Lowest price not always the answer
There’s a big difference between price and value … and it’s vital that someone recommending a property can demonstrate that value, writes Andrew Nicol.
28 June 2023
In suburbs with a middling reputation, it can be tempting for investors to find the absolute lowest price.
As a financial adviser who looks for new build properties on behalf of investors, I often hear: “I found a similar property, for a better price”.
To their minds, if buying in a so-called “dodgy” area, they want the best bargain. Fair enough. But there is a big difference between price and value, and I believe it’s vital that someone recommending a property can demonstrate its value.
Each month this section looks at new build properties, analysing real deals to see which is the best investment.
The three properties
This month’s case study looks at three townhouses in Massey, Auckland, which historically is a lower socio-economic area.
House prices and rents in this area vary widely, depending on what side of the motorway the property falls on. All these properties are being built by well-known developers (names redacted so I don’t get angry phone calls).
All are roughly the same size, and are within a couple of kilometres of each other, and are for sale in today’s market.
But there are some key differences.
It goes without saying, the first thing to look at when eyeing up a new investment is the price. In this case, the most expensive property, Impatiens Lane, is $90,000 more than an almost identical property in Colwill Road. This makes Colwill Road the more affordable three-bedroom option.
To be fair, the Impatiens Lane is 45m2 larger, but that’s unlikely to be worth an extra $90,000. The cheapest property on the list, Lawson Creek, is $60,000 less than Colwill Road, but is much smaller; only two bedrooms, spread over a floor plan of 90m2.
For anyone new to property investment, the gross yield measures how much rent a property collects compared to the purchase price. It’s calculated as the annual rent (52 weeks) divided by the purchase price.
The property with the highest gross yield is Colwill Road at 5.26 per cent; next is Impatiens Lane at 4.14 per cent, and Lawson Creek has the lowest gross yield at just 4.07 per cent.
The reason rents on these properties are so varied (despite being in the same suburb) is the location. Colwill Road is on the eastern side of the motorway, whereas the other two are not.
What’s interesting about these three examples is the cheapest price has the lowest yield. So in this instance, the best price is not necessarily representative of the best deal, particularly for an investor.
Generally speaking, a garage addition will hike the price of a new build up an extra $40,000-$50,000, But sometimes they can be an additional $260,000 to $320,000 more.
It makes sense that the two properties with a garage would be more expensive, and achieve better rents. Tenants in this area tend to be families, which means garages are sought after. It’s something to consider when property shopping.
How do I buy a new build?
If you’re shopping for a new build property, there are two ways to go about purchasing one:
1. You can use the information to find a property yourself through a developer.
2. You can work with a property investment company.
Opes Partners is one example of a property investment company, although there are many others.
These types of businesses team you up with a financial adviser to a) build you a financial plan and then b) find new build properties that fit that plan. ν
Through Opes Partners, Andrew Nicol works with 97 developers nationwide. 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.