This article was published on 22 January 2005. Some information may be out of date.


  • Man with many rental properties does it the right way.
  • Why do economists bother to make foreign exchange forecasts that are often wrong?

QI am 46, and very much the “average” person who worked many years at a job where I earned approximately $40,000 a year.

About 10 years ago, I did extensive research on residential property investment in NZ that was self-conducted (i.e. I did not take a seminar).

What impressed me was that people who owned 30-plus residential properties often had a story about a property that made them money, with 100 per cent finance, from the first day of ownership.

I decided to build a property portfolio worth at least $2 million over the next six years using the following three simple rules:

  1. The anticipated rent must exceed what the principal and interest payments would be with 100 per cent finance, plus related expenses. Put another way, a property would have to generate a net profit.
  2. If I cannot imagine the property being there in 50 years, I walk away. I am not an engineer or a builder, but I have common sense and a vivid imagination. I never get builder’s reports, because I would never consider buying a property that made me suspicious enough to ask for one.
  3. Always remember, “Capital Gain is promised to no one”. Yes, there is a long history of it happening, but don’t count on it. Any property I buy has the potential of some day being owned purely by management work, without any of my own capital being put into it.

So, how did I do, you might ask?

Well, I settled on my first property in September 1997. My starting financial base was about $100,000 in equity in the house we lived in, and about $20,000 in savings.

It took over a year to find and buy property number two, another eight months to buy property number three, etc, eventually getting up to property number 18 in June of this year.

I have not compromised my three rules throughout the process, and established borrowing power purely through the equity that was not promised, but nonetheless occurred.

Because of Rule 2, I have security to a degree, in knowing that I have substantially good property. If you want to work out my rate of return, please use the $20,000 figure, as that is all I have invested of my own money.

My net worth, even using very conservative and outdated G.V. figures for each of the properties balanced against what I owe, is currently $1.2 million dollars.

My life-style has not changed one bit. I still live in the same house I started in, and in all ways I appear to be a person that earns about $40,000 a year.

I manage all my properties myself (because I love them), and my goal is to pay for the whole lot before I retire.

Am I crazy? Should I have invested my money in diversified stock instead?

ANo to both questions. While many New Zealanders would be better off with diversified shares, you seem to be a natural-born property investor. What makes me say that?

  • You love your properties, and it sounds as if you actually enjoy managing them.
  • You’re willing to put in many hours and much effort. Just the fact that you spent more than a year searching for your second property is telling. And managing 18 properties must be a full-time job.
  • You did lots of research before buying — and skipped seminars, which are often misleading and can do much more harm than good.
  • Your three rules seem sound — although I worry that some properties may have flaws that a non-professional can’t spot — and you’ve got the conviction to stick with the rules.
  • You’re in for the long haul, and seem unlikely to bail out if property prices fall for a while.
  • You apparently don’t feel that, just because you’ve become a bit of a property magnate, you need to own a flash home, car, clothes and so on — perhaps piling up debt to buy them.
  • You’ve got the courage and energy to own many properties.

That gets around one of my biggest worries about most rental investors: they own just one property, or perhaps two.

If their property turns out to be leaky, or it is revealed that the soil is contaminated because it used to be an orchard, or gangs move into the neighbourhood, or it turns out that there are too many rental properties in the area and too few tenants, their investment can turn sour.

But with 18 — especially if they are in different neighbourhoods and different types of housing — they’re not all going to go bad.

However, you’re still exposed to the problems common to all properties, such as mortgage rate increases and periods of no growth or price falls.

For that reason, I would rather you had a portion of your long-term savings in shares. But I don’t like my chances!

A couple of notes of caution for other readers:

  • This man’s wealth has grown particularly fast because of recent booming house prices. Average growth over the long term will be much slower.
  • I suspect that if the correspondent added up the hours he has put into learning, buying and managing, he would find that he’s earned his wealth.

The time involved is one of the huge differences between owning lots of properties and lots of shares.

QHow does one forecast the exchange rate between the Kiwi and the US dollar?

I am being only slightly facetious when I suggest that the first move would be to ignore all predictions made by New Zealand economists.

Doing so, according to research carried out by BNZ’s Tony Alexander, would eliminate a staggering 95% of wrong answers, as you reported last week.

Which begs the question: Why do economists, with such an appalling success rate, persist in their crystal ball gazing when at minimal expense they could visit the local zoo and get a monkey’s opinion?

AAlexander has also answered that question.

“Partly because the world is full of people who still think we can” forecast foreign exchange, he said in a newsletter.

“Many people simply need to put some rates in when setting budgets for the coming year or so.

“So we economists give rates which in our opinion are reasonable, and if ever challenged legally down the track the company using them can justifiably say their account projections were based upon reasonable views and not outlandish numbers they made up.”

Kind souls, those economists, letting the corporate types pass the buck their way.

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.