Speaker 1: Curt Koto, Welcome to Shared Lunch. I'm Garth Bray. A
Speaker 1: lot of you are investing for the long term, and
Speaker 1: so at some point the question arises, what about investment properties?
Speaker 1: To answer that question, we've tagged in another expert from
Speaker 1: a highly visible podcast, the Property Academy, who spends a
Speaker 1: lot of his time thinking about exactly these issues. It's
Speaker 1: Ed Bigknight from Opus Partners. Before we get to him,
Speaker 1: some important information that you always need to consider it
Speaker 1: before investing.
Speaker 2: Investing involves for risk you might lose the money you
Speaker 2: start with. We recommend talking to a licensed financial advisor.
Speaker 2: We also recommend reading product disclosure documents before deciding to invest.
Speaker 2: Everything you're about to see and here is current at
Speaker 2: the time of recording.
Speaker 1: Ed welcome, more than two thousand podcasts under your belt.
Speaker 1: Is that a black belt then, ic you?
Speaker 3: Well, so, I'm just so grateful that so many people
Speaker 3: want to nerd out about property for so many thousands
Speaker 3: of episodes. But yeah, we've done it every single day
Speaker 3: for over five years.
Speaker 1: What is maintaining that sort of consistency?
Speaker 3: Like, well, the beautiful thing is so many people email
Speaker 3: in questions and it's quite humbling that people will literally
Speaker 3: write their entire financial lives in an email, send it
Speaker 3: to myself and Andrew, random strangers effectively on the internet
Speaker 3: and say hey, can I have your opinion? Can you
Speaker 3: talk about this on a podcast that thousands of people
Speaker 3: listen to? And so we're very grateful to have that
Speaker 3: kind of community engagement. If we didn't have that, maybe
Speaker 3: we would have wrapped up after ninety days, But here
Speaker 3: we are over five years later.
Speaker 1: So I'm interested because you've taken a big bolt step.
Speaker 1: As I understand, in the last couple of weeks, you
Speaker 1: announced that you'd spent over one hundred thousand dollars of
Speaker 1: the company's money on building an AI client. How do
Speaker 1: you know if that's worth it?
Speaker 3: I mean, who knows? But you make big bets and business.
Speaker 3: So what I really want to do is answer people's questions.
Speaker 3: And one of the big questions that investors often ask is, well,
Speaker 3: how many properties can I buy? Starting out? I've owned
Speaker 3: my own house for a while, I've paid off a
Speaker 3: bit of the mortgage. How many properties might I be
Speaker 3: able to purchase over the next fifteen years? Because people
Speaker 3: just want to get a sense of where could they go?
Speaker 3: And so I thought okay, we could probably answer that.
Speaker 3: And so what we spent one hundred grand doing was
Speaker 3: we tried to recreate all of the bank's internal calculators
Speaker 3: that say whether you get a mortgage or not, and say, okay,
Speaker 3: could we project that into the future and say, wherever
Speaker 3: you are right now, if your income goes up and
Speaker 3: if you keep paying off your mortgage, how many properties
Speaker 3: could you potentially buy? But then the real issue there
Speaker 3: is once you start doing that, I realized there were
Speaker 3: like hundreds of thousands of different scenarios you could run
Speaker 3: with the spreadsheets, So how do you find the right
Speaker 3: one for you? And so that's where we started building
Speaker 3: an AI trained it on this model so that it
Speaker 3: can spit out, okay, what property should you buy and
Speaker 3: in what order. We're only using that with our financial
Speaker 3: advisors at the moment, so that if a client came
Speaker 3: in it's like, yeah, I want to use that. We've
Speaker 3: got to make sure there's a person checking all of that.
Speaker 3: But we have released a public AI chatbot as well,
Speaker 3: called Opah's AI, where people can ask any question, a
Speaker 3: bit like chat GPT, but it's just been trained on
Speaker 3: the hundreds We've written over five hundred articles about property
Speaker 3: investing over the last five years, so it's been trained
Speaker 3: all on that. One thing that's really interesting that you
Speaker 3: won't be able to see though from the public view,
Speaker 3: is what people are typing in Now. I've had a
Speaker 3: look because I want to know what are people asking
Speaker 3: a property AI when you know they're just at home
Speaker 3: at two am in the morning typing stuff in and
Speaker 3: people write their life stories in there and say I
Speaker 3: have this much income, my mortgages this much, how many
Speaker 3: properties can I buy? Where should I buy? And what
Speaker 3: that showed to me is that there is a real
Speaker 3: need for advice, whether it's in shares or property in
Speaker 3: New Zealand because people have these questions and previously they
Speaker 3: would have gone to Google. Now they're going to be
Speaker 3: going to AI. So I'm really to be in this
Speaker 3: position where we've created this AI, people are trusting it
Speaker 3: enough to write in their live stories and now we
Speaker 3: can kind of guide this AI to try and give
Speaker 3: good answers in a New Zealand context rather than an
Speaker 3: American context. Because usually you talk to an AI and
Speaker 3: it's coming from an American based perspective.
Speaker 1: That's a huge amount of information for people to be imparting.
Speaker 1: I guess you've got some pretty good safeguards in there
Speaker 1: for how you look after that data and how you
Speaker 1: use it.
