House prices on the North Shore sit at the expensive end of the Auckland market. And, as a rule, once properties reach a certain price point, they no longer make sense as an investment.

So, if you decide you want to invest in an affluent location, how do you figure out which property is a good investment or not?

Here’s a case study of a development I recently recommended to investors in Beach Haven, on Auckland’s North Shore.

What’s The Property?

This development is at 169 Beach Haven Road, Auckland. Properties in this eight-strong development are a mix of two-three bedrooms, two-three bathrooms and come with a car park.

A two-bed townhouse is priced at $789,000 and will likely fetch around $700 a week, according to rental assessment. This jumps to $898,000 for the larger townhouse, with $800-$830 a week rent.

In the last six months, 132 different two-bedroom properties were rented within this suburb. That’s 15.17 per cent of all properties, and suggests tenants want properties with two bedrooms in this area.

But don’t spend too much time looking at the pretty visuals; they won’t tell you whether it’s a good investment or not. Instead, you need to look at the following three factors.

The Price

The most crucial factor when looking for New Builds is price. It needs to be a good deal compared with other properties on the market.

This table compares 169 Beach Haven Road with two almost similar developments in neighbouring suburbs. All these three properties are two-bedroom townhouses on the North Shore and come with a car park.

Out of the three, Beach Haven Road is at least $26,000 more affordable.

But, while they are similar in specification, the difference in suburbs changes the rental appraisal.

Even closely situated Sunnynook and Totara Vale, can see a $30 difference in rent a week.

So, we need to look closely at the other two factors.

A Good Investment?

There are two main numbers you need to know when you invest in a property:

• Cash flow (amount of money you need to top up the property per week)
• Return on investment (for every $1 invested in a property, how much do I get back?)

Let’s take a look at how Beach Haven Road measures up.

Cash Flow

The primary way you make money through a new build is by holding the property over the long term. The value goes up as the market appreciates, but you can’t get those gains unless you can afford to hold on to the property.

And like most properties bought in 2023, the rent doesn’t cover all expenses. This means the investor needs to cover the shortfall. Investors call this a “top-up”. It’s also known as negative gearing in property circles.

By my forecasts, the investor will need to top up Beach Haven by $169 a week in the first year and continue to top-up for seven years, although the amount will come down as interest rates gradually decline and rents continue to rise.

In this case, the Beach Haven Road property had better cash flow than others in the area. Both other properties on this table (Cockayne Cres and Sunnynook Road) required a higher top-up for one and three years longer, respectively.

ROI Figures

The Beach Haven Road property has a return on investment of 376 per cent. This means for every dollar you invest, you’ll get $3.76 back (as well as your initial investment). For every dollar you put into Cockayne Cres, you get $3.51 back; Sunnynook Road returns $3.15.

So, from this financial modelling, you’d say, “Beach Haven Road is the better investment.”

How Do I Buy A New Build?

If you’re looking to invest in a new build property like this, there are two ways to get one:

1. You can use the information to find a property yourself through a developer
2. You can work with a property investment company. These businesses build you a financial plan and then find new build properties that fit that plan.

Opes Partners is one example of a property investment company, although there are others too. Property investment companies often don’t charge you a fee. Instead, they get paid by the developer. It’s a bit like mortgage brokers, who usually get paid by the bank. ν

Through Opes Partners, Andrew Nicol works with 97 developers from around the country. He and his team of financial advisers build Kiwi property investors a financial plan and match these investors with new build properties that fit the plan.