September 13, 2024 • 5 mins
How many investment properties can the average investor afford to buy? It depends on income, but Ed McKnight has run some numbers. Plus, he answers the question of how much they really make.
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Speaker 1 (00:07):
You're listening to the Saturday Morning with Jack team podcast
from Newstalks. They'd be a.
Speaker 2 (00:12):
Quarter to eleven non news talks. They'd be our money man.
Ed mcnut is in the house.
Speaker 3 (00:16):
Go to Ed, get a jack.
Speaker 2 (00:18):
I know a lot of people have been looking at
the OCI, keeping an eye on interest rates and thinking, oh,
maybe if the property market is going to start turning
sometime soon, it could be time to look at an
investment property. Do you reckon? That is a phenomenon that's
occurring right now.
Speaker 3 (00:32):
I think there are a lot of people thinking about it,
and one of the reasons is because of that interplay
between interest rates and house prices. I think a lot
of people are saying, well, if interest rates are really
going to start plumbitting over the next year, maybe I
need to get in now, because then house prices might
go up. But then a really interesting question is, well,
(00:52):
if I'm the average news elender, how many investment properties?
If I want to buy rental properties, how many could
I potentially buy? And the trouble is, it's no use
looking at people who started investing twenty years ago or
thirty years ago and now own ten investment properties. For
five investment properties because the banks have changed all of
their lending rules. Twenty years ago, the Reserve Bank didn't
(01:15):
have LVR restrictions, they didn't have DTL restrictions. But of
course house prices are much more expensive these days, and
so this will kick started a little bit of a journey.
It's an interesting story where I started looking at people
who compete in Microsoft Excel competitions, because this is a
real thing, jackets, and it's an e sport these.
Speaker 2 (01:36):
Days, and they're crazy how good they.
Speaker 3 (01:38):
Are, ah and the good users. There are a number
of New Zealanders who actually do quite well in these competitions.
So I called one up and I said, well, could
you build their spreadsheet to kind of answer this based
on today's lending policy, all of the rules, today's house prices,
and of course house prices are getting more expensive, incomes
(01:58):
going up, all of these sorts of things. How many
investment properties could someone, say, earning eighty grand a year,
or a couple earning eighty grand a year, e how
many investment properties could they buy over the next fifteen years.
And it's quite fascinating. The answer is two to three
pretty comfortably over the next fifteen years. And the average income.
Average household income is about one hundred and sixty k
(02:19):
in Auckland, so that'd be pretty reasonable.
Speaker 2 (02:21):
So I mean, okay, so just break us down a
couple of things. So is that assuming that they own
their house already.
Speaker 3 (02:27):
Yeah, assuming you've got a house already, right, and that
you're not mortgaged totally up to the eyeballs. Right, if
you had the average house in New Zealand, which medium
sale price is seven hundred and seventy k, average mortgage
is actually quite surprisingly low. Jack, three hundred and nine
k is the average mortgage, right, And if you're on
the average household income in New Zealand two to three properties,
if your income's higher but higher than that, if your
(02:50):
mortgage is larger, then that number would be a little
bit smaller, right.
Speaker 2 (02:53):
So, and that's presuming that the investment properties are the
average house price as well.
Speaker 3 (02:59):
Well. In this case, I've actually gone for a slightly
lower figure. I'm starting out with the house past being
about five hundred fifty k, which would be a good
entry level investment property. Just bearing in mind that typically
property investors won't buy the average house price. They'll typically
buy something a little bit on the more affordable.
Speaker 2 (03:18):
Side, right, okay, yeah, yeah, so and often if you know,
in our cities we're seeing much more intensification and things
that could mean a townhouse, an apartment something like that
as well.
Speaker 3 (03:30):
Yeah.
Speaker 2 (03:31):
Absolutely, Yeah, so that's quite interesting. I think, you know,
if you if you were to just ask a lot
of people, you know, pick some random person off the
street and said, looking at the average numbers across the board,
how many investment properties could you potentially invest in with
the settings as they are, I don't think people would
have said two to three. I think that would have
come as a bit of a surprise. But of course
that does take some financial and budgeting discipline.