Speaker 3: Well, you've got to make sure that you know, not
Speaker 3: everybody in the company can access that. That's usually me
Speaker 3: looking through as a director of the company to make
Speaker 3: sure that when people are typing that stuff and we
Speaker 3: are protecting that. Yeah.
Speaker 1: Right. I actually did ask your Opah's AI a question.
Speaker 1: I said, Look, if we're talking about investments, why is
Speaker 1: buying an investment property better in the long term than
Speaker 1: investing in the US s and P five hundred?
Speaker 3: What did it say?
Speaker 1: I want to know what you think it said first,
Speaker 1: because you've worked this thing through thoroughly and I'm just
Speaker 1: a punter, right, Okay, Probably a difference between what I
Speaker 1: think it said and what I would say.
Speaker 3: Okay, So I'm sure that it probably talked about the
Speaker 3: pros and cons. It probably said that shares were higher
Speaker 3: risk but ultimately higher return. If it got really advanced,
Speaker 3: it might have talked about the impact of debt as well,
Speaker 3: and how if you buy properties with debt, that can
Speaker 3: make your returns bigger, but it can also make your
Speaker 3: losses bigger. Yeah, but what did it say.
Speaker 1: We're pretty good, You're right. I think it's sort of
Speaker 1: talked a lot about leverage, and I think that's probably
Speaker 1: a good place for us to dive in and say
Speaker 1: when you're thinking about investing. A lot of people say
Speaker 1: property investing is a way to go, but it's based
Speaker 1: on leverage and on taking quite a big risk. If
Speaker 1: the value drops, you've effectively lost your entire investment, Whereas
Speaker 1: whether shareholding, obviously the gains might be lower, but the
Speaker 1: losses tend to be a little bit lower. So I
Speaker 1: guess there's probably a bit of a chance there for
Speaker 1: people to get both sides of the story if they
Speaker 1: look into it and some death. But on that idea
Speaker 1: of leverage, talk to me a little bit about that
Speaker 1: in property investment at the moment and whether it's a
Speaker 1: good time to be leveraged.
Speaker 3: Yeah, I think the thing in New Zealand was always
Speaker 3: considered property to be quite safe, and I think that's
Speaker 3: really mischaracterized property because property is actually pretty high risk,
Speaker 3: higher return. But when we typically think about property over
Speaker 3: the last kind of twenty five a year, so since
Speaker 3: nineteen ninety six, the average property increase in New Zealand
Speaker 3: has been about six point three percent, and for shares
Speaker 3: it's been eight point six percent. So shares have been
Speaker 3: higher return, and that's where a lot of people start
Speaker 3: by saying cool shares higher return. But then we've also
Speaker 3: got to think about risk. Now, when we think about
Speaker 3: risk and investment circles, often we're talking about like the
Speaker 3: ups and the downs, and so we see that with
Speaker 3: shares that you do have some pretty high ups, you
Speaker 3: also have some pretty high downs. So if we think
Speaker 3: about the best year in the S and P five
Speaker 3: hundred since Google Finance started reporting the S and P
Speaker 3: five hundred and nineteen ninety six, the best year has
Speaker 3: been about fifty four percent up. Great year if you
Speaker 3: timed that. The worst year has been down forty five percent.
Speaker 3: So shares higher return, but bigger ups and downs. The
Speaker 3: worst year and property has been quite recent It was
Speaker 3: about fifteen percent down and best has been thirty percent up.
Speaker 3: So typically this is the way we think about property
Speaker 3: versus shares in New Zealand that cool shares higher return
Speaker 3: but also a bit higher risk. But what that conversation
Speaker 3: misses is the leverage part. So let's run through those numbers,
Speaker 3: because we always think that when you add debt to
Speaker 3: an investment, whether it's property or a business, whatever your
Speaker 3: asset happens to be. That is going to make the
Speaker 3: returns larger, but it's going to make the down side
Speaker 3: much larger as well. I call it the mortgage magnifier,
Speaker 3: just because I love my alliterations. Mate, who doesn't. So
Speaker 3: let's say you're buying a five hundred thousand dollar property.
Speaker 3: You put one hundred thousand dollars worth of cash in,
Speaker 3: and we've got four hundred k worth of debt. Now,
Speaker 3: if that property goes up by five percent, that property
Speaker 3: is no longer worth five hundred thousand. It's worth five
Speaker 3: hundred and twenty five thousand. Now most people be like, oh, okay, yeah,
Speaker 3: that sounds about right. But what that means is that
Speaker 3: your equity within that property has gone from one hundred
Speaker 3: grand to one hundred and twenty five grand. So yep,
Speaker 3: the market went up by five percent, your house went
Speaker 3: up by five percent, but your equity within that property
Speaker 3: went up by twenty five percent. Now that sounds pretty good,
Speaker 3: but we've got to talk about the downside as well.
Speaker 3: What happens if it goes the other way. If that
Speaker 3: house goes from five hundred k drops by five percent
Speaker 3: to full seventy five, you've now lost twenty five thousand
Speaker 3: dollars and you're down twenty five percent.
