Forced by a competitive market and ever-increasing house prices, Aucklanders looking to purchase their first investment property are more and more venturing out of the city and into the smaller centres around New Zealand.
New Zealand Property Investors Federation Executive Officer, Andrew King, says while there isn't any specific data, anecdotally there does seem to be a trend towards Auckland investors looking elsewhere for their first investment property.
“Although there have been excellent house price gains in Auckland, rental prices haven’t kept up with these price increases meaning yields are lower. With cheaper property prices in many areas outside Auckland, many people like not having to invest so much of their capital or take on as high a loan as they may need to buy in Auckland."
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Although getting harder, he still says it’s possible to find Auckland investment properties where the yield will cover the mortgage repayments.
“Lower mortgage rates have certainly helped, but falling yields over the last couple of years have started making it hard again.
“As is usually the case, the best investments require some work. This means either a lot of effort in finding a great deal, fixing up the property once you've bought it, looking for ways to increase the rent, or a combination of all these factors.”
While investing in another region can have lower purchase prices and higher yields, it does come with some risk: You’re unlikely to be able to manage it yourself, it’s harder to work on it if required, and you may not know the areas you are investing in as well.
However, probably the biggest danger, according to King, is not having good local knowledge.
“A property might look attractive compared to Auckland properties, but this may lead you to paying more than true market value. Not knowing good and bad areas or even streets within areas can mean you make mistakes, such as high potential for poor performing tenants.”
He says one of the advantages of investing in Auckland is its size which creates more of a probability of finding an area that fits an individual’s investment criteria – i.e. low value but higher yielding areas or high value capital growth areas.
“There are also areas that have distinct tenant groups, such as young and older families, students or group flatters.”
Having a clear investment strategy and plan around what exactly you want to achieve in a specified time-frame is important.
“Different investors have different strategies. All investors should be looking at the return they get when evaluating an investment property. Any capital gains through market increases are the icing on the cake.”
The best advice King gives to potential investors is to join their local Property Investors Association.
“They are not-for-profit industry groups that will provide amazing advice and put you in touch with a variety of other investors. Fantastic value.”
He says there are also great New Zealand-based books you can read as well.
“Some are only available in libraries now, but they cover all aspects of property investment and management.
“Get good information and develop a plan of what you are going to do before leaping in and buying the first property that you think looks good.”
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