Speaker 3 (03:53):
Right, oh, absolutely, And it's assuming you doing the right
things at the right time, that you know you're not
having anythra baby than you already are right now. Because
if you're taking maternity or opportunity leave, that decrease is
your income. If you're taking out an extra higher purchase
at Harvey normatal bias the t set, that means you've
got more debt that's going to bring that number down slightly.
(04:15):
So there's a lot of assumptions in it, but it's
a pretty good ballpark to say well, what could I
actually do? And the other thing that's really difficult to forecast,
or had been in the past, was that if you
buy investment property over time, the house value is likely
to go up. On top of that, the rental income
is likely to go up, and those things help you
(04:35):
then purchase your next investment property, right, and so because
you get that compounding effect the more properties you own,
that in the past has been hard to see.
Speaker 2 (04:46):
That's fascinating. How would you go in one of those
Excel competitions you can eat well?
Speaker 3 (04:50):
To be honest, Jack, I have met in the match
with these guys. They are absolutely extraordinary. I would not
do too well. But one thing I have been doing
to get better is I talk a lot to my
new friend chat gpt to get it to right me
complex formulas.
Speaker 1 (05:07):
That's very good.
Speaker 2 (05:08):
I hadn't thought about using chat GPT for that. That's
very that's very smart. That's coming. Yeah. I can only
ever remember about two or three formulas when I'm using Excel,
you know, I always have to then go and google
it either, by which time I sort of defeated the
purpose of you know, using being efficient by having by
having a sweadsheet. But yeah, that's a great idea.
Speaker 3 (05:27):
Yeah, go and use your chet GPT. Soon you'll be
one of these competitions as well. Cha.
Speaker 2 (05:31):
I'm not too sure about that, but yeah, Hey, thank
you so much and you have a great weekend.
Speaker 3 (05:35):
See you, Jack.
Speaker 2 (05:36):
That is our money man ed McKnight.
Speaker 1 (05:39):
For more from Saturday Morning with Jack Tame, listen live
to News talks ' B from nine am Saturday, or
follow the podcast on iHeartRadio.
You're listening to the Saturday Morning with Jack team podcast
from Newstalks. They'd be a.
Speaker 2 (00:12):
Quarter to eleven non news talks. They'd be our money man.
Ed mcnut is in the house.
Speaker 3 (00:16):
Go to Ed, get a jack.
Speaker 2 (00:18):
I know a lot of people have been looking at
the OCI, keeping an eye on interest rates and thinking, oh,
maybe if the property market is going to start turning
sometime soon, it could be time to look at an
investment property. Do you reckon? That is a phenomenon that's
occurring right now.
Speaker 3 (00:32):
I think there are a lot of people thinking about it,
and one of the reasons is because of that interplay
between interest rates and house prices. I think a lot
of people are saying, well, if interest rates are really
going to start plumbitting over the next year, maybe I
need to get in now, because then house prices might
go up. But then a really interesting question is, well,
(00:52):
if I'm the average news elender, how many investment properties?
If I want to buy rental properties, how many could
I potentially buy? And the trouble is, it's no use
looking at people who started investing twenty years ago or
thirty years ago and now own ten investment properties. For
five investment properties because the banks have changed all of
their lending rules. Twenty years ago, the Reserve Bank didn't
(01:15):
have LVR restrictions, they didn't have DTL restrictions. But of
course house prices are much more expensive these days, and
so this will kick started a little bit of a journey.
It's an interesting story where I started looking at people
who compete in Microsoft Excel competitions, because this is a
real thing, jackets, and it's an e sport these.
Speaker 2 (01:36):
Days, and they're crazy how good they.
Speaker 3 (01:38):
Are, ah and the good users. There are a number
of New Zealanders who actually do quite well in these competitions.
So I called one up and I said, well, could
you build their spreadsheet to kind of answer this based
on today's lending policy, all of the rules, today's house prices,
and of course house prices are getting more expensive, incomes
(01:58):
going up, all of these sorts of things. How many
investment properties could someone, say, earning eighty grand a year,
or a couple earning eighty grand a year, e how
many investment properties could they buy over the next fifteen years.
