NZ Property Investment Insights from Scott Miller

Welcome to Episode Seven of the Advanced Mortgage Solutions Podcast! In this episode, host Joel Sadler interviews Scott Miller, a seasoned property investor with over 20 years of experience and the owner of Advanced Mortgage Solutions. 

Scott shares his journey into property investing, key insights, and practical tips for first-time buyers and aspiring property investors. 

Learn about the concept of 'puddle jumping,' the importance of maintenance considerations, and how to strategically use equity for property investment. 

Whether you're just starting out or looking to expand your portfolio, Scott's expert advice will guide you through the complexities of the mortgage and property investment landscapes. 

Tune in for invaluable knowledge to help you on your property journey.

00:00 Introduction to the Podcast
00:27 Meet Scott Miller: Property Investor and Mortgage Expert
00:49 Scott's Journey into Property Investing
02:54 The Concept of Accidental Rentals
05:32 Puddle Jumping: Leveraging Equity for Growth
09:14 Tips for Choosing Rental Properties
13:49 Advanced Strategies and Final Advice
17:05 Conclusion and How to Reach Out

For assistance with a new or existing home loan, reach out to Advanced Mortgage Solutions today. www.advancedmortgagesolutions.co.nz 

Transcript

SPEAKER_01 0:08

Hello everyone, welcome back to the Advanced Mortgage Solutions Podcast. This is a podcast that assists people with their property journey. Whether you're a first home buyer or a seasoned investor, we cover all topics. I'm Joel Sadler and our mortgage expert today is Scott Miller, owner and founder of Advanced Mortgage Solutions. Scott's been a property investor for over 20 years now and his professional background includes logistics, management and finance. So the technical knowledge along with his real-world experience and registered mortgage advisor license basically gives us amazing insights and knowledge in terms of the mortgage space, the investing space and property buying space. Right, so today's episode discusses Scott's experience with property investing. I think it's something a lot of people think about or are told they should do. But Scott, we'd love to hear a bit from your side of things, your personal experience with property investing. So we'll start off with what attracted you to property investing.

SPEAKER_00 1:03

Way back in the day I was living in the UK and uh the exchange rate was very favorable back there, where you know you could send some money home um after working quite hard in the UK. And you know, when I came back to New Zealand to live in 2006, um had a bit of a nest egg, um enough to get me into my first home. And then um I'd already had it always had an interest in property. Um so but going into the rental space, it was just the next logical thing for me. Uh I was um just starting out as a mortgage advisor as well, so they sort of did overlap in the information um for me to sort of make, you know, really good decisions around what I was doing. I made a few mistakes, as you do, when you're going out there, but uh in general, I didn't know a lot about stocks and bonds. Um there was no such thing as crypto way back then, of course, but uh and it all seemed a bit too technical and uh sort of a whim of the market type of atmosphere with with stocks and bonds. And I liked something that was a little bit more uh stable. And I always found that, you know, uh property has an intrinsic value to it, particularly land. Um and you'll find generally the house goes up and its value not because of the house itself that's on the land, it's the land that's underneath it that increases. Um and as such found that a much safer kind of investment. Um so and again I suppose that there's my uh my proviso is I'm probably a little bit biased towards property because of the the type of work I do, but also because it's just over the years it's really certainly well, really, really certainly well.

SPEAKER_01 2:39

Yeah, it's interesting to hear your attraction to the different types of or to that investing as opposed to some of the other type of things out there. So, how did you get started in property investing? What was your first leap?

