Property Strategies I'd Avoid in 2026 (After 82 Deals) | Michael Wilson | Ep 26

From trouble at 20 to a first deposit

Daniel: We're often blessed with some investors here on the podcast. They have a different range of skills, but this one in particular is someone who's quite relatable — he pretty much learned property himself, from scratch. And I think you're up to 82 deals now.

Michael: That's the one, last time I checked. Should be 84 by the end of next week.

Daniel: So we've got a property investor here: Michael Wilson — you might also know him as Wils Diggity. We've crossed paths quite a few times, but it's our first time actually catching up. What we like to do is always start with your backstory, because the most valuable content for our clients is when people can relate. So, mate, how did you get into real estate? What was the moment it clicked and you thought, "This is how I'm going to build wealth"?

Michael: How I got into real estate was by being a bit of a bad boy.

Daniel: I heard rumours of this story.

Michael: They're probably true. It wasn't like anybody was getting hurt, but I was getting up to things most people would consider not to be above board — and I ended up getting into a bit of trouble with the boys in blue. In life you become a product of your environment — the people you know. You know that old saying, "It's not what you know, it's who you know"? That is true, but the caveat is that what you know often determines who you know. I didn't know anybody who was doing really well in life, and I was in this position where my mum and dad were asking, "Who do you know who's doing well in life? Because you're clearly not. And what are they doing?"

Daniel: How old are you at this stage?

Michael: Basically 20 years old. Super young. And I was like, "I don't know anybody who's doing well in life." They said, "Surely you know somebody." I said, "I know my brother's friend, Tim. He's doing pretty good." "What does Tim do?" "I don't know what Tim does, but he owns three houses." So they were like, "Sweet — you know somebody who's doing well, and they own three houses. Maybe you could own some property too." And I was like, "Yeah, maybe I could." Because you don't believe anything is possible for you until you've seen somebody else do it. If you can see somebody who's come from nothing and got somewhere, and relate that back to yourself, you know it could be possible for you. Tim didn't have rich parents, didn't come from money. He moved up from New Plymouth to Hamilton, worked hard, and owned three houses quite young — and he's only about two years older than me. Seeing somebody who wasn't that much further ahead of you in life, then being able to talk to them and see how they did it, opens you up to the realisation that it can be possible for yourself.

Daniel: That's what we find with a lot of people we work with too. They sometimes just need to be shown how it's done, instead of thinking, "It's easy for them because they have X, Y, Z" — the right connections, or some trust fund — which isn't even true.

Michael: So that's how I got started: the realisation that it could be possible for me, through somebody I knew who'd done it, and then getting steered in the right direction. My parents said, "What sort of job are you going to get? You'll need to save a deposit and learn some skills." I thought, if I want to learn how to buy houses, renovate them and add value, a building apprenticeship would be a good thing to do. I'd built furniture as a teenager, so building seemed logical. I landed an apprenticeship in Te Awamutu — I wasn't from there originally, but ended up there — and started saving the conventional way, because I didn't know anything else. Every single week, plus selling all my cool stuff, getting that first deposit together and scaling from there. And I was learning in the process.

Daniel: Your origin story is relatable to all first-time buyers. Understanding what needs to be done to get there, accepting it's a big mountain to climb — "I don't have the advantages some other people do, but I'm going to do it anyway." I think that's a really important one for property, because people often make excuses for themselves and say so-and-so's got it easier, even though 99% of the time they don't.

Michael: People make up these excuses. And you know what an excuse is? It's a shield to hide your own inadequacies — you use it so you don't feel bad about your own shortcomings. But yeah, we started the conventional way. It took about 18 months to save for that first property, and it wasn't all savings — I saved about 15 grand, Jade maybe three or four, and we sold a bunch of stuff. Couches, random possessions. I sold my flash drum kit — I used to play drums — that was about $4,000. It all stacked up towards that $50k deposit, which was a 20% deposit at the time. Found a property for 250 — negotiated it, or thought I was negotiating at the time — worth around $300k.

Daniel: And did that become the family home, or an investment?

Michael: It was always going to be an investment, right from the start.

Three properties in 12 months, then the servicing wall

Daniel: How did this start to snowball? What were the moments you realised it was actually scalable?