Speaker 1: And we are seeing that at the moment in some markets,
Speaker 1: aren't we We are seeing values in some respects kind
Speaker 1: of dropping backwards in places, or valuations not kind of
Speaker 1: coming in where they were originally put out. So that's
Speaker 1: a real risk.
Speaker 3: Yeah, the market's starting to smooth out quite a lot,
Speaker 3: but it's actually even worse than than what you've made
Speaker 3: it out to be. You know, in Lower Hut at
Speaker 3: the largest peak to trough drop, property prices were down
Speaker 3: like thirty percent. And so the reason that those property
Speaker 3: drops hurt isn't just the fact that you've lost thirty
Speaker 3: percent on your investment. It's that if you put in
Speaker 3: a twenty percent deposit and your property value dropped by
Speaker 3: thirty percent, you're now in negative equity. Your return on
Speaker 3: the money you put in is negative one hundred and
Speaker 3: fifty percent, because you're getting five times if you put
Speaker 3: in a twenty percent deposit, you put in a fifth
Speaker 3: of the money, you're getting five times the market return.
Speaker 3: And so typically we think of New Zealand property little
Speaker 3: bit lower risk, a little bit lower return, but an
Speaker 3: actual fact, if you're using debt, it's much higher risk
Speaker 3: and much higher return than shares. And that's the thing
Speaker 3: that I think people miss. And I'm not really trying
Speaker 3: to emphasize the higher returns here. I'm trying to emphasize
Speaker 3: the higher risk when we take on debt, because that's
Speaker 3: the thing a lot of people forget about.
Speaker 1: Sure, I mean, and that's it's great that I guess
Speaker 1: the AI spat that out is the kind of the
Speaker 1: number one thing to address. I just want to talk
Speaker 1: as well a little bit about some of the other
Speaker 1: aspects that talks about about how property is a tangible
Speaker 1: asset for a lot of people, it's a huge attraction.
Speaker 1: But of course, anything you can't pick up and move,
Speaker 1: anything you can't sell quickly, it makes it a little
Speaker 1: bit less liquid. It's harder to get out of that
Speaker 1: position if you can see a problem coming. So is
Speaker 1: that another thing that people really need to consider it
Speaker 1: with property?
Speaker 3: Well, it kind of depends on who you are. You see.
Speaker 3: For me myself, I don't care that property is bricks
Speaker 3: and mortar. To me, that's not a huge pro But
Speaker 3: I hear from a lot of people that they like it.
Speaker 3: They like that they can drive past the property, they
Speaker 3: can see it. If they needed two in fifteen years time,
Speaker 3: they could do it up, improve its value and sell it.
Speaker 3: And so some key weis really value that side of
Speaker 3: property and they say, big pro for me is that
Speaker 3: it's tangible. Me myself, I don't care so much about that.
Speaker 3: But for some people it's a big pro.
Speaker 1: Yeah, okay, And that idea of a less liquid market,
Speaker 1: lesser ability to sort of liquid eight things. Potentially that's
Speaker 1: not necessarily sort of a big problem from the people
Speaker 1: that you're seeing.
Speaker 3: Oh well, for some people that has a big issue. Yeah,
Speaker 3: especially because when you buy a property and you go
Speaker 3: to sell it, the average days to sell might be
Speaker 3: like forty five days, or it might take thirty days
Speaker 3: to sell a property. But by the time you talk
Speaker 3: to a real estate age and by the time you
Speaker 3: get somebody to say yes, I'm going to buy your
Speaker 3: property and then they pay you the money, it's more
Speaker 3: like three months. So it can take easily three to
Speaker 3: six months for you to say cool, I'm going to
Speaker 3: list this property to eventually sell it. Now, that's probably
Speaker 3: one of the reasons why it works, really well as
Speaker 3: a long term store of value or for a long
Speaker 3: term investment. But the big pro I see around that
Speaker 3: is that people don't look at their property values every
Speaker 3: single day. I think this is another one of the
Speaker 3: reasons why people think that shares is more risky than property,
Speaker 3: because they look at the value where they look at
Speaker 3: their key we save every single day, and they see
Speaker 3: it going up and down, and that scares them. To me,
Speaker 3: that's not something to be too scared about. The reason
Speaker 3: that you look at property and you think it's safer
Speaker 3: quote unquote is because the value on homes not codd
Speaker 3: n Z only updates every two weeks, or you're only
Speaker 3: looking at your bank ap once a month and it
Speaker 3: updates the property value, so it appears to be less volatile,
Speaker 3: but simply because it's a more I liquid asset. Yeah.
Speaker 1: Right, So, what are some of the market specifics that
Speaker 1: you think are important to consider right now in terms
Speaker 1: of availability of property, in terms of prices and so on.
Speaker 1: I mean, it's a pretty broad question, but it feels
Speaker 1: to me like that's an entire section that we can
Speaker 1: talk about here.
Speaker 3: Yes, there are two main things that I'm really interested
Speaker 3: at the moment. The first thing that gets me really
Speaker 3: excited is that there is a huge number of listings
Speaker 3: on the market. You go on trade, we are one
Speaker 3: roof for real estate, dot coded and Z. At the moment,
Speaker 3: there's like over thirty thousand properties currently available. It's basically
Speaker 3: at a ten year high. And so as an investor,
Speaker 3: that gets me quite excited because there's a lot of
Speaker 3: choice out there. It is a buyer's market rather than
Speaker 3: a sales market. One thing that's just as a bit
Speaker 3: of a sign about this, it's really interesting that a
Speaker 3: lot of people seem to be quite scared of buyers markets.