SPEAKER_00 2:51

When I very, very first started, I wasn't a broker myself. It was a broker that I was with, and he introduced me to some of the things. And that's actually that same broker that eventually got me into becoming a mortgage advisor as such. So uh there's a wee story there as well. But look, um as it was with most people, it's a little thing I've coined, and it's but it means that the property becomes an accidental rental. I say that because it rhymes and it sounds quite cool. But what that means is that typically you tend to buy the house initially to live in, um, but then you used that particular house to puddle jump into something bigger or better or nicer or further up the scale of uh, you know, the property sort of quality and those sorts of things. And that's where the accidental rental sort of comes in. It wasn't really intended to be a rental, but it just by chance of using the equity in that property to go and buy yourself something nicer, it became a rental that way. And that's how it started. Um I made sure I got went out and got some um advice from an accountant to make sure that I was purchasing under the right structures and things like that, which I highly recommend um people to do. Um being down the track now 20 years, I do see a lot of people have not uh, you know, started out their journey under the right structure and have had to spend a lot of money to sort of unwind what they've got, only to wind it back up to exactly the same position, but under the right uh ownership structure, you know, maybe a company um or a trust or something like that. Um so yeah, look, I I was lucky enough to have uh the right people around me at the time, got the right advice and did the right thing. Um I will move on a little bit to say, you know, some of the faux pars I did make is in the accidental rental, although the house was nice to live in, it didn't make the best rental in the world. And what I mean by that is, you know, they were weatherboard houses, uh, you know, with say tin roofers, re roofs and things like that. So they turned out to be uh on the maintenance side of things, quite a uh a cost to bear um compared to just the rental income that was coming in. So that changed over time. Obviously, uh went out and then specifically bought houses because they were going to become a rental property. Um and that's just a completely different mindset to having an accidental rental be added to your portfolio.

unknown 5:10

Yeah.

SPEAKER_01 5:11

So there's a couple of things I want to unpick there, which are really cool. So, because one of my questions later on was if someone's you know just starting, you know, out to buy their own home, but they have plans to move into the property investing, you know, because not everyone just wants to buy their own home. They have plans, they have visions, you know, they want to build a wealth plan like you've done. Tell us about that puddle jumping concept. That was quite quite powerful. And so, how did you use your home to sort of puddle jump, as you said, into another property?

SPEAKER_00 5:37

Well, so you know, you've owned your house for a while now, um, and you've got that house, you've paid that house down um just through your normal mortgage repayments, either aggressively or not. Uh capital growth has also had its way on your property, so it's now worth more than what you purchased it for. And all that means is that you own a larger portion of the house's value in what's called equity. And equity means uh the increase in the house's value compared to the mortgage. And then you can use that equity as deposit funds to go and buy yourself another property. And this is how most people on the accidental rental side of things come about expanding their rental portfolio because the more property they own, the more um capital growth has an effect on their overall portfolio, which means that they have equity to go and buy another one. Now, there's some limitations, of course, there's loan-to-value ratio restrictions out there that are a little bit harder than when I first started. They're still achievable. Um, and there's, of course, the inevitable income lock. And what I mean by that is that the way that a loan is assessed, it just comes to a point where your income plus the um rental income of your portfolio no longer is quite high enough to afford the next um, you know, the next purchase. So you have to wait for either wage increases or you know, more equity or the rents to go up um for you to then sneak out that next purchase um in your rental portfolio. But after saying that, I mean you don't have to buy, you know, buy 10, 15 houses, you know, two or three um is ample. Um when um capital growth starts, which we're just at the start of another cusp of capital growth really beginning to kick off here in New Zealand, um, you'll find that, you know, when the tide comes in, all the boats float. And if you own multiple properties, then all of those properties are going to go up in their value. And that's where the real sort of turbocharging of one's portfolio really takes effect.

SPEAKER_01 7:45

Right. Interesting. So I mean the ultimate timing would be obviously like they talk about in stocks, and that is buy the dip, and then ride right and high, you know, and then you're locking in, locking in your your equity or capital capital.