Michael: The first one was fine, because you save the deposit the conventional way, how most people do it — though there are so many other ways once you learn a thing or two. The second property basically validated what I was trying to do: buy under value, add value, revalue, rinse and repeat — go back, get finance, buy the next one with the same strategy.

Daniel: And this is what old mate Tim did, right?

Michael: Pretty much the same thing, slightly different strategies. We bought the second property bang on six months after the first. That was, "Okay, sweet, this works — I've now used 100% finance to buy property number two." Then the exact same thing: new carpet, a bit of paint, did the grounds, back to the bank, pre-approval in place, bought property number three. Within 12 months: one, two, three, on the same strategy. Now, what I didn't realise — and had no understanding around — is how the servicing side works. I was actually becoming stuck through buying these properties, even though they were cashflow positive. Stuck through servicing. That took me a long time to figure out. And it's interesting — you talk to a lot of people, even people you'd think would know, and they don't actually know how to calculate what servicing needs to be to keep moving forward. So that's where I got stuck. I sat around for a year and a half, two years, finished my building apprenticeship, and moved into building — because, as I said, you become a product of your environment and do what the people around you are doing.

Daniel: That's such an interesting point, because I have that conversation so often with investors. Maybe they're trying to get to the third property, and they say, "What do you mean? The rent's covering all the expenses — how am I stuck on servicing?" It's a calculation that's actually a bit complex depending on which lender you're at and your situation. There are things that can count against you — bigger expenses, a property that's expensive to maintain, rates, insurance. The cool thing about your story is you learned all the hard lessons the hard way, for yourself.

Michael: To start with, I did. A few years into property I got a mentor, which was really cool — I learned a lot. His background was also construction and development. When he was in his 20s, he owned 24 rental properties.

Daniel: What turned him off? A market crash?

Michael: Yep — the 1987 crash. Finance back then was a completely different ball game. He said you'd walk in, shake the bank manager's hand, talk about what you wanted to do — that's your finance. Things are changing for the better.

What went wrong: the ignorance tax

Daniel: Let's fast-track. We went from deals one, two and three all the way up to 82. I've found in my career the best way to learn is asking people not what they did right — it's very clear you've had lots of successes — but what went wrong. It makes way better content, and it's how you really learn what works.

Michael: We've had a few not go to plan. Sometimes you don't even realise things are going wrong, because you haven't known enough about the deal you're doing to realise what you could've been doing better. That's what I started to learn when I started working with somebody else — how much money I was leaving on the table on properties I'd already been involved in. You've got an ignorance tax: the difference between where you are now and where you want to be is exactly the same as the difference between what you know and what you haven't yet learned and implemented. You don't know what you don't know. If you bridge that knowledge gap and implement it, you learn so many more ways to make money from specific properties. Those first properties? One was two titles — I don't know why I sold it as one. It could've been sold as two and made an extra 100 grand. The second one was subdividable into three lots — I didn't realise you could even subdivide it. A few hundred thousand dollars left on the table there. But we sold those so I could start building specs, so it was all good.

Rug-pulled: when the council changes the rules

Michael: Some things that have gone wrong recently: we bought a place down in Gore just before Christmas — bought it off somebody in the community, paid him a fee for the privilege of taking over the deal. Good deal, a nice healthy profit in it, real easy. It was two sections and a house on one sale-and-purchase agreement. We sold one section, sold the house after making it Healthy Homes compliant — and then the district council changed the rules. They're raising the flood levels a metre and a half, so now we're getting a survey to determine how high you'd have to build on the remaining section. The moment everybody caught wind of that, nobody was interested in the section anymore, because it's in a floodplain.

Daniel: So you got rug-pulled by the council.

Michael: And they've done it before — not that council, but others. We had a similar one with a property that went unconditional just this week. A development block, purchased in '21 at the peak of the market. Not the end of the world — it had a good margin. But just after we purchased it, we lodged our resource consent to subdivide into eight lots, and while it was in council, the regional council changed the definition of the overland flow path through the section to a stream. It's not a stream — there's no water that runs through there except the council runoff off the road. But once it's defined as a stream, we can't touch it. Instead of a culvert — a concrete pipe, compacted fill, a driveway over it — we have to build a bridge. The bridge is $150,000 plus consultants and engineers. It completely kills the feasibility. The back two sections suddenly had no profit in them, so we did a variation consent and did the front two lots — there was money in those — and parked the back. We'd put cash in the deal, so we could hold it forever, essentially. As the market turned and we moved on to other stuff, we decided it was better to clear it off and leave some money in it for the next guy. We disclose everything — you're better to do four lots, not six, do a variation. So we've sold that. A bit of a hiccup from the rule changes.

