Is Property Investment Suicide: Part 2

“Time is the friend of the wonderful company, the enemy of the mediocre.

– Warren Buffet

I recently had a conversation with a friend about their investment property. It was the usual exchange up until we started talking about capital gains.

“Jim just used his $200k property gain to buy himself a new boat!” I heard him exclaim. The guy had several properties – and several mortgages.

I was in two minds, I couldn’t deny that $200k was a huge gain but I also could shake that something smelled fishy. I crossed my legs.


I started wondering “Hold on. Was it actually a gain? How long and how much money did he spend on the house before he sold it?” Why does this even matter? Money is money right? Let me illustrate why knowing how much money you actually gained is important.

The Property Guru

Lets look more closely at Jim.

Jim is an equity property investor and has 4 properties; A1, B3, C4, D5. For the purposes of this example we will focus on the sale of D5.

Here are the facts and calculations that I did in the background:

  • Jim has just sold D5 for $650,000 which is was worth $450,000 5 yrs ago and has a mortgage at 6% fixed.
  • Jim has tenants helping him pay his mortgage
  • Based on the above, the current value of Jim’s mortgage at the end of Y5 was $460,060 (Interest + Principal Contributions + remaining mortgage balance at Y5)
  • Commissions and other cost to sell were $25,000 (Based on B&T and this article)
  • Let’s assume renovations were required (because you generally won’t get something for nothing. Yes even for property) at a cost of $132,000 (60 sqm at $2200 based on Westpac)

I’ll save you the arithmetic, the gain after interest and fees is $32,940.

So what happened to this $200k gain? Most likely a product of the law of least effort (its easier to deduct $650k from $450k then do the arithmetic above or to keep track of several properties and their respective mortgages). If Jim did buy a boat for 200k it would have been at the detriment of his other investments.

Womp Womp, bad investment decision. 

But is Jim’s situation typical? In a “hot market” you may get away with a quick sell at a marginally higher price, which is what you’re hearing about in the news (as rampant speculators quickly start bidding up prices) however, in most cases you will need to do some sort of improvements/maintenance; especially if you have tenants.

More time passes = more improvements/ maintenance work = higher cash outlay required before sale. For property, time is a double edge sword.

The Property Market

Let’s compare alternative investment vehicles with the average returns of the property market in Auckland as per Barfoot and Thompson.

Why? Because you want to.


2012 2013 2014 2015 2016 2017
Jan $470,000 $526,888 $580,000 $700,000 $760,000 $846,500
Feb $464,000 $525,750 $620,000 $685,000 $738,000 $820,000
Mar $500,000 $575,000 $652,000 $711,000 $798,000 $900,000
Apr $491,250 $566,000 $619,550 $753,500 $820,000
May $504,000 $570,000 $645,000 $750,000 $809,500
Jun $528,900 $590,000 $626,500 $786,000 $839,500
Jul $518,500 $585,000 $645,000 $757,000 $840,000
Aug $505,500 $561,500 $630,000 $755,000 $850,000
Sep $525,000 $599,000 $635,000 $790,000 $850,000
Oct $545,000 $590,000 $655,000 $780,000 $865,000
Nov $560,000 $621,400 $691,500 $795,000 $850,000
Dec $550,500 $629,000 $720,000 $800,000 $840,000
Yearly Average $513,554 $578,295 $643,296 $755,208 $821,667 $855,500
% change 13% 11% 17% 9% 4%

As you can see housing growth rate has decreased since its 2014 peak. Let’s assume the 5 year average is a good indicator 11%. As you’ve learned above this 11% is gross, meaning, that any interest effects, commissions, renovations, legal fees and other fees (like tax on capital gains) haven’t been taken out of this figure.

I’m going assume that none of these costs exist for our comparison because I’m too lazy to mock up example figures and I want to give property the benefit of doubt. Please note that the costs I am ignoring are VERY substantial and should ALWAYS be taken into account when making investment decisions unless you want to end up like Jim.

So let’s look for investment alternatives in a place where all kiwis should be familiar, the Kiwisaver.

The following funds currently outperform the property 5 year average:

  1. The OneAnswer Australasian Share Fund; 13.68%
  2. The OneAnswer Australasian Property Fund; 15.76%
  3. Milford Active Growth Fund; 13.84%
  4. Milford Wholesale Fund; 13.68%
  5. My personal P2P lending account; 18.39%

These are gross figures to make them comparable. If we were to take just last years property growth figure (4%) and compare that against the Kiwi Saver results we can see that almost every single Kiwi Saver fund (irrespective of risk preference) outperformed last years property growth.

Obviously future gains are not indicative of past results but it does show that there are other (easier) options out there that give you the same if not better results.

If property growth continues to slow is it wise to continue to hold your property or put more money into other investment options? Only you can make that call.