SPEAKER_00 7:57

The only problem with that, Joel, is that no one rings a bell to say, hey, we're at the bottom of the market, and then equally rings a bell when we're at the top of the market. You know, it'd be so handy if someone would do it. Yeah, yeah. But look, as long as if you're buying for yourself and it's your owner-occupied home, then there's no wrong time to buy, right? Because the chances are you're going to own that house for many years, and it just means the next property cycles will sort out any kind of shortfall that you had in deposit or whatever at the time. Um it's a little bit more picky and cheesy if you're starting to grow your own portfolio because you do want to start when really house prices are what you might call depressed or at their lows or you know, outside of the next property cycle. Um so then you can take advantage of that capital growth curve in the next property cycle. Um one rings a bell. So it's it's just trying to be as close to the bottom as you can is good enough. You know. Yeah.

SPEAKER_01 8:53

Yeah. Yeah. And tell us about the maintenance issues. So you talked about weatherboard and tin roofs and that not being ideal. If you're looking to make that that step and buy rental property, what would you be looking for now out of interest in terms of the maintenance?

SPEAKER_00 9:07

Really good question. It's like permanent materials, so brick and tile would be a great start. Uh other ones to that a lot of people don't think about as you know, really low landscaping maintenance. You know, like as much as you will look after your own property, a renter will not look after your property. Um, and things like gardens and, you know, lawns and um, you know, just a lot of landscaping of any type, really, you'll just find that uh renters, although they may start off enthusiastic to look after that, will soon drift away and it can become a cost that you have to pay for by getting, you know, a gardener in or a a person to mow your lawns because they're just not doing it for you and the place is looking a bit rough. Yeah. You know? Um basically the younger the stock, the less likely you are to spend um on maintenance. There comes a point though where the rental return won't cover the mortgage. You know, I suppose let's take it to the extreme. There's not a lot of point buying a million dollar rental because you're not going to get the rent to cover the mortgage that it's going to cost for a million dollar rental. It would be much better to go out and buy two $500,000 houses, get two lots of rent, and it just means that that rental yield will be more favorable across two houses than it would across the one, one million dollar purchase. So I know that's not so much of a maintenance thing as you've just uh started off the conversation, but it ultimately bends into the overall, hey, I'm running a business here, and my rentals are my business, so that business has to be seen to make some kind of sense dollar-wise.

unknown 10:47

Yeah.

SPEAKER_01 10:47

100%. I had a friend of mine years ago, he was buying, and I don't think it was necessarily a low maintenance stock, it was older properties, but somewhere way up in Tiamutu Way, and he was essentially buying them so cheap that the rent was actually, he was positively gared, so he was actually making 50 bucks or something a week from the rent on top of paying after paying the mortgage. In your experience, have you seen I mean that's sort of like the holy grail, is there much of that around that you're not gonna be able to do that?

SPEAKER_00 11:13

A lot of people try and get around that by doing a room boom type of rental arrangement, you know, so they're charging out the rooms by uh sorry, the the the rent by rooms. Um other people try and use, let's say, um Airbnb, um, those types of things.

SPEAKER_01 11:30

Yep.

SPEAKER_00 11:30

Um The importance to understand there is that the banks who ultimately have the money to buy these things do not take those sorts of incomes into consideration. So they would expect to receive a standard rental re um appraisal and they would do their assessment on that basis, not on a room by room basis and not on a yeah, B and B basis. Now, that just means that they're doing that under assessment. If you choose to do room by room or Airbnb at a later stage, that's that's sort of on you as such, as long as you're meeting your mortgage repayments, they're not gonna get ultimately upset about that. But it is something to bear in mind that lenders are very conservative in the space of okay, how do we prove income from that particular property? Uh a standard rental appraisal is if someone's gonna live there on a you know a year or a two-year fixed contract, is the way that they would then assess that income.

SPEAKER_01 12:24

Yeah, that makes sense. And then if you bought, say, a rental property that had a sleep out on it that could be rented separately, a single room, you know, with a with a compliant shower and and toilet and that sort of thing, that would be would the banks take that into account.