Daniel: The worst thing about that is it's not even a mistake — it's an unforeseen slap in the face. But it sounds like the key takeaway is to fully understand the scope.

Margins, buffers and the flip that fought back

Michael: One of the awesome things I learned from a guy who taught me a lot about development: when I first started looking, the gold standard seemed to be 20% — a 20% margin on a development seems to be the common target. And he'd always say no — 20% is not enough, because you need a margin for things to go wrong. A margin for the market to turn, for interest rates to go up, for the project to sit on the market longer.

Daniel: It's insurance, eh?

Michael: Everything. You need to build in a buffer, because you might anticipate making 30%, but in development and construction, generally one of those things happens. In this case, pretty much everything happened: the rules changed, the market turned, interest rates went up, our holding costs ran longer. So 30% is what we work on for greenfield development — and that held true. We still made a profit on it, which is cool. Not as healthy as we originally thought, but a profit.

Daniel: You're grateful to be able to make money when stuff hits the fan.

Michael: Absolutely. We've had a few others. There was a flip about a year ago — the market was still falling a bit, but it was a great buy. There was no car parking on this rear section, so we had to dig out a car park, and as we started digging, it turned out there was a massive concrete-and-iron pit under the ground — and it all had to go to a special dump. An extra $20–25,000 in cost just to clear it out.

Daniel: So someone had just buried the old concrete?

Michael: Whoever built the house in 1910. All the rubbish from the house went into a hole in front of the house, and they filled it up. When you're doing a flip and your budget's $150k thereabouts, and you end up spending 210 because a few things go wrong, your profit margin — which might be 60 grand — is gone. And the market was diving a bit. We had a backup strategy, which is what we ended up doing: we refinanced the project, pulled most of our cash out, kept it as a rental and carried on. Not the end of the world, but it did go wrong, and it is a pain. We would've rather sold it.

Daniel: That's brilliant, though — you gave yourself options.

Twelve years of market cycles

Daniel: Over these 82 deals, a lot has taken place — not just your learning and your skills, but the environment's changed. From day one, when you saved your first $50k, to now: what are the biggest changes in the property market?

Michael: I've been in property for about 11 and a half, 12 years. If we fast-forward to COVID: obviously we had a crazy boom — 30% growth in a year, that sort of thing — and then coming out of that, a big slide.

Daniel: What a hangover.

Michael: And your strategy has to change during that period, unless you're locked into big developments and you've got no other option. We just kept pivoting to what was working at the time. Even when the removal of interest deductibility came in, we were in a unique position — we were building houses and doing subdivisions — so we decided, okay, we won't buy existing houses; we'll build new ones for ourselves at cost. That worked well at the time. You wouldn't do it right now, in the current climate. And especially after COVID, there were a lot of flippers doing exceptionally well who got caught swimming naked as the tide went out. You get that effect where you think you're really, really good at something, but the reality is you're in a crazy good market that's hiding all your mistakes.

Daniel: That's right.

Michael: Where we are now, we've kind of gone full circle. I'm not looking to do any more specs or developments currently, but we are looking to buy more buy-and-hold rentals. I think that's where the market's at right now.

Daniel: I think it's an incredible time for that, eh. In some areas there's a layer of optimism, but there's also incredible opportunity in the yield game — which a hot market completely wipes off the table. Think about the properties that were supposedly cashflow properties: you'd struggle to get a 7% gross yield when markets were running hot. Now you're seeing regional yields of at least 8% —

Michael: More than that on certain deals.

Daniel: — and then blue-chip cashflow, which we'd call towns of 50,000-plus population, and we're seeing a lot of 8% there as well. So it's a good time to get in and establish that.

