Property picker Bernard Leung in his own words: an investment philosophy built over 19 years

In 2002, Bernard Leung bought his first New Zealand property at the age of 20. He has since been active in the property market for 19 years, becoming a well-known property investor and an experienced residential and commercial property manager.

Bernard believes that good fortune and success come to those who persistently seek opportunities. For 19 years, he has therefore attended open homes in person every week, viewing countless properties. Years of practical experience have helped him develop his own investment philosophy, select the best properties and achieve excellent returns. His peers consequently call him 'Bernard, the expert property picker', and regard his investment principles as 'Bernard's golden rules'.

In a face-to-face interview with a YIJU New Zealand reporter, Bernard shared his investment story publicly for the first time—

{ad}

I started investing in property at 20. I am now 39.

Over 20 years, I have bought numerous houses. Some I still hold and rent out; others I renovated and sold for a higher price. I have subdivided large sections and banked land with potential. Of course, I have also lost money… Whatever property investment term you can think of, I have experienced it. Along the way, I have made substantial profits and gained a sense of personal fulfilment.

I have always supported a free market. Markets naturally have peaks and troughs and can sometimes be challenging. Following market trends and earning strong returns is entirely reasonable. Yet for the first time in 20 years, I feel this market is crazy. I have seen other booms and busts, but none seems comparable to the boom we are experiencing now. My experience tells me the property market is out of control. The rents being collected and monthly capital gains are out of step with a normal property boom. Just when I think it has peaked, another huge wave of growth arrives.

I received a real estate agent's monthly email newsletter headed 'Big news!' I opened it to find the 'good news' that a bungalow worth NZ$1,000,000 had sold for an almost absurd price. I used to love receiving these emails. Now they make me uneasy. 

I never thought I would say this, because I have always loved investing in property. But I now feel it is time for me to stop investing in residential property. Business opportunities are everywhere, though, and I will continue to watch for any sensible investment opportunities, such as buying and selling commercial property.

  

Getting started is difficult, but there is a way: opportunities will come in time

Today's market is completely different from the one I entered. Entry-level properties are expensive, affordability is low in many places, and lending requirements and scrutiny have become stricter. For ambitious investors just starting out, climbing the property investment ladder is harder than ever. 

However, if you are prepared to take risks, opportunities to act at the right time will always arise, such as historically low interest rates and high-yielding rental properties, both commercial and residential.

That is why I want to share my 'golden rules', in the hope of helping people who need a home to live in or an investment property enter this market successfully.

Looking back on my 19 years of property investment experience, the key strategies can be summed up in just a few words: 'buy and hold' or 'buy and sell':

The 'buy and hold' strategy generally suits well-maintained homes. Investors buy a property and hold it over the long term, 'alongside' long-term tenants, benefiting as its value increases.

The 'buy and sell' strategy suits properties that need some improvements. Investors renovate a home in poorer condition, then immediately sell it at a better price. In some cases, a renovated property can also be held for the long term to achieve better returns.

 

Buy and hold: the lowest risk, provided you can afford to keep the property

In April 2002, I bought my first property in Papatoetoe, South Auckland. I paid NZ$260000 for a standalone house on 735 square metres of land, with 6 bedrooms, 2 full bathrooms and a separate double garage. Over the past 19 years, it has had only three different tenant households. It remains an excellent rental property in today's market: the rent has risen from an initial NZ$460 a week to NZ$750 a week now. I have found that large houses with more bedrooms in South Auckland are easy to rent to large families, whose members tend to stay long term.

I would like to share the following lessons about choosing properties to buy and hold for the long term:

 

Buy a property in good condition:

'Buy and hold' is generally regarded as the lowest-risk investment strategy.

The usual process is to buy an investment property, rent it out, wait for its value to rise over time, and eventually decide whether to keep or sell it according to your circumstances. To avoid extra work, unnecessary expenditure of money and effort, and to minimise ongoing maintenance, you need to find a property in good condition.

 

Buy a property that will appreciate over time:

For buy-and-hold investors, the central aim is to increase the property's value through the market's long-term growth trend. Success therefore requires choosing a property likely to appreciate over time. That means investing in a property with growth potential, making location and property type crucial considerations.