The Take Aways:

  1. Don’t believe the media hype about property. As you can see from the March results the average cases are nothing special and with a declining growth rate it will be interesting to see if the hype continues.
  2. Get the full picture – Make sure you understand how much money your investments are making less the costs.
  3. Property is not always the best choice or the easiest to manage.
  4. Make your money work for you not the other way around.

That’s it for now. If you have any questions about anything let me know in the comments below.


Is Property Investment Suicide? Part 1

We’ve all seen the affects real estate has had on our respective economy. With Western economies becoming increasingly reliant on real estate, its becoming all too true that the only thing left of value in this western world is the land that we own.

I recently revisited the idea of buying into real estate after rebutting and denying the effects real estate has had on our economy and its dominance in our everyday lives. In New Zealand especially it seems to be the only topic of discussion:

“Why are we so willing to give up our land?”

“Sell the milk not the cow!”

“Foreigners are stealing our land and our jobs”

“Housing prices and rent are on the rise AGAIN”

“McDonalds needs to bring back the McRibb” – ok that’s one of mine but still relevant… to my stomach.

Many people I’ve spoken to have had some kind of interaction with real estate from the millennial trying to buy their first house or a property guru making their 7th property investment. The number of interactions involving real estate is mind boggling. But you aren’t here to hear me rant about people. You’re here because you want to know what my title is all about.

What I am hoping to communicate to all of you is that property is a GREAT investment … for a small % of you. For the rest of you there are probably better investment opportunities that you should probably consider.



Some house keeping. I had to make some assumptions in my analysis for the below. I assumed that the mortgage rate and any alternative investments are the same, 6% per year and that everything is compounded yearly. I assumed rent was $470 per week (pretty high but its what I pay) and that the value of the property was $600k with a 20% down ($120k) – probably the price of the property I’m renting based on my recent searches on TradeMe.

Let’s get into it. There are a couple of types of people to consider:

The Home Maker

These are individuals that don’t see property as an investment vehicle but as the next stage in life. These individuals typically buy to live, only own one property and take out that 30 year mortgage to also allow them to enjoy life while also being able to pay for their home.


At the end of 30 years they’ve just paid $1.034M for your $600k home.

There’s no point doing a what if analysis for these people because they aren’t in it to invest they value the security of having a home if things turn for the worst and there’s nothing wrong with that.

The Property Newb


Young professionals that hear something on the news or have went to a couple of seminars about property investing. Fresh to the game they have a vague idea of mortgages, interest capital gains and investing but nothing too in depth or any practical experience. They’ve rationalised that they want to invest and property seems simple enough. Buy, maybe rent or sell at a good time. Property newbs don’t have enough capital to own several properties so they typically put all their eggs into one property and might have also asked for parent consignment on the mortgage. They opt for a 30 year mortgage, perhaps even an interest only mortgage so they can maintain their quality of life while owning a piece of the action.

Scenario 1: The interest only mortgage payers

You’ve paid 20% down ($120k) and are only paying the interest portion. You are building 0 equity and lets assume you rent your property out ($470/week) to help with the interest payments. Your goal is to sell at a gain. Your mission, unbeknownst to you, will be to sell at a large enough gain to make all that interest back plus a little bit extra to say that you came out on top. Let’s take things one at a time – how much do I need to sell my property for to breakeven with my interest payments?

This is what you want:

Required gain on sale = ∑ of all interest payments

Let’s say you hold it for 2 years and then sell:

Your property needs to sell for $608,720. Easy!

No one to rent your interest only property?

Your property needs to sell for $657,600. Again, doable.

Here’s a graph of how much you need to sell your property for the longer you hold the property for no rental income.

Property 1

Obviously the longer you hold your property for the higher your property price will need to be to make up for all that money you shelled out in interest. Keep in mind that you still haven’t made any money just broke even.

Scenario 2: Fixed rate mortgages

Same numbers but you’ve opted to gain some ground on the bank and increase your share of the house. You will need to contribute more; the principal portion.

Let’s begin with the ability to rent your house to cover part of your mortgage payments and a sale at the end of 2 years.

Your property needs to sell for $608,012 if you have rental income and $669,180 if you don’t.

Property 2

Again, you haven’t made any money just broke even with your investment. The difference between interest only and fixed rate is the compounding principal payments you’ve been paying.

I’ve just painted a pretty rosy picture in favour of buying into this property debacle but as with all epic novels the Hero of the story is about to run into some trouble. Stay tuned for the next blog to find out what happens when we want to actually make money off our investment and when we pit property against other investment options available. I’ll also cover off our third type of investor the “Property Guru”.

What do you think about investing in property? Is it for everyone? Is it worth the hassle? Any good/bad stories? Let me know in the comments. Also, if you have any questions about the calculations or about other investment options available in NZ let me know. I’m always happy to help.

Again if you liked the blog please like the blog below! Thanks!




