Joining The Hunt For A Good Investment
Andrew Nicol casts his eye across West Auckland for the best mix of capital growth and rental yield.
24 October 2023
Auckland house prices appear to be underpriced compared to their long-term average. This means investors are on the hunt for quality investments.
West Auckland is one of our top picks in Auckland.
But with so many new builds on the market, how do you figure out whether one is a good investment or not?
Here’s a case study of a development I recently recommended to investors in West Auckland.
What’s The Property?
This development is at 36 Hetherington Road in Ranui. The project consists of 26 townhouses, featuring a mix of three and four bedrooms, 2.5 bathrooms, and the option for either a single or double-car garage.
The rental assessment says they will likely fetch between $680 (three-bed) and $830 (four-bed, with garage) in rent a week.
The developer is Y2Y Group, 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 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 Hetherington Road with two other similar developments, all within a few kilometres of each other.
Hetherington Road has the largest floor area, the most amount of bedrooms, and a bigger garage. But it is also $50,000 cheaper than two properties being built only seven kilometres away.
A Good Investment?
There are two main numbers you need to know when you invest in a property:
- Cash flow (the 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 Hetherington Road measures up.
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.
That 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 Hetherington Road by $179 a week in the first year, and continue to top-up for eight years, although the amount will come down as interest rates gradually decline and rents continue to rise.
Everybody wants a high return on investment property.
Hetherington Road has a return on investment of 372.5 per cent. This means for every dollar you invest, you’ll get $3.72 back (as well as your initial investment).
How does the property compare to others on the market? Ranui is in the top 10 per cent of suburbs for gross yields.
No unicorn suburb is in the top 10 per cent for capital growth, yields and affordability. So, investors need to find a balance between the three.
Hetherington Road is a good, affordable property in a good location. On top of being a good price, the properties are larger than your average in the area.
Most of the properties in this development have four bedrooms, which allows larger families to tenant or even more freedom for your average-sized family, eg converting a bedroom into a study or a storage room.
Out of 1,065 current rentable properties in Ranui, only 126 have four bedrooms or more, therefore creating a lack of supply in the area
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:
- You can use the information to find a property yourself through a developer
- 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.