise the rent, pull the equity you know refi and pull that money out. It's like the unlimited banking, you know model kind of thing. But single families for us definitely like per door, will cash flow Really. I would say like per door, if you actually break it down.
Speaker 2:Yeah, so the incentive to get into multifamily isn't really there for some reasons.
Speaker 3:Yeah, it's. You know, everybody has their thing and I think what you mentioned in the beginning of the show is great, like there's so many strategies here that you know some people only do multifamily because they want to get that free tax, free check, because that's the thing.
Speaker 3:Like when you, when you refi and the value goes up. And same thing with single families too. If we, you know, our values go up and we refi and we pull that money out, we don't pay taxes on that money. So that money's not taxed, right? So if, like, we bought a house for a hundred and we put 50,000 into it to 150 and, let's say it, praised that, whatever it appraise that, and we, we could pull out $50,000 at the refi table, none of that money gets taxed because it's technically alone. So those multifamily investors, that's what they live and die by, that refi, that's what they're, that's that big like. Their cash flow is less, but that refi is what they're, you know, that's where they make their big money.
Speaker 2:Oh, wow, so that's the same. Yeah, we wouldn't be taxed on that, but yeah. So basically those investors sound like they'll be higher leveraged because of that strategy right To extract a lot of capital.
Speaker 1:Well, if the rents are raised, then the leverage may stay the same, depending on how fast they were able to increase the rent. So I mean, obviously, if you have a vacant unit, you can increase the rent more than 5% for example, but if it's the same tenant you know, where we're at, you can only increase it by 5% each year.
Speaker 2:Yeah, so the cap 5%.
Speaker 1:Yeah, if it's an annual, if that tenant's still in there, but if that tenant moves out, you can increase it however much you want.
Speaker 2:Yeah, yeah. So that's a new contract, right? So we have annual rent increases across the country are generally about 5%, but that's not regulated. What is regulated is we can only increase the rent with that same tenant once every 12 months. It used to be every six and that's been changed. I think a lot of changes that I notice are reflective of some of these details. So the Kiwi regulators are probably looking over here and seeing how are they? You know, pulling back some of that growth and similar tools using similar tools.
Speaker 3:So the people that you're coaching? How are you finding clients to coach in New Zealand when it's not a very popular niche or niche? Yeah, I don't want to say it.
Speaker 2:So it's more that because it can be so costly right, so you're spending sinking a lot of cash into the land before you've even added value to the property. It's very difficult to get it right, so it can be very costly if you get it wrong. So coaching isn't you know I noticed over here there are coaches for everything and it's probably about a mindset. So I cater to the similar people that we've had at conference, you know. So the mindset is self-development, so it would probably be a very niche part. I wouldn't actually know the numbers specifically, but my direct competition.
Speaker 2:There are about four other brands, but even then we all have slightly different systems or focal points on our strategies. So one is purely buying below market value to, you know, make some instant equity there. That's a part of what I do. But I have this cash flow hacking which is, you know, I say, look, you work with me, we'll get you 8%. Grow sealed all day, every day. If it's multi-income it'll be 10%. So that's kind of what I hang my hat on as well. As if someone wants to really grow a portfolio, then they need to work with someone because of those other sort of hindrances I meet you in.
Speaker 3:So that to me, when you're saying like 8% gross yield, that number to me is so hard to fathom because ours are like double or triple that. Because if you think about, like for us right now with the high rates, rcd I don't know if you guys have something similar like a CD is basically like a bank note that you go to the bank, you put this in a CD and you have to lock it in for a certain amount of time, so 15 months or 24 months. Right now like a 15 month. I just got one. It was 5.5% for 15 months. So I'm getting 5.5%, guaranteed that they can't lose my money, like if the bank has that money they can't lose it. So I'm making 5.5% with no risk, zero, zero risk. And then you guys are this is Chund생 Facebook knee reading, buying a house, which is risk and only getting an 8% return.
