If you buy a property in today’s market generally the rent won’t cover all the costs. That’s especially true if you’re borrowing all the money to invest, with no cash deposit.

But some properties will be more negatively geared than others. Each month, this section looks at new build properties, analysing real deals to see which is the best investment.

This case study looks at a townhouse in Mount Roskill, Auckland. The unit has three bedrooms, two bathrooms and off-street car parking. But don’t spend too much time looking at the pictures and floor plans. 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 unit costs $895,000, while similar properties in the area are priced between $895,000 and $1,125,000. That’s up to $230,000 more expensive. The interesting thing about this property is it has a far larger section than other new builds on the market, yet it has a lower price. It also has a car park, while some more expensive properties don’t.

‘Don’t spend too much time looking at the pictures... they won’t tell you if it’s a good investment’

CASH FLOW

Many property investors make most of their money when their properties go up in value, but you can’t realise those gains unless you can afford to hold on to the
property. That’s why you need to run a cash flow analysis on your properties.

By my forecasts the investor will need to top up 23 Freeland Ave by $500 a week in the first year, although this will come down as interest rates gradually decline and rents continue to rise. The projected cash flow is also about $298 a week better than some of the other comparable properties mentioned.

RETURN ON INVESTMENT

Everybody wants a high return on investment property, but very few people run the calculations.

Here is a 15-year return on investment projection for 23 Freeland Ave property compared with the other two properties mentioned. The projections show that this Freeland Ave property is likely to deliver a higher return than the comparables.

But be careful with any projections you read (from me or anyone). You must dig into the assumptions, as these can sway the expected returns. There’s not enough space here to go through all the assumptions, so you can download my financial modelling at opespartners.co.nz/freeland-ave.

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. 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.

For my complete analysis on this property go to opespartners.co.nz/freeland-ave

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.