And it's quite fascinating. The answer is two to three
pretty comfortably over the next fifteen years. And the average income.
Average household income is about one hundred and sixty k
(02:19):
in Auckland, so that'd be pretty reasonable.
Speaker 2 (02:21):
So I mean, okay, so just break us down a
couple of things. So is that assuming that they own
their house already.
Speaker 3 (02:27):
Yeah, assuming you've got a house already, right, and that
you're not mortgaged totally up to the eyeballs. Right, if
you had the average house in New Zealand, which medium
sale price is seven hundred and seventy k, average mortgage
is actually quite surprisingly low. Jack, three hundred and nine
k is the average mortgage, right, And if you're on
the average household income in New Zealand two to three properties,
if your income's higher but higher than that, if your
(02:50):
mortgage is larger, then that number would be a little
bit smaller, right.
Speaker 2 (02:53):
So, and that's presuming that the investment properties are the
average house price as well.
Speaker 3 (02:59):
Well. In this case, I've actually gone for a slightly
lower figure. I'm starting out with the house past being
about five hundred fifty k, which would be a good
entry level investment property. Just bearing in mind that typically
property investors won't buy the average house price. They'll typically
buy something a little bit on the more affordable.
Speaker 2 (03:18):
Side, right, okay, yeah, yeah, so and often if you know,
in our cities we're seeing much more intensification and things
that could mean a townhouse, an apartment something like that
as well.
Speaker 3 (03:30):
Yeah.
Speaker 2 (03:31):
Absolutely, Yeah, so that's quite interesting. I think, you know,
if you if you were to just ask a lot
of people, you know, pick some random person off the
street and said, looking at the average numbers across the board,
how many investment properties could you potentially invest in with
the settings as they are, I don't think people would
have said two to three. I think that would have
come as a bit of a surprise. But of course
that does take some financial and budgeting discipline.
Speaker 3 (03:53):
Right, oh, absolutely, And it's assuming you doing the right
things at the right time, that you know you're not
having anythra baby than you already are right now. Because
if you're taking maternity or opportunity leave, that decrease is
your income. If you're taking out an extra higher purchase
at Harvey normatal bias the t set, that means you've
got more debt that's going to bring that number down slightly.
(04:15):
So there's a lot of assumptions in it, but it's
a pretty good ballpark to say well, what could I
actually do? And the other thing that's really difficult to forecast,
or had been in the past, was that if you
buy investment property over time, the house value is likely
to go up. On top of that, the rental income
is likely to go up, and those things help you
(04:35):
then purchase your next investment property, right, and so because
you get that compounding effect the more properties you own,
that in the past has been hard to see.
Speaker 2 (04:46):
That's fascinating. How would you go in one of those
Excel competitions you can eat well?
Speaker 3 (04:50):
To be honest, Jack, I have met in the match
with these guys. They are absolutely extraordinary. I would not
do too well. But one thing I have been doing
to get better is I talk a lot to my
new friend chat gpt to get it to right me
complex formulas.
Speaker 1 (05:07):
That's very good.
Speaker 2 (05:08):
I hadn't thought about using chat GPT for that. That's
very that's very smart. That's coming. Yeah. I can only
ever remember about two or three formulas when I'm using Excel,
you know, I always have to then go and google
it either, by which time I sort of defeated the
purpose of you know, using being efficient by having by
having a sweadsheet. But yeah, that's a great idea.
Speaker 3 (05:27):
Yeah, go and use your chet GPT. Soon you'll be
one of these competitions as well. Cha.
Speaker 2 (05:31):
I'm not too sure about that, but yeah, Hey, thank
you so much and you have a great weekend.
Speaker 3 (05:35):
See you, Jack.
Speaker 2 (05:36):
That is our money man ed McKnight.
Speaker 1 (05:39):
For more from Saturday Morning with Jack Tame, listen live
to News talks ' B from nine am Saturday, or
follow the podcast on iHeartRadio.
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