Coaching: what you want to do vs what gets you there

Daniel: This is a good moment to share my reflection on the value of people like yourself. I'm in the finance game — every day I'm helping people with their finance and their interest rates. And even from my position, seeing the deals people are doing, you're still quite removed from the actual intricacies of a property deal: if you're doing a renovation, what's the actual process, what are the specs, how does the final deal come together. It's been great for me to lean on professionals like yourself and Tama for that insight. With 82 — soon to be 84 — deals, there's all that knowledge people can lean on with you as a property coach. But a lot of people reach out and say, "My mate made $100k doing a property flip — teach me how to do that." And that's not for everyone, right?

Michael: Correct. We find a lot of the time — in fact, probably 70 to 80% of the time — what somebody thinks they should be doing is typically not what they need to be doing to get wherever they're trying to go. It's glamorous on social media: flippers posting $100,000 profits. It does happen, but it's not typical in the current climate unless you're doing a larger flip with more capital and more time invested — which isn't for everybody, a lot of people aren't in a position to do it, and it generally means more risk.

Daniel: And for a flip, most people coming to you without much property knowledge would have limited means. You can pretty much risk the whole bag on a flip — if it goes wrong, it puts you back a couple of years. The thing I love about buy-and-hold is you can do the research to get so close to assured success. You buy a really good property — building inspection done, good fundamentals, cashflow positive. And let's say you missed something and you've got to spend more on the property than you planned — it makes it a slightly worse deal. But a long-term hold just fixes all that, right?

Michael: Absolutely. Inflation cures all in real estate. Inflation is the cure for people who pay too much for property.

Daniel: Exactly. You can be really confident getting your numbers as close to right as possible, and let time do the heavy lifting.

Michael: And if you learn how to do it properly, it allows you to scale and grow into a portfolio so much faster — you have capital compounding across multiple assets, so time really does start to do the heavy lifting. That's been my experience, and the experience of the people I've seen do it really well. I know guys who've done a lot of short-term deals versus people who haven't done as many deals but held on to most of their properties — the difference in their future positions can be massive. One guy might get an ego stroke making 300 grand a year flipping properties or specs, and the other guy has quietly — not sexy, so boring — bought four or five houses. He's still building his couple of hundred grand a year in equity, but he's not taking the risk and the stress, and he's not working 80-hour weeks. Now, that's true when you've got a rising market — right now, not so true. But it's a great time to get into the position of having five or six assets, so when we head back to 8, 9, 10 o'clock, you start to see the results.

The property clock

Daniel: Talk about the property clock — you've referenced it a couple of times, and it's an awesome little nugget for people.

Michael: Everybody should know property cycles by now. Sometimes they're stretched out, sometimes they're short, but it literally works like clockwork. We're in Auckland right now, and I believe Auckland is still around 6:00, maybe 6:30 — depends who you are and which suburb you're in. If you're down south, you're at a different stage of the market currently. The clock has recovery, boom at the top, then the slump, and the recession. 12 o'clock is the boom — when the developers, the flippers and the spec builders seem like they're creaming it. It's when the accountants see developers' accounts and go, "I'm going to become a developer" — and then they fail into the slump and go bankrupt.

Daniel: We've seen that before.

Michael: The slump is when the short-term traders struggle a bit — they've got to accept smaller margins, and things are real tight. The recession — which arguably we're still in; it's been a long, long property recession — is a great time for acquiring assets, if you're in a position to, and you still have serviceability from your own income or your existing assets. Then you head into the recovery as things start to move again: more economic activity, more money in circulation, maybe some stimulation that gets it going — whatever the catalyst is. Recovery into boom, slump, recession. And your strategy might change during each part of that cycle. That's essentially what we've done. I got into property because I wanted to buy buy-and-holds; I got into the building environment and started building specs — which was actually a reasonably good time to start doing that, although with hindsight I probably wouldn't have done some of those projects.

Twenty spec builds, same net worth

Michael: Then I started getting back into buy-and-holds, because I got to 2019 — just before COVID — and realised I'd built about 20 spec homes by then. Bought the sections, built the houses, sold them. Every single one made a profit, and some were really good — 30, 40 grand. And I wasn't funding all of these myself. I had business partners, because you can't scale when you're starting fresh unless you leverage other people's money, time, experience and knowledge. Then I looked back and thought: okay, what's my net-worth position now? I've built all these houses, I've worked 70, 80-hour weeks. And what would my first three houses be worth now if I'd kept them? My net worth — with just the family home at that stage — was exactly the same as I would've had if I'd simply held those first three properties for the last four years.