Speaker 1:Well, for the house 3, 3.5, right yeah yeah.
Speaker 2:So I think that when I hear lots of different case studies and examples for single family, that's like the bulk of where investors invest in New Zealand sit. So drawing that comparison and hearing how much investors here seem to cash flow like net cash flow, it is astronomical and I think it's a function of if you're buying houses for 100, 150,000 and your rents are still, I think, 600 a week, 2400 a month like that immediately.
Speaker 3:It's a little less than that. Oh right, yeah, you're probably just under. I just. We just closed the deal for an investor of mine. He bought it for 99, I charge him 65 for the construction. His appraisal came back at 240 and the rent's 2,000.
Speaker 2:Okay, wow, but that's great, right. So if you even ignore exchange rates, just sort of saying 600 per week, you know that's just directly. When you're buying a house for 150, 200,000 and we're buying houses, even if they're unrenovated, for 650, 700 easily in our main cities. Proportionately that's just so inferior and so your debt is working much harder because you're focusing on the house and you have such a supply of land. So the other benefit with existing builds in New Zealand, despite all the ways that the government's made it tricky, is the development option. So the two things that my clients are taught to buy really well that I support them with is number one, achieving that, what we think is really high gross yield, and the second one is to factor in we have the district plan I don't know if you call that here but basically the zoning rules for how intensive or how intensified that land can be.
Speaker 2:So ideally one purchase will have one house. Ideally we can subdivide and end up with two lots. Then that's like a jigsaw puzzle so you could sell that off, you could build on the back, double your return with that free land, or if you have to sell under duress or whatever, you can sell that back section without losing the original rental, so it's really favorable in that regard. By contrast, new build properties are generally terraced houses or apartments now, and so if you're a new build investor you have no way to add value. You have to wait 15, 20 years before your place gets run down enough to then differentiate it from its direct neighbors. And there's no land because the developer has milked everything for themselves. So if you sell that property, you've sold your rental. So I see that as a negative.
Speaker 3:Yeah, I have one more question, because I know we have to get you back to the hotel. You said 15% of all the houses in New Zealand are government owned. Are they? Is that like? Our section eight.
Speaker 2:So of all sorry, the rate of home ownership about half the country, half of the adult population own their own home, half, and it is increasing about half or slightly more than half rent. So of all of the rental stock required, the government supplies about 15%. So that's yeah, government supported tenants.
Speaker 3:So we just the reason I ask? Because in America we've had a transition away from government owned houses so we have what they call a voucher program or section eight voucher program. It's sort of synonymous. But we as private landlords can get money from the government to put people in our homes but we have to manage them. So the tenant would get a voucher saying that they are eligible for four bedrooms and then they would come to us and give us this voucher and say I have a four bedroom voucher, do you have a four bedroom house?
Speaker 3:Our government just there was a book that I read and basically our government just sucked at managing homes and managing houses. So they built all these big multi-families in New York and had all this project housing and it just turned into like a drug ring and it was not safe and whatever else. So we got our country got away from the government owning the stuff and pushed it into the private sector and the government just pays the private sector to own and manage the real estate and so your government actually owns those houses and they manage those rentals as well.
Speaker 2:So they own about 15% and they will manage correct, then there's an overlap. So one of the other benefits is if, if, as an investor, I rent, I choose to rent my property to a we call them community housing providers, chips for short. They are registered under the government and supplemented and supported financially by the government. So basically, the government subsidizes these entities that look after different subsets of people in the community that need more help. So some of them might be like the Salvation Army. Do you have that here?
Speaker 3:Yeah.
Speaker 2:So the Salvation Army. Then there are ones that look after, you know, maybe they are medical health board referrals for mental health, like some subsets of people that need some assistance or cannot work sometimes. So if we, as private landlords, we are incentivized to rent to those people and those groups and then we can claim the interest if we do that, so it really makes it like a proper business expense as interest. You know, some investors do it because they want to support those groups, which is great, and I think it's important to align your values with that type of group and choose the right one for you. But they do have different types of risks, right? So a mental health supported person is a different risk from like, for example, another entity that literally rehabilitates people coming out of jail. That's a much higher risk, right?