Speaker 3: They see that property prices are kind of going sowards
Speaker 3: at the moment, especially over the last six months, seasonally
Speaker 3: adjusted house prices have basically been flat, and some people say, oh,
Speaker 3: that's really scary. I'm not sure if it's a good
Speaker 3: time to buy. Holl Tho, it's a great time to buy.
Speaker 3: It's a buyers market, heaps a choice out there. But
Speaker 3: the thing that I really care about when I'm thinking
Speaker 3: about where am I going to invest is I always
Speaker 3: try and judge, well, what might be the next market
Speaker 3: to take off. So I'll give you an example of
Speaker 3: that back in twenty eighteen twenty nineteen, christ Church property
Speaker 3: prices were very flat and had been flat for a
Speaker 3: long time. But what we were tracking was, well, how
Speaker 3: expensive is christ Church compared to the rest of the
Speaker 3: country and compared to where we would expect it to be.
Speaker 3: And what we thought was christ Church is looking really
Speaker 3: cheap right now. We directed a lot of our investors
Speaker 3: to start buying in christ Church, and over the last
Speaker 3: couple of years, crash Church property prices are up fifty
Speaker 3: percent and they didn't really tank that much during the
Speaker 3: downturn because Crasschach was still relatively cheap compared to the
Speaker 3: rest of the country. So I call it this overvalued
Speaker 3: undervalued model. Data is free on our website. We calculate
Speaker 3: it for every council area and every region in the country.
Speaker 3: And that's one of the main things I'm trying to
Speaker 3: look at, which is basically saying, is a particular area
Speaker 3: relatively cheap or relatively expensive compared to where we'd expected
Speaker 3: to be, because that kind of gives us a good
Speaker 3: indication about which areas might take off next.
Speaker 1: And I guess you've seen the market adjust to that
Speaker 1: because now we've effectively got I mean a glut of
Speaker 1: properties there in christ Church, haven't we It's an area
Speaker 1: that so we're lead to believe there's a lot available.
Speaker 3: Well, there's a lot of properties that have been built,
Speaker 3: but there is a very large difference between the number
Speaker 3: of properties that have been built and a glut. To me,
Speaker 3: a glut, what does that look like? That looks like
Speaker 3: you can't rent a property. Actually, our property management team
Speaker 3: are renting properties pretty quickly in christ Church, much quicker
Speaker 3: than Auckland, so we're not necessarily seeing that. I think
Speaker 3: what we are seeing in New Zealand is that we
Speaker 3: are our housing stock is changing because the makeup of
Speaker 3: the country is changing. So if I took you back
Speaker 3: the seventies or eighties, your standard house was kind of
Speaker 3: three bedrooms one bathroom. Now people are having fewer kids,
Speaker 3: we've got fewer people living in each house and so
Speaker 3: we don't need as many bedrooms. But there's this move
Speaker 3: to kind of compact quality where even though we don't
Speaker 3: need as many bedrooms, we have higher expectations around what
Speaker 3: our house is going to give us. That's why more
Speaker 3: people want two bathrooms within a property as opposed to
Speaker 3: just the one that we would have had previously. So
Speaker 3: I think there is a change in the expectations of
Speaker 3: kiwis and therefore we're seeing a change in the housing stock.
Speaker 3: That's why you see a lot of building. I don't
Speaker 3: necessarily say look at that and say that's a supply issue,
Speaker 3: because some of it is demand driven.
Speaker 1: In terms of diversification, if we're thinking still back to
Speaker 1: that same idea that we started in with, which is
Speaker 1: why would I put my money into a house rather
Speaker 1: than into an equity investment. You could spread your bets
Speaker 1: a lot more easily, can't you if you are putting
Speaker 1: money into a market, Whereas if you are investing in
Speaker 1: anyone property that you're locked up, you're exposed to climate risk,
Speaker 1: rental risk, all of these other kinds of issues. You
Speaker 1: never can pick your neighbors, how I mean, is there
Speaker 1: any way around that problem.
Speaker 3: One thing that's really interesting when we're thinking about diversification
Speaker 3: is those numbers I shared before about S and P
Speaker 3: five hundred versus zed house prices, the inset house price
Speaker 3: index or medium sale price, whatever graph you look at
Speaker 3: online is a little bit misleading because if you invest
Speaker 3: in the S and P five hundred, you can put
Speaker 3: your hundred bucks in and you can become reasonably diversified
Speaker 3: buying up all five hundred of those stocks, and so
Speaker 3: the ups and downs can be smoothed out because you
Speaker 3: are being diversified. Now when you buy an investment property,
Speaker 3: you're not buying the average house in New Zealand. You're
Speaker 3: not going to go up and down with the market.
