Buying 12 houses in a pandemic: One man’s move from personal trainer to property investor

Michael Burge he bought a dozen properties during the Covid-19 pandemic, growing his portfolio from five homes to 17, and launched his own real estate consultancy.

Despite many factors working against investors, including falling house prices, stagnant rentsY rising interest ratesBurge said his balance sheet remained strong.

While the value of her portfolio has taken a hit, Burge said she would avoid forced sales because her purchases were made with cash flow in mind and they all earned enough in rent to cover mortgage payments and build a surplus.

That was not the case for many other investors, he said.

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The “cash flow principle” was ignored by most investors, particularly moms and dads, and Burge said there would be forced sales of this group in the next two years.

“There are very few investors like me who buy like a business, where you have the cash flow and the added value.”

He said many investors had bought into urban centers when prices were much lower, enjoyed massive capital gains and thought they could do the same thing again.

So they would buy other “house-like” property in larger cities, but prices were now so high and rental income so low by comparison, rents would lose money, a factor they may have ignored.

Property investor Michael Burge started Real Estate Consulting NZ just as Covid-19 hit, advising clients to buy when others were retiring.

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Property investor Michael Burge started Real Estate Consulting NZ just as Covid-19 hit, advising clients to buy when others were retiring.

“The problem with New Zealand is that we have been so lazy with our investments because we have had very strong capital gains.

“It’s kind of like, ‘Oh, I’ll just buy whatever, and it’s going to go up in price. If it costs me $100 to own it for the next 10 years, who cares? Because it’s going to go up $1 million, but that’s a very bad attitude to have at scale and at times like this.

“Anyone who has bought more or less like that, will be hit the worst, ASAP.”

If someone bought a rental that lost money at low interest rates, at high interest rates the situation would be “disgusting,” especially as the loss of mortgage interest deductibility was phased in.

“There is going to be a lot of pain for people.

“Cash flow is king, it always is, it always will be, and at times like this it is cash flow that will save people.”

“For me, what happens with property values: I don’t really care, as long as the cash is flowing in and my debt is being paid off, and I can live comfortably.”

Burge said he welcomed the drop in prices, because the situation got out of hand.

Michael Burge said that he focused on undervalued properties that he could renovate and rent, this property was his 10th.

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Michael Burge said that he focused on undervalued properties that he could renovate and rent, this property was his 10th.

He said that at the end of last year, prices were so high that he couldn’t find any houses to recommend to clients, because the rental yields simply didn’t justify the prices.

Burge was among those who secured the lowest Covid-era home loan rates in the low 2% range.

Despite the fact that some of these terms had six months left, in the middle of the year he broke several of them and reset them to the higher rate of 5.15%.

“I knew my cash flow was still good at that interest rate, but I knew at 6%, 7%, 8% it wouldn’t be, so I tried to be proactive on that.

This Rotorua house was the fourth that Burge bought and renovated.

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This Rotorua house was the fourth that Burge bought and renovated.

“I received a lot of criticism from people.

“But I saw it as, I’m going to solidify that, I have at least decent cash flow for the next year or two.”

A two-year fixed rate currently sits at around 6.2% and, with further increases in the official cash rate expected later in the month, they are likely to go higher, he said.

Burge opted for two-year terms because he wanted to get through the next general election, which would have huge implications for investors.

National has pledged to scrap Labor’s phasing out of mortgage interest deductibility, which would result in many investors losing the ability to deduct interest costs from rental income for tax purposes progressively over the next three years.

The government move caused many investors to make the de facto playbook, take on large debts to subtract interest payments from rental income and then cash in on capital gainsit is no longer feasible.

Burge said the loss of interest deductibility, combined with higher interest rates, could be a breaking point for investors who had gotten too leveraged.

He said his cash flows stayed healthy at around 7.5%, and things got tough at 8%.

How you buy a dozen properties during a pandemic

Burge started Real Estate Consulting NZ at the start of Covid, with most of his clients coming through Facebook and Instagram.

Until then, investing was something he had done on the side, and had bought five properties, cataloging the purchases and renovations on social media.

While many predicted the kind of home price declines a pandemic might be expected to bring, Burge saw things differently.

He knew that lower interest rates would encourage buying, and relaxing restrictions on how much investors could borrow would only increase that.

“They also deferred people’s mortgage payments, so I knew there wouldn’t be any real financial stress for anyone who really, in any other world, would have been.

“It was the recipe for things to go crazy.”

He left the fitness industry, saying his consultancy was an instant success, fueled by a massive social media following, and the Tauranga gym where he worked was frequented by some of the city’s wealthiest.

He also started shopping for himself.

“Once they started printing money and lowering interest rates, and relaxed the LVR rules, that freed up a lot more capital to keep buying.

“So those five became six, seven, eight, then you have cash coming from the business, then those prices are going up.

“So it was a combination of cash from the business and better capital as interest rates came down and prices started to go up.”

Burge said his most successful clients came to him at the start of Covid-19 with three properties.

“I suggest they sell one, and they ended up after 18 months going up to 10, and they’re 27, 28 years old.”

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