Investment property buying tips

Knowing where to look for an investment property is half the battle. When you've narrowed your search to a specific suburb, you need to know what type of property to look for. VICKI HOLDER asked three experts for some hot house-hunting tips.

Solid ex-State houses in Glen Innes represent great investment buying, with the expectation of strong capital gains in the next 10 years, according to Phil Jones, director of Entrepreneurs Success Centre.

PHIL JONES
Director of Entrepreneurs Success Centre

CAPITAL GROWTH

Waiheke Island beachfront has been the leading area for capital growth for the last 10 years, he says. The entry price is affordable and the island is attractive to residents and holidaymakers, because of its close proximity to Auckland's CBD and the transport services.

EMERGING OPPORTUNITIES (Glen Innes, Waterview and Avondale)

The construction of the new Eastern Expressway will transform Glen Innes, creating fast access to the city. The current entry price is affordable and good positive cashflow property prime for cosmetic renovations can be found, which may increase value. Section sizes are good as it's an older Auckland suburb, providing opportunities for small developments and subdivisions. Long term capital growth will be good as the suburb becomes more accessible when the expressway is completed and the Mission Bay and St Heliers markets mature.

Good motorway access and close proximity to the city make Waterview and Avondale (not including the Avondale Peninsula) attractive suburbs. Entry prices are very affordable and good positive cashflow property is easy to find. Desire to live close to the city has, in recent years, affected capital growth rates in Kingsland, Mt Albert and Pt Chevalier. Waterview and Avondale are the next areas that should experience increased demand and, therefore, they are primed for capital growth in the next 10 years.

NICHE MARKET PROPERTY

Look out for property in the green belt stretching from Redoubt Rd, Manukau, to the corner of Alfriston and Hill Rd and down to Clevedon township. Nowhere else in Auckland can you drive for 20 minutes on the motorway, leave the off ramp and be in farmland within two minutes. This area is primed for growth and is bordered by many new homes and subdivisions. Councils have this area tagged for massive growth. Experienced investors should be looking to buy any home that is older than 15 years old or blocks of land tagged subdivisable on the district plan.

WILDCARD

Choose well-located, central city apartments - close to the university and Queen St - and with good access to the City Free Bus. By 2020 it's predicted 80 percent of home occupiers will be singles with high disposable incomes; DINKS (double incomes, no kids), empty nesters (parents of older kids who have left home) or single parents with one or two kids. Three out of these four categories will find the central city apartment lifestyle attractive. In addition, people want to spend less time on the motorway travelling to work, and living closer to work in the city will become more and more attractive, especially as our public transport system improves. The growing inbound student population will provide further support to the city apartment rental market.

GEZ JOHNS
Editor of Kiwi Property Investor Magazine

INNER CITY

Johns warns against investing in the inner city. He says Auckland and Wellington are seeing constant growth and shoebox studios have traditionally achieved a pretty good yield for investors. However, although the Asian student mix has provided a constant stream of reliable tenants, anecdotal evidence suggests New Zealand is becoming less and less appealing to this group, because of the strong dollar, safety worries and SARS, and these apartments might not represent a great investment right now.

DESIGN

Designwise, people want airy, minimalist apartments. Car parking facilities are no longer a pre-requisite from an investor's point of view, because they represent further outlay and only a small chance of a slightly better return.

High capital growth areas are prevalent all over the Auckland region, although the most reliable remain around the coast. People are more inclined to commute if they return to waterfront views every night. The North Shore has seen impressive growth over the last two years, while out of Auckland towns like Tauranga and Nelson have seen property prices escalate on the back of an increasingly well-marketed tourist industry.

Kieran Trass
Hybrid Consulting

Trass has 20 preferred suburbs in Auckland and would only disclose a few. The rest he keeps for clients and those who attend his seminars. His advice is to be selective and not just to buy for the sake of owning another property. Some parts of Auckland are yet to experience strong rental growth and these areas are ripe for investing in.

WHERE

Select from areas such as Mt Wellington/Panmure, Otahuhu and New Lynn, areas lagging behind the growth rates of surrounding suburbs.

WHAT

Anything with adequate land to subdivide, providing you don't pay full retail price for it (buy if you can get it for less than the registered valuation amount).

Many (but not all) properties can generate a surplus cashflow before any tax benefit is received.

For example, if your purchase price is $180,000 and the annual rental income is $14,500 (calculated at $290/week x 50 weeks, to allow for two weeks a year vacant), less interest ($180,000 x 6.5% pa interest cost) $11,700; rates $1,400; repairs/maintenance $800; and insurance $500, your total annual expenses will be $14,400, leaving you with a $100 surplus before any tax benefit.

You need sufficient income (rent) to cover all cash expenses, assuming you have to borrow the full purchase price at current interest rates and still deliver a profit.

While some types of properties do offer surplus cashflow, this surplus may not be sustainable. Boarding houses tend to have regular vacancies. Developers can just keep on building inner-city apartments, and they will, which will ultimately lead to falling rents sooner or later.

Multiple income properties, such as flats and home and income-type properties, are worth checking out, too. Again, the property must provide surplus cashflow before any tax benefit is received.