Speaker 3: You're buying one specific property in one specific area that
Speaker 3: is basically not diversified at all, and so the ups
Speaker 3: and downs that you get as a property investor will
Speaker 3: be much larger than the ones that you see when
Speaker 3: you google median sale price in z for houses, or
Speaker 3: look at any graph of NZED house prices and it
Speaker 3: will look like, oh, most of the time house prices
Speaker 3: are going up, yes, but that's because sometimes Auckland will
Speaker 3: be going up in value, when Wellington's flat. Sometimes christ
Speaker 3: Church will be going up in value well and the
Speaker 3: Cargol is flat, and so it will look as if
Speaker 3: New Zealand house prices are going up constantly, but you're
Speaker 3: not buying in for Cargol and christ Church and Auckland
Speaker 3: and Wellington. When you buy your first property, you're just
Speaker 3: buying one specific property and one specific market, and so
Speaker 3: the value increase will be much more volatile than the
Speaker 3: overall market. And that's a nerdy point, but it's a
Speaker 3: very important one to get across.
Speaker 1: You know. I guess it's like there is no average
Speaker 1: houses there, right, that's the that's the thing, right, It's
Speaker 1: very very specific. It's a very bespoke kind of investment
Speaker 1: in that kind of respect. I guess that appeals a
Speaker 1: lot to some people, but to some others that might
Speaker 1: there might be some pressures on there they might be understanding. Gosh,
Speaker 1: I'm now on for a bunch of maintenance. You know,
Speaker 1: the rates bills going nuts. We've touched on climate there.
Speaker 1: I mean, we're getting some quite granular assessments from the
Speaker 1: insurance companies about whether they'll even extend cover over properties
Speaker 1: and so on. I mean, are you finding that from
Speaker 1: the people that open as you talk to the customers
Speaker 1: coming through the door, that that to turn off or
Speaker 1: something that they have to try and get over. Are
Speaker 1: people stepping back as a result of that, or how
Speaker 1: are you helping them deal with some of those challenges.
Speaker 3: Well, one of the main things we do at Opus
Speaker 3: Partners is we only focus on new built investment properties
Speaker 3: and so let me give you an example, if you
Speaker 3: bought an older property that was built in the nineteen
Speaker 3: seventies and that property is now on a floodplane, chances
Speaker 3: are that property is built quite low to the ground
Speaker 3: and will have a reasonable risk of flooding. For a
Speaker 3: property to be built on a floodplane, if it's a
Speaker 3: new build today, it has to be built up off
Speaker 3: the ground. You'll often see when you're looking at townhouses
Speaker 3: they might have steps up to them. Typically it might
Speaker 3: need to be about half a meter off the ground.
Speaker 3: And so these properties are built to withstand typically a
Speaker 3: one in two hundred year flood. And so that is
Speaker 3: one of the the kind of risk mitigations for our
Speaker 3: clients and one of the reasons why they kind of
Speaker 3: prefer new builds because they've got to be built to
Speaker 3: the current building code. That doesn't mean that new builds
Speaker 3: are right for everybody. You don't brand new properties, but
Speaker 3: some people prefer them.
Speaker 1: Companies like yours do have a relationship with developers as well.
Speaker 1: That's I mean you ten out of ten for plain
Speaker 1: language you're talking about you don't have to pay us
Speaker 1: because the developer is paying us, and that, I guess
Speaker 1: then creates a relationship risk there as well. You know,
Speaker 1: am I being looked after as the developing being looked after?
Speaker 1: How do you navigate that situation?
Speaker 3: Well, there's a couple of ways you do it. The
Speaker 3: first thing is we split our company in two. So
Speaker 3: we've got a property company, OPA's Property, and then we've
Speaker 3: got an investment company which is OPA's Partners. And effectively
Speaker 3: these two companies are separate, but they serve different clients.
Speaker 3: So effectively OPA's Partners, which gives financial advice, our only
Speaker 3: client is the person who wants to get advice OPA's Property.
Speaker 3: They specifically focus on the developers. So the first thing
Speaker 3: by splitting our company in two and saying this is
Speaker 3: who you serve, this is who you serve, that kind
Speaker 3: of puts a really nice line in the sand practically
Speaker 3: for our staff members to say, this is what you
Speaker 3: care about, this is what you care about. The other
Speaker 3: thing that we mainly do is when somebody buys a
Speaker 3: property through us, the commission or the fee that we
Speaker 3: get is flat. So what I mean by that is
Speaker 3: if you come to us and you buy a nine
Speaker 3: hundred thousand dollar property or a six hundred thousand dollar property,
Speaker 3: the fee that we get is always the same. It's
Speaker 3: quite funny. I had somebody messaged me once and they said, look,
Speaker 3: I understand that I'm not incentivized to buy a more
Speaker 3: expensive property through you, but isn't your incentive for me
Speaker 3: to then buy two cheaper properties? And I was like, oh,
Speaker 3: and trying to solve this like one incentive to say, hey,
Speaker 3: we don't necessarily want you to buy a more expensive
Speaker 3: property if it's not right for you, We've inavertently created
Speaker 3: another buyas. But I think the main thing you've got
Speaker 3: to do is Kiwis are smart.
Speaker 2: You know.