 

Make sure you can hold the property for the long term:

Because buy-and-hold investors rely on long-term, steady growth in the property market to increase their investment's value, you need to ensure you can hold the property for more than 10 years. With a typical investor's financial structure, you may need to put cash into the property's bank account every week. If that applies to your investment and you cannot afford to keep it for more than 10 years, you may be forced to sell early. Selling early could mean missing out on the returns you originally planned to achieve.

 

Buy and sell: the fastest way to generate returns 

In December 2015, I bought a three-bedroom, two-bathroom townhouse on Picton Street in Freemans Bay for NZ$645,000. It had been rented out for more than 13 years. My assessment was that it needed some renovation: maintenance and upgrades to the kitchen, bathrooms, carpets, decking and lighting, as well as repainting inside and out.

I lived in the property while renovating it and did much of the work myself, including painting, building the backyard deck, installing lighting and gardening, to keep costs as low as possible. In the end, the entire renovation cost around NZ$40,000. I sold the property in 2017 for NZ$1,000,000 in Barfoot & Thompson's Wednesday auction room.

When investing with a buy-and-sell strategy, you generally choose a property whose value can be substantially increased through renovation and improvements, such as upgrading its exterior, repainting interior walls or replacing carpets. After buying it, you can carry out a simple renovation and resell immediately. Alternatively, like a buy-and-hold investor, you can keep it, rent it out and wait for its value to grow over time.

'Buy and sell' is an active strategy and the fastest way to generate investment returns. However, most projects require investors to carry out the renovation and improvement work themselves. Hiring others costs more and may leave the investment unprofitable.

In other words, buy-and-sell investors need some renovation skills and must devote considerable time to the work to achieve their expected returns. This often places substantial pressure and an additional workload on investors and their families.

 

Successfully implementing a buy-and-sell property investment strategy requires the following:

1. Find a property whose value can be increased through renovation: the first step in a buy-and-flip strategy is to find a property that needs repairs;

2. Have the ability and budget to repair and renovate it;

3. Once the work is complete, the property's value must substantially exceed the purchase and renovation costs.

 

Bernard's golden rules: six tips for landlords

For buy-and-hold investors, renting out the property is central to investment success. Some buy-and-sell investors also choose to keep and rent out a property long term after completing the renovation. How can you be a relaxed landlord earning money with little effort? Here are six golden rules tested through experience: 

1. Make rent a priority

Owning an investment property is like owning a business: your rent is your income. Most tenants pay on time, but as a landlord you also need to be prepared for tenants experiencing difficulties and paying late. Taking time to build a mutually respectful relationship with tenants helps ensure rent is paid on time.

Small annual rent increases are normal for landlords, and owners are strongly encouraged to adopt this practice.

2. Put everything in writing

It is very sensible to keep a record of everything signed by both parties, whether electronically or on paper. To protect yourself and your tenants, and ensure both parties understand the agreements and requirements, always sign a tenancy agreement.

3. Understand the law

Tenancy law has an overriding influence. Make sure you are familiar with it to protect yourself and your tenants. The Tenancy Services website has plenty of useful information. 

4. Your investment property is not your own home

Do not get carried away with grand design ideas or renovations that may not suit your target market. It is a rental property. For renting, it is enough to ensure the home is safe and secure, the bathroom and kitchen are clean and tidy, and the property is well maintained.

5. Do not neglect repairs and maintenance

Tenants do not own the rental property and are unlikely to cherish and care for it as they would their own home. As a landlord, it is therefore important that the property's equipment and facilities are reliable and easy to maintain. It is sensible to use quality, dependable equipment and low-maintenance plants in the garden, and repaint between tenancies to keep the property in good condition. When problems arise—and they will—it is best to have several professionals available who can resolve them quickly and responsibly.

Owning and renting out an investment property can be a very rewarding experience, both financially and personally.

6. Give good tenants an incentive to stay

Good tenants do not come along every day. When you find excellent tenants, you will want to keep them. Even if you raise the rent, you can encourage them to renew by replacing or upgrading a feature or piece of equipment in the property at each annual renewal. Perhaps you could install a new fan or flooring, repaint, or add a new deck. These need not be expensive upgrades: a little effort can make a big difference.