SPEAKER_00 12:37

If there's a legitimate income source, uh they'll take that into consideration. Yeah. And a lot of investors do that very thing, you know, even if they have an existing property, you may find with the sort of more relaxed terms around via uh sorry, building um external sleep outs and things, um, more and more people are doing that to improve the rental yield of that particular property. Yeah. Or if it's existing, um, just make sure that it's got the compliance and everything for it to be there so you're not buying something that's defective. Um then yeah, no, the lenders will very much uh look at that and not even blink an eye.

SPEAKER_01 13:18

Interesting. Yeah. Brilliant. What would be your main sort of tip or takeaway to kind of sum up from today in terms of someone that's looking to get into the property market, but then also has that long-term plan to eventually buy some rentals as well?

SPEAKER_00 13:34

Certainly be up front with the mortgage advisor that they're talking to, that that is their long-term goal. Um, sometimes holding a bit of cash back from the initial purchase can be an advantage because you can use that for your second purchase. Um the other thing there is I'd highly recommend that you give um your financial advisor the heads up that that's what you're looking to do, particularly if say you've owned the property for a couple of years now and you're not really sure where you stand in regards to using equity out of your property, those sorts of things. Because we can crunch the numbers in behind the scenes without the banks knowing and prepare ourselves so by the time we want to approach the banks, we know the banks are going to look at upon that application favorably. Um and then as I sort of alluded to is to get some advice from an accountant just around the right kind of vehicle to start your rental portfolio in. And that might change, you know, I see it all the time. Um the older mum and dad that might only end up buying one rental um alongside their owner ops by property, usually there's not a lot of reason to open a, you know, a company to own that under or a trust or something along those lines. But if you're sort of a little younger and you want to build a, you know, uh a portfolio over time, then you generally find that the accountant's advice is, yeah, look, let's do it under a company. It just means that then you can buy all of the subsequent properties under the same company and it's set up in the right structure right from the start. And even if you have an accidental rental, as we've talked about, um, over the time of this uh particular podcast, you can just simply change the ownership by taking it from your personal names and refinance it under the company name there. So it's legitimately, again, under that company-owned structure. Very easy, but expensive if you don't get it right from the start and have to unwind everything only to wind it up under the right structure. So yeah, that's an important one.

SPEAKER_01 15:31

Yeah, because I imagine there's tax implications and all that sort of stuff with with all of as you said, around all the structures.

SPEAKER_00 15:37

One of the major attractions to investment properties is there's taxational benefits under what would be called investment debt. Um so we tend to push as much of your personal debt across to the investment side of things through um an acquisition of the property, for example, and it just means that increases your tax efficiencies as much as you can and limits as much personal debt as you possibly can on your side of things because there's simply no taxational benefits on personal debt. So look, we're sort of moving into the next level of sophistication at this stage, probably pay possibly a podcast for later on, but uh that's again where we go back to that uh initial discussion with your um accountant to ensure that we're just doing the right thing for you, either in the short or long-term plan. Yeah. Yeah.

SPEAKER_01 16:30

Awesome. All right. Well, thanks, thanks for today, Scott. Um for those that are listening. If you've got an accidental rental, you're looking to get on the property ladder with your first home and/or have plans to get those magical two to three plus rental properties. Um, or you're even looking to add some rooms to your home or those other ways of creating you know income that the banks sleep out, that that the banks will you know approve, reach out to Scott. Um, he's a wealth knowledge, as you can tell. Um Scott and his team, as I mentioned earlier, have 400 plus five-star reviews, awesome Reddit feedback, and they're here to offer you free free advice. So, Scott, um, if someone wants to get in touch with you, what's the best way for them to reach out?

SPEAKER_00 17:11

On the website, uh you'll find all of the advisors' details there. Um, there's contact forms, there's even uh a little form that helps us get through the approval process a little bit more. There's search time buyer guides, you name it, it's all there. Um so yeah, visit uh advancemortgage solutions.co. Thanks, Scott, very much.