Investment Properties in Smaller Waikato Towns

[BLT]

As a newbie, I'm really interested in investment property. With lots to learn, I have lots of questions for seasoned investors. My first question is this, what are peoples thoughts on buying IP in smaller Waikato towns like Matamata, Morrinsville, Te Kuiti, Otorohanga, Te Awamutu? With the seemingly strong market in property sales in Hamilton and Cambridge, will the smaller towns benefit long term in terms of capital growth?

[Rosco]

Hi BLT,

Are you looking to invest long term or just make a quick buck? The same thing happened in the last boom, Auckland goes well, then other cities, then investors try to get clever and invest in places like Tokoroa, Te Kuiti etc. Some of these investors make a quick buck and get out quick as it doesn't work well for them. Whereas lots got sick of it over time, sold a few years after the boom and didn't really achieve much.

If you are a long term investor, then I would suggest you look at the fundamentals for the areas
- jobs
- infrastructure
- population growth, or decline
- who is going to be your tenant?
- number of buyers if you had to get out unexpectedly

I think a strategy that can work in smaller towns, is buy, and pay off, leaving a debt free, passive income. But need very good income, especially as rates, repairs etc can be higher as a % of rent. For this to work you are probably looking at 12% gross yield or more, so that the loan is paid off over say 25 years. For this strategy to work, I would still want a growing town, with more tenants long term, to ensure you can rent and get some rent increase over the long term (you will find these very small, especially in smaller towns)

Ross

[watchful]

Really good post Rosco.

When we started a number of years ago, purchasing a small town property in our portfolio made sense as it was (relatively) easy to purchase well below CV. This meant that after some time (don't ask me how long) the banks recognised this value and we had equity to borrow against.

The equity made it achievable to ease us from a small Auckland apartment (first purchase) into stand alone properties closer and closer to the CBD. I do not follow the market for many of these towns so am unsure how easy it is to purchase well below valuation, but was useful for us when starting off.

[flyernzl]

Avoid one-industry towns with a population of less than 20,000.

[PTILoveYou]

To add to Rosco and Flynz from above, use small town cashflow properties to supplement your buy and hold in major centres.

5 green houses and 1 hotel

Once you got enough base in major centre, sell up the small town stuff and concentrate in major centre and even go commercial

[rocket]

Amazingly people underestimate small towns. I don't have stats to back but in the last 3 yrs towns like matamata, Morrisville have done better than Hamilton in terms of capital gains.
My take would be to stay away from towns like tokoroa but good dairy, horse towns are excellent. Good tenant pool and high demand & excellent resale.
I have bought two recently in Matamata with gross yield of 10% plus...hard to find though. I am renovating one & would recycle the equity.

[Rosco]

Hi Rocket, I would be interested in seeing stats that back up what you say.

Hamilton up to at least jan 15 was very flat, but so were the surrounding regions! I doubt any of the surrounding towns did great from 08 to 14. From what I have seen, they didn't. Also informaton from clients buying, show there are still good buys in Te Aroha, Matamata etc, so this would indicate that they haven't done much.

Anyway, getting back on topic - my post said look at the fundamentals. jobs, population growth etc. These could be great in Matamata and Morrinsville !

Ross

[rocket]

Hi Ross. Before this sudden gold rush when the market was down I read somewhere that matamata was averaging at 5.5% & Hamilton at 5% CG. My memory may be tired but I can say for sure that the difference wasn't much. That's the point.
Don't miss on to the value of stable old farming towns. Its an industry that the whole contry relies on. If for some reason it fails than everyone is in thick sh#@.

[Wayne]

I'd like to add that the list the Ops gave of 'small' towns covers quite a range.
Te Awamutu is a little like a dormitory suburb of Hamilton - lots of commuting for work but also has it's own employment.
Otorohanga and Te Kuiti are quite different.
Morrinsville and Matamata are differt again.

As Ross says check the numbers. It's net income you'd want.

[Anaru79]

My parents investment property was purchased in 1987 in Matamata and at the time it was 92k and now it just valued at $240k, but it is in need of some reno's, so could easily val at $280k+ with cosmetic changes.

[Tomo]

My parents investment property was purchased in 1987 in Matamata and at the time it was 92k and now it just valued at $240k, but it is in need of some reno's, so could easily val at $280k+ with cosmetic changes.

I think this highlights the limitations of small towns.E quity gains in 30 years in a small town can be done in 1 year in Auckland. Or 2 months if you use the herald as your property market compass.

http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11644044

[rocket]

I think this highlights the limitations of small towns.E quity gains in 30 years in a small town can be done in 1 year in Auckland. Or 2 months if you use the herald as your property market compass.

http://m.nzherald.co.nz/business/new...ectid=11644044

are you saying that everyone must invest in Auckland because that's where capital gains are?

[Tomo]

are you saying that everyone must invest in Auckland because that's where capital gains are?

certainly not, just highlighting the different opportunity. Everyone will have a different strategy so small towns may be appropriate for different individuals. I started in small towns but in recent years have sold up to focus on the Auckland market.

[Wayne]

certainly not, just highlighting the different opportunity. Everyone will have a different strategy so small towns may be appropriate for different individuals. I started in small towns but in recent years have sold up to focus on the Auckland market.

Of course to get the gain you had to start with a much higher figure.
$240k would hardly by a piece of dirt big enough for a phone box in Auckland.

[snobilo]

Of course to get the gain you had to start with a much higher figure.
$240k would hardly by a piece of dirt big enough for a phone box in Auckland.

or an ATM 1 square metre somewhere... Seen a few of them for sale recently.