Speaker 1:So what about property management? Is that big over there, or pretty much the owners managing their own properties?
Speaker 2:It's a really interesting one. I wanted to find out from both of you as well, and so about 75% of Kiwis privately run their own rentals.
Speaker 3:They only have one. Yeah, yeah, so it's probably much easier than doing 90. That's right.
Speaker 2:However, if you're more of a, you know you have big goals. Probably you are working with a coach or you want to build a sizable portfolio and treat it as a business. There is a massive growth in having them professionally managed, so I always recommend that to my clients. The going rate is about 8% plus GST, plus tax of the rent, and then some managers will include the quarterly inspection reports and cover maintenance at no margin. Others will charge you per inspection fee, charge you per maybe 10% on top of any maintenance that they organize for you.
Speaker 1:Yeah, that's very similar to what we have here, is it we?
Speaker 3:charge 10% on maintenance. Yeah, okay, but I have a flat fee structure but most of mine are averaged for about like 6% or 7% of the gross rent. Is what I'm getting. And then a 10% margin on the construction or the maintenance and then one month's rent for placing a tenant.
Speaker 2:Oh, it's very similar, so I'll take the first month's rent.
Speaker 3:I place a tenant, and there you know, 12 months or more.
Speaker 2:Yeah, who do you charge the landlord that, or? The tenant that the landlord? Yeah, so up until about five years ago that fee was paid by the tenant, and then the government changed that, so now that's a landlord fee.
Speaker 3:Wow, I mean I could try to charge a tenant that you know probably not going to get it. Yeah.
Speaker 1:Do you have a goal to start investing in the US?
Speaker 2:I would love to. Yeah, I think the structure and the lending are the two things I need to get my head around. Because of those yields and the cash flow, everything looks far more affordable. And that's the other key thing is the New Zealand household, which could be to adults. You know, the income in New Zealand is lower compared to here. So in terms of one being an investor looking to grow a portfolio and then two, having you know, really good caliber of tenants, I feel like that's a win-win right.
Speaker 1:So if they make less there, how do they afford the housing?
Speaker 2:That's why most people get capped at one, because the servicing is so poor. So if I can focus my strategy on hey, let's roughly double the natural rate of return you get. That will push you along further than if you take a house as you see it at its listing and take it as it is and get average rent, then you've paid full market price for average rent. If you can buy a house that has two bedrooms with the right characteristics I'll teach you to look for we turn that into a full bedroom rental then you've distorted that return to a far better one. So that will support you for longer, meaning you can A add value through their innovation and buy that next property sooner or that will naturally come sooner as your salary catches up as well.
Speaker 1:And do you need a rental license there? For people to rent. To own a rental property in Maryland, you need a rental license.
Speaker 3:Well, not Maryland, it's county by county.
Speaker 1:but Well, in Baltimore, where I am mainly my portfolio, you need a rental license so they have to do a rental inspection. There's an independent contract or independent inspector that can come out and inspect the property to make sure there's handrails, make sure everything is smoke detectors in case there's a fire, and also a lead test. That's big for any properties there that were built before 1978 to test for any type of lead.
Speaker 2:Oh, wow, so the property a professional property manager does. That is in process of becoming regulated. It wasn't previously, but that's happening. And we have your third party sort of auditors for healthy homes and smoke alarms and things like that as well.
Speaker 3:Awesome. So how can people find you online on Instagram? Where are you at?
Speaker 2:Yeah, great. So I have my business website, which is wolfpropertyconz or wolfpropertycoaching, on Instagram and Facebook.
Speaker 3:Wolfpropertycom. I'm investing on Instagram.