Speaker 3: Kiwis have like this really good bull crap detector, and
Speaker 3: so we like to be upfront and honest and put
Speaker 3: it out there. One thing that we did was I
Speaker 3: completely re wrote our disclosure statements online. So if you
Speaker 3: go onto any investment company's website, whether it's like Milford
Speaker 3: or Craig's Investment Partners Ask or somebody else, they have
Speaker 3: to have like very important legal information online about how
Speaker 3: their company is structured, how they get paid in all
Speaker 3: of that jazz and I was on Reddit once, the
Speaker 3: cispit of the Internet, and I saw that somebody had
Speaker 3: linked it and I was like, oh, wow, people will
Speaker 3: read this. And so what I did is I went
Speaker 3: back and I said to our compliance saying, hey, this
Speaker 3: is all in legal jargon. Let's make this plain English.
Speaker 3: Let's explain how all of our companies work so that
Speaker 3: people can say, well, okay, maybe I do want the
Speaker 3: free advice. I understand their commercial biases, but they are
Speaker 3: upfront about it, and I trust myself enough to detect
Speaker 3: if they're doing me wrong or not. And so I
Speaker 3: went away and I wrote that in plain English, you
Speaker 3: wouldn't believe it. People create accounts and write comments on
Speaker 3: our legal disclosure statements say thank you for the transparency.
Speaker 3: This is really interesting. I'm looking forward to our meeting
Speaker 3: and things like that. It's actually really amazing. Kiwis are smart,
Speaker 3: and I think if you put the information out there
Speaker 3: and say these are all of our biases, this is
Speaker 3: where we're coming from, but this is what we offer,
Speaker 3: it's up to you to make the decision. I think
Speaker 3: people are pretty open to that.
Speaker 1: So this is why you sort of front footed this
Speaker 1: as well. I think one of your podcasts and explain, hey,
Speaker 1: here are some of the common criticisms people have of
Speaker 1: people in our industry, and let me tell you about
Speaker 1: it was that part of that same journey.
Speaker 3: I did another video where I went through Reddit comments
Speaker 3: with complaints about both my company, OPA's partners and all
Speaker 3: of our competitors as well. And so what our philosophy
Speaker 3: is is, well, we should try and tell you about
Speaker 3: as many of those bad things upfront, so that you
Speaker 3: know about them, so you know what you're getting into,
Speaker 3: and then investors can make the right decision for them.
Speaker 3: I think all companies should do this. I think there
Speaker 3: is this sense that, oh, but if I say the
Speaker 3: bad things about my company, then people won't want to
Speaker 3: use me. Well, actually, I think that a company like
Speaker 3: Craig's Investment Partners or Milford should say, this is how
Speaker 3: many of our customers have lost money over the last year,
Speaker 3: this is how many of our customers don't make the
Speaker 3: benchmark return over x period. Because then people can make
Speaker 3: their own informed decision. And I suppose that's one of
Speaker 3: the reasons why we leaned real heavy into the risks.
Speaker 3: At the start of this conversation.
Speaker 1: You're inviting me to ask how many of your customers
Speaker 1: lost Oh.
Speaker 3: Do you know what, I don't have that exact number,
Speaker 3: but if they purchased in twenty twenty one or twenty
Speaker 3: twenty two. I can guarantee it as almost all of them,
Speaker 3: because the market has been really, really bad. And in fact,
Speaker 3: one thing that's hard to see within property investment is
Speaker 3: how your property has performed compared to the market. So
Speaker 3: I ended up making this really cool tool called the
Speaker 3: Market Mover Calculator. You can google it and find it
Speaker 3: and you can put your property value in whatever you
Speaker 3: purchased it for, and it will show you if it
Speaker 3: followed the market perfectly in your local area, what would
Speaker 3: it be worth today? And that lets you see in
Speaker 3: a way that I've never been able to get across
Speaker 3: to people, well, how is your property doing or performing
Speaker 3: compared to the overall market.
Speaker 1: We were talking about developers and so on, and you've
Speaker 1: been great and open about the relationship. Are you looking
Speaker 1: at what they are doing and are they talking to you?
Speaker 1: Are they talking to you about how they raise their money,
Speaker 1: or are they talking to you about the kind of
Speaker 1: ventures that they want to undertake, So that there's a
Speaker 1: bit of a conversation there about, hey, we see a
Speaker 1: trend for smaller but higher value stuff, or there's interest
Speaker 1: in investing in these kind of things To build as well.
Speaker 3: Is there that kind of conversation. Well, there has to be,
Speaker 3: isn't it. Because the beautiful thing about how we're set
Speaker 3: up at Open's Partners is we've also got a property
Speaker 3: management team. So not only might somebody choose to say, oh,
Speaker 3: I'm going to buy a property through you, guys, I
Speaker 3: might even get your mortgage through you, but I'm going
Speaker 3: to get the tenants as well. And that means that
Speaker 3: we see all of the problems that happen specifically like
Speaker 3: what sort of properties might attract poor equality tenants. So
Speaker 3: there's a big trend at the moment for developers to
Speaker 3: build studios because they are very profitable, and also you
Speaker 3: can sell them at a low price. So I'm talking
Speaker 3: about like buying a four hundred thousand dollars or three
Speaker 3: hundred and fifty thousand dollars, like very small apartment. Now
Speaker 3: that would be very easy to say to invest is
Speaker 3: this is a great deal, But the tenants are usually
Speaker 3: very very bad. And the reason is because you tend
Speaker 3: to attract tenants who are quite transitory, and so you've
Speaker 3: got a lot of moving in moving out. And so
Speaker 3: one of the big things we do is talk to
Speaker 3: our property managers and say, what's renting really? Well, what
Speaker 3: problems do you have with how developers are building properties.