Daniel: Isn't that crazy? I feel like so many people would relate to that.

Michael: But then again, there were so many moves I couldn't have made unless I sold — and so many lessons along the way. That was the point, mid-to-late 2019, where I said: I need to redirect some of this capital into long-term holds, and I've got to do both. The guy I work with calls it your bread-and-butter money and your cream. The bread-and-butter money is what you do for your day job — for me, that was building houses. The cream is the wealth you generate from the holds — the profit you reinvest into long-term assets. So we started buying holds again. We only bought a few, and then the market started to turn. I was still doing developments, but ever since then we've kept acquiring long-term holds and doing short-term deals — it's just that the short-term deals have changed in what they are.

Daniel: So good. The clock is going to keep ticking, and the only way to actually survive all seasons is buy-and-hold — good buying of long-term, decent assets.

Property is a long game

Michael: That's the thing with property. A lot of people like to hate on people who own a bunch of property or make money in property. But the reality is property is a long game, and it takes a lot of grit, determination and perseverance to get to a point where it starts to work. Even when people are saving for their first house, they're like, "This is taking too long." Especially today — we get everything at the click of our fingers. You get on your phone, you order Uber, everything happens in an instant. Getting into property is a long game. It's a grind.

Daniel: A lot of people in first conversations think property can be a get-rich-quick scheme.

Michael: There are obviously anomalies, but 99.999% of the time it's not. It's a massively long game. And the big thing people struggle with is that they see wealthy people in real estate and tie wealth to income. But on the majority of properties, you're not making any money. Long-term buy-and-hold — everything's going back into the house. Even if you're cashflow positive, you're one hot-water cylinder away from —

Daniel: Cashflow positive a hundred bucks a week.

Michael: Yeah — you're going to spend that on the house.

Daniel: There have been some characters in the property industry — some shifty characters — playing to people who want to get rich quick. Some people who've classed themselves as property coaches have bragged about not paying tax. When I first saw that on my feed, I thought: I don't know if you want to be bragging about this, eh?

Michael: It's a good way to get audited pretty quick.

The blind ranking: S tier to D tier

Daniel: You keen for a bit of a challenge — a blind ranking challenge? I'm going to shoot you some strategies. There's no rush, and feel free to speak to them. We're ranking from S tier to D tier — S being primo, D being a flop. And this is ranking them in today's market. The first one — I'm pretty sure we know your answer — buy-and-hold, cashflow positive.

Michael: Before I give you the answer: the context is what we've just been explaining. Where we are in the current market, it is S tier. It's brilliant.

Daniel: Buy-and-hold new builds off a developer.

Michael: Generally speaking, C tier — maybe D tier.

Daniel: Explain that a bit, because I look at new builds occasionally with people, and you do still see the odd one that stacks up. A lot of people like to hate on townhouses, and in the current market nine times out of ten they're right — but I still see them work. I've seen some really good ones work as Airbnbs, some good ones in central Christchurch, some duplexes or home-and-incomes work as new builds. They're maybe not perfect buys, but they sometimes really suit a particular type of person.

Michael: There are buyers they actually work for. But generally speaking, right now, there are so many better opportunities — so they're C to D tier.

Daniel: So it's not that it's a poor investment — it's the opportunity cost. And we're speaking from the investment side here, not owner-occupied. I totally agree. The difficult thing to get past is that all the capital has been made by the developer — all the profit. Nine times out of ten you're holding an asset that's just going to follow inflation. You're still going to make money long term, but like you said, there are better opportunities out there.

Michael: Absolutely.

Daniel: Next one: the BRRR strategy.

Michael: That's S tier. If buy-and-hold was S tier, buy-and-hold moves to A and BRRR is S.

Daniel: Explain it for anyone who doesn't know.

Michael: It's buy, renovate, rent, refinance, repeat — BRRR. It's very American. In New Zealand it is doable, and we see it happen reasonably often, but it's not common.

