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  1. #1

    Default Long term investments in small waikato towns

    Hi all, great site you guys have here, good bunch with lots of knowledge.
    I've been watching/reading for a while and I'd really like your opinion on what you would do if you were in my position.
    My wife and I are a young couple who own our own home in Hamilton and we have a bit of usable equity we want to invest. We think our money would be best spent in a small Waikato town, we have a budget of around 150k and we are looking in putaruru, tokaroa and rotorua. We have friends who own a rentals in putaruru who tell us they are flooded with applicants when they put a property for rent and say they always have the pick of great tenants. I realise its not alot of money but atleast we know we can cover a 150k mortage if its untenanted for a bit.

    So a couple of questions:

    1. What do you think?

    2. What/where would you buy with a budget of 150k?

    All opinions appreciated and thanks in advance!

  2. #2
    Join Date
    May 2007
    Location
    Hamilton
    Posts
    3,684

    Default

    Hi Davenc30 and welcome to Property Talk,

    Obviously no one has a crystal ball, but I'd be worried about rent and capital growth

    1) Is the populations growing or decreasing? If less people, then they need less houses, which isn't good for rent or value!
    2) Many costs are still the same!
    So for example you might get $500 rent in Hamilton and pay $2500 rates, so 10%. In smaller towns you might still pay $2500, but your rent might on $200 per week, so 25%. That is a huge amount of your rent going to rates!
    Insurance might still be $750, so again another 7.5%
    Your hot water cylinder blows up, might be $1,000 or 10%.

    So overall you have less rent to cover all the expenses. If you look at more major renovations it is even worse. Say you spend $10,000 painting and doing up the property, it is going to take you a long time to get this back again.

    3) Be careful that there might be more vacancies.

    4) Make sure you work out your income vs expenses fully, and establish what the full cashflow is. 10% Gross Yield might sound great, but once you factor in all the expenses you will find this quickly disappears! Kind of part of my point 2 and 3 combined.

    As a result of this, you might be happy buying 8% Gross Yield in Hamilton (or very happy), but might want at least a 12% Gross Yield in Putararu to cover the higher costs (as a percentage) and factor in that you might not get much growth.

    5) Tenants - I like a good property, in a good area, that gets good tenants. Are you going to get a lot of hassles in Putararu or Tokoroa?

    6) If you did buy in one of these area's, I would suggest being aggressive on the loan and paying it down quite quickly. Ideally the rent should cover all the costs, and the principal. This way say in 15 to 20 year you should end up with a debt free property. And even if there is no growth, you can do well from this strategy.

    Ross
    Not sure where to start, book a free chat for 5-10 minutes https://cswaikato.co.nz/services-pro...s-hamilton/201
    Ross Barnett - Coombe Smith Property Accountants


  3. #3
    Join Date
    Mar 2014
    Posts
    366

    Default

    I agree with the above.

    Population being the key consideration.

    Finding this data is also pretty easy, normally google will lead to the relevent stats.govt.nz page. Compare 2006 census data to latest 2013 data, but for smaller towns go back further also to make sure any one off events (small towns near chch for example had big one off growth 2006-2013 which is likely to reverse as chch rebuilds).

    Interesting though that your friend is getting a lot of interest in his properties in these small centers. As the common theories (what Ross mentions above) become accepted, and after a decade of flat-falling prices, you could see such towns have very few land lords and so very few rentals, such a shortage could lead to some very good yields. If you can get 15% that's not too long before the entire house is paid for, and the one off expenses will be covered nicely by the rent. You'd just want to hope local and central govt. allow these towns to remain semi-attractive so population doesnt fall faster than houses get written off.

  4. #4

    Default

    Thanks guys I appreciate it. As you pointed out my biggest concern in small Waikato towns especially Toke and Putaruru is the fact if one large factory lays off some staff and all of a sudden the population drops overnight. I understand that it will lack capital growth but with such a low purchase price it would be good long term passive income once paid off quickly. I need to do alot more research!

    You guys didnt mention what you would do with a budget of 150k if you dont mind sharing

  5. #5

    Default

    I think I need to look into small Auckland apartments aswell...

  6. #6
    Join Date
    Mar 2014
    Posts
    366

    Default

    You wont even get a studio (freehold) in auckland for that these days.

    I'd be looking at Wellington freehold apartments, some bargain buys around the terrace, with MBIE consolidation to stout street you have more workers per sq meter in that area than anywhere else in NZ, and Vic uni students if you are targetting lower priced apartments are very keen on this area. Rent is the same as in auckland, but you pay 50% less. Little new supply possible in wellington either unlike auckland.

  7. #7
    Join Date
    Aug 2009
    Location
    Auckland
    Posts
    1,080

    Default

    You mentioned Tokoroa, Putaruru, or Rotorua in your original post.personally, it is no brainer that investing in Rotorua is your best bet.

    I own a number of Rotorua properties and have they are one of my best returning properties.

    Good luck with your investments.

  8. #8
    Join Date
    Aug 2009
    Location
    Auckland
    Posts
    1,080

    Default

    Quote Originally Posted by Davenc30 View Post
    I think I need to look into small Auckland apartments aswell...
    I find investing in apartments to be A real waste of money as you would need to consider body corps and a high risk of construction issue which the body Corp will force you to pay to fix or sell up.

  9. #9

    Default

    Quote Originally Posted by BigDreamer View Post
    You mentioned Tokoroa, Putaruru, or Rotorua in your original post.personally, it is no brainer that investing in Rotorua is your best bet.

    I own a number of Rotorua properties and have they are one of my best returning properties.

    Good luck with your investments.

    Thanks
    Rotorua would defiantly be best, but would 150k go far in Rotorua? I'm going down on Sunday to have a look around Rotorua and Tokaroa. I spoke to a rental agency in Rotorua and they hinted that I would struggle to find a tidy property in a reasonable area.
    I understand there's rough areas that are hard to find any let alone good tenants.
    I'm afraid I may have missed the boat in Rotorua?

  10. #10
    Join Date
    Nov 2014
    Location
    Mangere Bridge, Auckland
    Posts
    19

    Default

    Hi,

    I've been watching and learning from this site for a while also, and find this thread relevant and interesting. Many people would not have the equity (or are uncomfortable with the risk) to buy in Auckland, so look elsewhere. So in general where would you invest with $150 in NZ?

    We have two properties in Manawatu (Feilding and Palmy) bought for under $150 each. have an average household income but high equity in our Auckland home, but we don't feel comfortable investing big numbers so keep things smaller to match our risk appetite.


 

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