Speaker 3: I'll tell you a little story like that's so kind
Speaker 3: of obvious. There was a property that one of our
Speaker 3: property managers were trying to rent out and there was
Speaker 3: a problem with the pantry that this developer hadn't built
Speaker 3: a decent enough sized pantry and all of your food
Speaker 3: was going to be stored above the sinks. And they said,
Speaker 3: this is a real problem, like people are being turned
Speaker 3: off by this. So you bet that we then go
Speaker 3: back to the developers and say, well, we can't exit.
Speaker 3: We need to have really good pantries, or we need
Speaker 3: to make sure that the bedrooms are this size. And
Speaker 3: so there's this conversation about what's happening in the market
Speaker 3: and feeding that back to developers. It's really about saying, hey,
Speaker 3: can you build the right investments so that it's going
Speaker 3: to be the right fit for our clients.
Speaker 1: I'm just thinking as well, the government's really shaken up
Speaker 1: some legislation lately. This is probably more about offshore investors,
Speaker 1: but I'm wondering whether there's an impact on how New
Speaker 1: Zealand investors could be affected by this, they've opened up
Speaker 1: the playing field so that it's easier for foreign investors
Speaker 1: to invest in build to rent properties. They've got to
Speaker 1: be a certain size I think more than twenty dwellings
Speaker 1: and that I don't know whether we're seeing much action
Speaker 1: or a response to that in the market. But are
Speaker 1: you seeing more of those coming onstream or down the tracks?
Speaker 1: And is that an opportunity that New Zealanders might increasingly
Speaker 1: take up and increasingly would that shut the door on
Speaker 1: other kinds of developments potentially? Is it going to direct
Speaker 1: that capital away?
Speaker 3: Well, it's a really interesting question because that law change
Speaker 3: only happened in February this year, and it's not that
Speaker 3: it's a free for all where overseas investors can come
Speaker 3: and buy up these properties that have twenty or more dwellings.
Speaker 3: They've still got to go through a consent process, but
Speaker 3: it's a fast trained consent process. Personally, I haven't seen
Speaker 3: any evidence that there has been a rush of overseas
Speaker 3: investors designed to come in. But what I would say
Speaker 3: is that the build to rent sector, where a company
Speaker 3: comes out simplicity, is a really good example of this.
Speaker 3: At the moment they say we're going to build these
Speaker 3: big apartment blocks and we are going to rent them
Speaker 3: out long term. To be honest, I feel quite excited
Speaker 3: about that because that is a way, especially if you're
Speaker 3: more of a yield based investor, that you might be
Speaker 3: able to get access to property without having to personally
Speaker 3: take on that debt, which is one of those big risks.
Speaker 1: So there's an option there, but it's not a space
Speaker 1: that you.
Speaker 3: Play in, not personally. But I'm very interested in seeing
Speaker 3: how it goes, especially once we open it up to overseas.
Speaker 1: Capital Financial Markets Authority. They are in court, i think
Speaker 1: last week in the High Court trying to get a
Speaker 1: definition of something called we're getting very pointy headed here
Speaker 1: the wholesale investor eligibility, which if people have been following it,
Speaker 1: they might know it more from some of the big
Speaker 1: property development companies that got into a bit of trouble
Speaker 1: a couple of years ago. But this is basically saying,
Speaker 1: if you are not a mum and dad investor, not
Speaker 1: a retail investor that is looking at something with a
Speaker 1: product disclosure statement, you're a wholesale investor, you're rich, or
Speaker 1: you're particularly over a certain level of wealth, you can
Speaker 1: take a higher risk and you can be into these
Speaker 1: higher risk investments. And that's how a lot of property
Speaker 1: companies were accessing capital I guess in the short run
Speaker 1: before they go to the bank, so they could purchase
Speaker 1: land or carry people through the time while they were
Speaker 1: building and so on. I mean tightening that sort of
Speaker 1: stuff up, is that going to change the dynamic? Is
Speaker 1: that what you're hearing as well, or what are your
Speaker 1: thoughts there?