Daniel: And there are fewer options around finance here.

Michael: Exactly. We bought a BRRR a week and a half ago down in Dunedin. Brilliant property — purchased at 250, revalued at 570. A 3.99% net yield, about $150 a week cashflow positive on 100% finance.

Daniel: And your net yield is after mortgage costs?

Michael: After everything. Outgoings, OPEX, mortgage, interest — everything.

Daniel: On 100% finance. Wow.

Michael: In New Zealand, a BRRR is basically this: say you put $100,000 cash in. You can revalue the property at a point where you recycle the $100,000 back out, and from a servicing capacity, the income from the property services 100% of the debt on the property — so it doesn't materially affect your position to go and buy the next one. So a BRRR is a free house, essentially.

Daniel: Jack Hammond taught me that philosophy of the "free house". But to buy a house like that and not have to do anything to it is almost unheard of.

Michael: It does happen, but it's not common — and it's very tough. Generally these properties need a lot of time, effort and money spent, or they've got something wrong: defective titles, renovations that never got a building consent, things like that. They need something sorted out. There's a process, and there's usually a bit of work in that process, to get a property to the point of being a BRRR.

Daniel: And it essentially becomes a "free house" after you get your money back out — it could take six months. This is a strategy I think anyone with a bit of capital and a decent income should be striving for, because it's the quickest way to build a solid portfolio, and it's relatively safe — good cashflow coverage. So we're ranking it S tier in the current climate.

Michael: In any climate, that's amazing — if you can pull it off.

Daniel: Let's go property flipping.

Michael: In the current market, it's actually been getting a bit better in the last six to twelve months, so I'd probably put it at a B. It depends where you are in the country — there's a lot of action down in Southland and North Canterbury, and the Lakes District is a market of its own. We're at a point now where I believe the slump has more or less come to an end, so it's a lot clearer to see what your numbers will be. There are good buying opportunities, but on the back end you've got to make sure there are buyers for your particular project. If you're experienced — if you know what you're doing and you can find the opportunities — flipping is back in.

Daniel: B feels pretty fair. I know some flippers who are doing incredibly well, but they're experienced, they've got a niche, they generally have a bit of capital and a really good finance setup. For fresh flippers right now, it's maybe a little hairy. The ones I see doing really well have their own construction team, so they're building at cost — the same people who quote the work do the work — which eliminates a lot of risk.

Michael: They've already got the experience and the relationships. They've been there, done that. It's tough for mum-and-dad investors to get to that position.

Daniel: Build-to-rent. You did this when the deductibility rules changed.

Michael: It was brilliant in the early boom stages, and it was extra good because of the rule changes around the loss of interest deductibility. ANZ were doing their Blueprint to Build discount back then — they still are, though it's a very different discount now. Build-to-rent can be really good for the very niche group of people who are in a position to do it for themselves.

Daniel: Lots of capital required.

Michael: Lots of capital, and finance is a lot trickier now — it was a lot easier back then. That said, when we did some build-to-rents, one of the big banks pulled our finance halfway through a project. We had an approval — we'd bought a house on 1,300 square metres, we were going to split it one into three, build two new builds on the back and keep them as rentals. We got finance for the entire amount, no conditions, and started developing the land. We had a land-use consent, meaning we could build the houses while doing the subdivision. We'd laid the floors — spent about 50 grand each on the build side — and sent the invoices in as per the approval, on a fixed-price contract. And then the bank came back and said, "We're not going to finance these builds until you complete the subdivision and we can take the sections as security." And I said, "That was never the plan, or our discussions, or on the approval. That's a problem — I've now spent $100,000 that I need." So I went to ANZ, and they approved it in about two days, and we swapped over — there was a bit of a catch where we moved some other property to them as well. When I went back to the first bank and told them we were moving, they said, "Oh, if you'd just told us, we would've given you the money." Too late now. So build-to-rent can work — for niche people in that position.

Daniel: Buy and subdivide.

Michael: Probably C tier, generally speaking, in most of the country.

Daniel: Especially the North Island in the current market. Is it the risk, or not enough margin? Say we're buying a house with a back section.