Confessions: Millennials and Career Apathy

I’ve recently discovered that I was part of what people are calling the “millennial problem”. FYI: if you were born between 1982 – 2002 you are a millennial.


Personally I hate being labelled (another millennial problem – God damn free thinking hipsters!) however, I have to admit that I do catch myself drinking the millennial cool aid from time to time, complaining that I don’t feel like I’m making a difference.

I definitely cant say that I was brought up with an over privileged or coddled life. My parents are Chinese who bought into “western” ideals. What came of that was a combination of anglo-sino ideas on how to raise a child. I became a product of these very different worlds; not quite tiger mom-ed yet not quite over privileged Asian-Caucasian.

Ginger Asian anyone?


That’s not me by the way… could be what my kid will look like though. Sucker.

What I do find I have in common with the millennial phenomenon is having been sold/ bought into the “millennial dream”. Kanye put it best.

Good morning
Look at the valedictorian scared of the future
While I hop in the Delorean
Scared-to-face-the-world complacent career student
Some people graduate, but we still stupid
They tell you read this, eat this, don’t look around
Just peep this, preach us, teach us, Jesus
Okay, look up now, they done stole your streetness
After all of that, you receive this

The Asian equation to success was painted for us like this: Listen in school + Get good grades + graduate + get a high paying job = Your life is sorted. And maybe you can have multiple wives.

Ok maybe that was my thing.

It was a bit of Asian over privilege-ness in a way. You still had to work hard which taught resilience but as with other attempts to quantify success/happiness you’re left with a big black hole that you just aren’t ready for which makes you question whether or not you had it all wrong from the start.

“If you chase two rabbits, you will lose them both.”

I’ve been mulling about this decision for a long time, before I came to New Zealand and, I think, even before landing in Korea to be honest. I found myself becoming extremely apathetic to the hum and drum of Corporate life.

Initially I thought it was accounting. It’s always the problem isn’t it?

I thought, hey, I make really good money but I really don’t like what I do I don’t feel like I’m contributing the way that makes me feel engaged or energised about life… but that doesn’t matter does it? It did to me.

I spent my life searching for something to fill that void, sports, parties, clubs etc. I didn’t want to let go of what I had – what I had accomplished for my career.

It took me 5 years to finally listen to that voice in my head “Just do it”. 

I dropped everything, my life, my friends, my career, and left to teach English in Korea. I stopped chasing two very different dreams. One that had been engrained into my head since I could form coherent sentences and the other I was slowly starting to discover.

This journey was an experiment to see if teaching was more my thing and to see what the world had to offer. Plus, I loved kids (or so I thought) and I loved being a camp counsellor when I was a teen, probably one of the fondest memories of my teen life.


The truth? You cant handle the truth.

Unfortunately, teaching was even more mundane than accounting. I felt defeated. I thought there was something wrong with me. I thought, perhaps, I was being “over privileged”.


I’m still not sure if I am.

I decided (and was kind of forced) to suck it up and go back to corporate life (at least I would be making decent money). The feeling of apathy would go away eventually…right?

“The world as we have created it is a process of our thinking. It cannot be changed without changing our thinking.”

Wrong. The one thing I am going to stress is that if you don’t fix something that is making you feel like crap it wont just go away no matter how many Mrs. Higgins cookies you decide to shove in your mouth (true story).


Lately, I’ve been doing a lot of research into becoming a financial adviser in New Zealand. I think it marries two of my passions; money and advice. There are many issues with switching careers especially if you’re as anal as I am about money. There are also definitely more risks involved now that I have to plan for my wedding. Needless to say I’m a bit risk adverse at the moment.

However, if life has taught me anything, you need to hit rock bottom before you get to sour above the clouds.

I was having a chat with a friend of a friend who was in the same career that I was looking to change into. She made me realise/recall a couple of things 1) I seem to always underdress 2) Just do it.

Number 2 resonated with me as it reminded me of how I started my journey to Korea and the result of that adventure (not the teaching bit but meeting my to be wife). I’m hoping to find similar happiness in this next change. It may not come in the form of that dream career that my mind has orchestrated for me but hopefully something equally as awesome. Ill keep you guys posted.

The Frugal Accountant’s Top 3 Take Aways

  1. Don’t be complacent – The Law of Least Effort affects everyone and its probably the number 1 reason for career apathy. If you’re unhappy, whether with your career or relationships, move on.
  2. Listen to yourself – There is a little voice inside your head that dictates how you feel. Its called your subconscious. It knows more about you and what you like then you could possible know. Try to discover its secrets.
  3. Try new things – You will never solve what you don’t understand and you will never understand what you don’t experience.

Bottom line: Life is an iterative process. Its like entering a dark room, being point in the correct direction (sometimes even that’s taken from you) and asking you to shoot a target with vague feedback after each shot. You could give up and become a nihilist or you could keep shooting until you hit something.

I plan to keep shooting.

Have you ever had career apathy? What did you do about it? Comment below!

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