Speaker 3: Well, I'm quite excited that the Financial Markets Authority is
Speaker 3: trying to clear that up because what is alleged to
Speaker 3: have happened is that you might get a mum and
Speaker 3: dad investor who sold their farm or sold their house
Speaker 3: and now they're cashed up. Then they're scrolling through Facebook
Speaker 3: or Instagram and they and add ten percent guaranteed return
Speaker 3: and they think that sounds quite low risk. I'm going
Speaker 3: to click on that, and then they get a salesperson
Speaker 3: on the phone saying, hey, yeah, come and invest it
Speaker 3: with us. Now, this is where there is this big
Speaker 3: loophole which really needs to close. Even if you weren't
Speaker 3: what's called a wholesale investor, where you were a financial advisor,
Speaker 3: you were over a certain level of wealth, you could
Speaker 3: go across to your financial advisor or your lawyer or
Speaker 3: your accountant, and you could self certify that yes, I
Speaker 3: understand all of these risks, Can you sign me off,
Speaker 3: and I'm going to go invest in that. And the
Speaker 3: risk is that people started investing in assets and funds
Speaker 3: that were far too risky for them, and that this
Speaker 3: loophole was being misused. Now there is a place for it,
Speaker 3: but it's not in getting mom and dad investors to
Speaker 3: put their money into developer funds, because that is entirely
Speaker 3: risk and we saw that with both Duval and with
Speaker 3: Black Robin, where people had put their money in and
Speaker 3: they thought it was safe, and now they're not able
Speaker 3: to get it out and it is incredibly sad, and
Speaker 3: so tightening that up is going to be really good.
Speaker 3: I'm encouraging developers to work with the finance companies that
Speaker 3: are already out there because you can get access to capital.
Speaker 3: What some developers are trying to do, and we're trying
Speaker 3: to do and are trying to do, is say, well,
Speaker 3: can we raise our own for the average investor that
Speaker 3: is too risky and they shouldn't be able to do it.
Speaker 1: It's been a really great talking with you and I
Speaker 1: wondered if we could think about finishing with a look ahead,
Speaker 1: really a long way ahead, when nearing a point in history.
Speaker 1: I suppose where you know, some New Zealanders may be
Speaker 1: in a fortunate position where they inherit a share of
Speaker 1: a property that their parents purchased in a time when
Speaker 1: obviously the interest rates and someone were different, but they've
Speaker 1: enjoyed substantial capital gain over that period, and so there's
Speaker 1: almost like a generational wealth transfer coming. What does that
Speaker 1: mean for the market you're in, for the people that
Speaker 1: you're talking to and the choices that they're having to make.
Speaker 3: The people that tend to come and work with Opus
Speaker 3: partners tend to be better off financially because you if
Speaker 3: you're going to buy an investment property, you've got to
Speaker 3: have some income behind you and you've got to have
Speaker 3: some wealth behind you. So for your question was very
Speaker 3: specifically about the clients that we work with, they're going
Speaker 3: to be made better off for this. The people I
Speaker 3: worry about other people who are not our clients, and
Speaker 3: because the people who tend to go and get financial
Speaker 3: advice in New Zealand are those people who have money,
Speaker 3: because that is who the industry is set up for
Speaker 3: you know, it's very hard to make money as a
Speaker 3: business if you're giving advice to people who don't have
Speaker 3: a lot of money, right, and so you don't see
Speaker 3: and to see as many for profit businesses playing in
Speaker 3: that space. But that's who I worry more about, because
Speaker 3: those are the sorts of people that aren't going to
Speaker 3: have that intergenerational wealth, whose parents perhaps weren't able to
Speaker 3: purchase a property many many years ago, and it makes
Speaker 3: it so much harder to retire well or to say cool,
Speaker 3: I've now got the money where I'm able to buy
Speaker 3: a home to live in for myself and grow my wealth.
Speaker 3: So that's one of going to be one of the
Speaker 3: big questions of our time, and how we deal with that.
Speaker 1: I guess it's how you respond to that worry that's
Speaker 1: as important as anything else, isn't it. How do you
Speaker 1: address that lack or that need.
Speaker 3: Well, I can tell you what I'm doing personally, which
Speaker 3: is putting out thousands of podcasts and thousands of articles
Speaker 3: about what you can do and what the options are.
Speaker 3: We're giving a seminar, a property investment seminar down in
Speaker 3: christ Church.
Speaker 2: Oh.
Speaker 3: It would have been a couple of weeks ago and
Speaker 3: afterwards a couple of eighteen year olds came up and
Speaker 3: they said, hey, look, we don't have rich parents, but
Speaker 3: we want to make money through property. We loved your presentation.
Speaker 3: Should we buy a new build off here? The answer
Speaker 3: was no, No, you absolutely should not. Because you're eighteen
Speaker 3: years old and you've got more time than money. You
Speaker 3: should start going out or Our advice was think about
Speaker 3: going out and flipping properties, something that we don't work with.
Speaker 3: That's sort of strategy we help people use at Opus Partners,
Speaker 3: but it's something that for these people, that is the
Speaker 3: way we can help you move forward as say, well,
Speaker 3: this is the strategy that would best suit your situation
Speaker 3: right now, go away and think about it, and yeah,
Speaker 3: pull your deposits together. See if you're able to start
Speaker 3: doing that to move forward. So it's a tough question.
Speaker 3: I don't know what the government should do, but I
Speaker 3: know what I'm going to do about it because that's
Speaker 3: all I can focus on, which is continuing to put
Speaker 3: out content that hopefully helps New Zealanders.
Speaker 1: And that is a wonderful thing to share. So thank
Speaker 1: you very much McKnight from Opah's partners, and thank you
Speaker 1: for watching for listening Wherever you're listening, where your podcasts iHeart, Spotify,
Speaker 1: Apple or straight off the Shares's app Kumtu. That's us
Speaker 1: for this week.