Michael: That can be good for an equity uplift. Depending on where you are in the country, it might be a little tricky to sell that section — so it might work better if you're going to put something on the section, like a transportable. Transportables have been going really well for a lot of people in the regions over the last 18 to 24 months.

Daniel: That's actually my next category — relocatable homes.

Michael: If you can finance them, probably A tier. We're in a market where a lot of people are struggling on finance, or there are affordability issues, and there are a lot of first-home buyers in the current market. First-home buyers generally get an approval, and they're buying with emotion more than the numbers — they get their approval at $600,000, then go and see what they can buy for 600 and pick their favourite. So the people doing transportables get a section, put the transportable on, renovate it, and meet the market at that price. Transportables are great at the moment — but the finance can be a bit tricky, and you need a lot of capital.

Daniel: The last one: the mansion-effect strategy. This is essentially buying an extremely expensive owner-occupied home and levelling it up as you progress through your life. You and your missus max out, buy the most hectic house — and on paper you get to retirement, sell it, and live in a more humble house.

Michael: It's a Z tier. And it's what we're going through ourselves. I was mortgaged up — not to the teeth, but I had a massive mortgage — and built my house new when I was 25 years old. Paid definitely market value for the section, because it's the one Jade wanted — and I thought it was pretty cool too. It's not a good investment by any means, but it's been a really good place to live and a really good place to have kids. It's personal circumstances. If you're young and you want to build your wealth through property, it's a Z. But if you're married, making a healthy income, with one or two kids — it could be a B tier. It depends.

Daniel: That's a really good take on it. And you can build it into your whole strategy.

Michael: If that really nice house is going to stop you reaching your goals, then maybe you're not at the point where you can have that house. If you can buy the $1.6 million house and it doesn't stop you buying the next two or three rentals, or doing your next short-term deal, that's cool. If you're not going to be underwater, it can be fine. The risk is if you stop working — then the plan goes to custard. Heading into COVID, I was like, "This is so dumb, owning my own house. I need to sell it." We actually put it on the market for two or three months, just as the market started to turn. But I'd come home, sit on the deck, look out over the town, and think: this is really nice. Do I really want to sell this? I don't have to.

Daniel: Don't sell it. Thank you for the blind ranking. Key takeaways: BRRR, relocatables and cashflow-positive buy-and-hold — that's our top three in the current market.

Gross yield vs net yield

Daniel: Do you look at net yield or gross yield?

Michael: You look at gross yield up front, but gross yield is only an indication — it doesn't really tell you the story. Once you've looked at 50 or 60 properties and you know how to calculate gross yield, you can do it in your head really fast. But it can vary a lot. I bought a 12.6% gross yield about a year and a half ago, and it's only just cashflow positive.

Daniel: What's killing you — insurance?

Michael: High rates. It's three units on one title, and the insurance is reasonably big, but the rates really kill it — it's in an area where rates are huge. So a 12% yield sounds insane, but it's not always telling you the full story. Whereas we'll look at properties in main centres now that are 8% yield and actually 50 bucks a week cashflow positive on 100% finance.

Daniel: Would you even look at a deal running negative?

Michael: Oh yeah, absolutely. If you buy something today that's cashflow negative a hundred bucks a week, but there's value-add to manufacture your cashflow or equity, or it's in a high-growth area. Generally speaking we want them to be cashflow positive, but it's not always easy — and even net yield isn't always the full story. You could have something at a 1% net yield that still doesn't quite stack up, because it doesn't cover its own debt in the eyes of the lenders.

What investors actually want

Daniel: What do you think most clients are really trying to get out of property investment?

Michael: Once you've talked to enough people about what they actually want, you realise pretty much everybody wants the same thing: certainty. People won't take action unless they have certainty. They're looking for somebody to soundboard with — somebody who can say, "I would buy this myself." And then they go, "Okay, if you would buy it, then I should buy it."

Daniel: It's a really important role to play, because there's so much uncertainty. Even when the numbers stack up, making a financial commitment as big as buying a house is nerve-wracking. So for anyone looking for a bit more knowledge, reach out to Michael and his team — he's giving away a lot of good information for free, and if you want more hands-on coaching, that's something you can get from him. Mike, thank you so much, mate. You're a friend of Blueprint. Really appreciate you coming on.