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What Makes A Great Investment?

Mark Honeybone explains the key factors that make a property an attractive investment proposition

By: Mark Honeybone

30 April 2018

Last month I received some great questions in my “Ask Mark” series on Property Ventures’ Facebook page (propertyventuresnz). On the page, Carrie asked a very important back-to-basics question: “What factors do you take into account in considering a property to be a good investment?”

It is a great question, and even though I have already briefly answered it on the Facebook page, I will dedicate this forum to it. It’s a two-part answer:

Location

Location, location, location. We hear it all the time, but what does it mean?

There are some things you must consider especially if you are looking for capital gains:

  • Infrastructure. What is going on in this location? What is the local council doing? Is the Government investing money and resources into the area? If your answer is yes to these questions, it should be a safe bet that properties in this area will show capital growth in the future.
  • Public Transport. Is the property close to bus stops, train stations and other public transport systems?
  • Schools. This is important, especially if there are schools nearby which are considered “sought after”. A home’s price can be several hundred thousand dollars lower if the property is close to a good school, but not zoned for it and zoned for a “lesser” school zone.
  • Development Potential. The more you do to the property, the more your investment will be worth, and the more rent you will be able to achieve.
‘Whether you buy to renovate, keep it long term for capital gains or get a good rental return; you should always be aware of the obstacles that may affect the property’s price in the future’
  • Rental Demand. If you are planning to rent this property, you will need to check and understand the demand for rentals in the area. I suggest talking to several property managers, not just one.

Obstacles That May Affect Selling Or Renting Out

If you are looking to purchase a property to hold long term, thinking about when you’ll be selling it will most likely be the last thing on your mind.

But let me be clear about this one. Whether you buy to renovate, keep it long term for capital gains or get a good rental return; you should always be aware of the obstacles that may affect the property’s price in the future or even whether good tenants will want to rent it:

  • Train lines near or at the back of the property – potential noise or danger for children.
  • Motorways near or at the back of the property – same as the above.
  • Is there a large apartment building or a Housing NZ complex being built next door or on the same road? Will it affect the price of your property?
  • Research that the street hasn’t been in the news for the wrong reasons. Visit Mr Google.
  • Is there an airport nearby? The noise can put buyers and renters off. If there are power lines near the property a potential buyer or tenant will usually look at another property unless they are price driven.

All these points can affect the price and number of potential buyers or tenants in the future, which in turn should affect your buying decision in the first place. It won’t matter how well you renovate or how many additional rooms you add; these factors may still affect the price negatively.

I’m not saying never buy a property with the above, but be smart about what you’re paying for it. Also, be aware that it will have a smaller number of potential buyers or tenants. It’s like monolithic-clad buildings, there are buyers, but a limited number of them. Fewer buyers equal less competition, which equals less price. It’s just the way it is.

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