Last night, the first episode of The Deal (season 2) came out.
Remember, this is NZ’s first property investment TV show.
At one point last night, a guy stood up and said: “You’ve made a boring topic really interesting!”
It might sound like a back-handed compliment. But I appreciated it.
He went on to ask: “After recording the show, what are the top questions to ask when you buy an investment property?”
After recording 2 seasons of The Deal, here are the 3 big questions to ask before you invest:
Is it a growth or a yield investment?
There are two types of (good) investment properties. Growth and yield.
Throughout The Deal, I ask the developers if their properties are growth or yield.
Remember, growth properties tend to increase in value faster. But have a lower rental yield.
Yield properties tend to have better cash flow but don’t tend to increase in value quite as fast.
Both types can make a good investment. But you need to be clear on what you’re looking for.
Generally, younger investors (55 or less) who are not yet wealthy go for growth.
These people want to build wealth to earn a passive income from their properties later on.
Whereas people who are already wealthy (and have lots of cash) tend to go for yield.
They buy these properties with a small mortgage and earn a decent cash flow from them.
You want to be clear what you’re looking for.
You don’t want to accidentally buy a growth property if you really want a yield property.
And you don’t want to accidentally buy a yield property when you really want a growth property.
Who are you signing the contract with?
In the first episode, George – a developer – turned up representing his company.
But then Vanessa (The Gatekeeper) uncovered that George isn’t a director of the company.
His brother is.
So, if something goes wrong with the development, ultimately, George’s brother is on the hook. Not him.
This raises something to watch out for.
When you sign a contract with a developer, you should always know who you’re signing the contract with. You want to know who’s on the hook.
I’ve heard of situations where an investor signed a contract with a franchise builder. Those are companies like Golden Homes or Stonewood Homes.
Then something goes wrong, and the investor didn’t realise they had signed a contract with the local franchise. Not the national brand.
Who is the tenant for this property? Who’s going to buy it off me?
Filming The Deal made it even clearer that there are 2 customers property investors need to think about.
First, you want to ask who the tenant will be.
They’re the ones who will rent the property off you for the next 15-20 years. Though of course, you’ll have different tenants over that time.
The second customer is the person who eventually buys the property off you when you sell.
Will it be a first home buyer, an investor, someone upsizing, or maybe even someone downsizing?
Either way, you want to have both customers clear in your head when you purchase any investment as a long-term hold.
There are many more learnings throughout the series. So make sure you stream the show at TheDeal.co.
New episodes come out every Wednesday at 6:30 pm.
