Property Investor Mag - Growth hotspot Cannons Creek Porirua

[Don't believe the Hype]

Obviously, things have worked out well for you with your Porirua investment strategy.
What is it about the way you do things that made this a successful venture for you?
How would you have fared in Porirua if history had taken a different turn?

I'm a cash flow investor so I based my investment decisions on the cash flow returns not the future capital gains that might come on any given location. My personal position would only vary by the paper value of my houses which is not relevant as I'm not selling. In reality the cash i spend every day funded by my investment strategy would not be far different if the capital appreciation that has occurred didn't eventuate. When I bought the house for the price i did, the financials made sense they made sense even WITHOUT any CG - I also make sure that when I invest I have an exit strategy in place in the event that things go wrong and I protect myself for the down side - income protection insurance, fixed term mortgages etc


With that in mind I keep a close eye on the market and to be honest when things started to move up in price I was very disappointed. While this sounds strange it is the case because in the old days I would be one of only a few people making offers and with such low demand we could use our negotiation skills to our advantage but as things started to heat up it became very hard to negotiate a deal and our buying ceased. Fast forward a few years and I have to accept that the market is now way above the level it once was and I can't imagine buying at this level which is an emotional response as if I was entering the market for the first time today and I was assessing things using the same financial criteria I always have then at the current levels Cannons Creek is a buy because the yields are still high (rents have gone up inline with prices).

Put simply - 2 x 3 units are selling for around $420k and the rent on a well presented 3br unit is $400/wk - this is nearly 10% gross. In the old days we'd buy at 10% gross even when interest rates were higher than they are today.

So if you think rents are not inflated (can be maintained at the current level) and you bought a block of units for $425k today even if the market crashed tomorrow and the unit prices dropped to $350k next week it wouldn't be a problem UNLESS you were forced to sell. The rent would continue to come in, service the mortgage and provide you positive income. The paper value of the asset will only come into play if and when you decide to sell. An emotional response might be that if you waited a week you could achieve the same rent $400/wk for a purch price of $350k which is 11.9% gross but as they say, timing the market is near impossible. You were happy with 10% then so why not now?

[Lighthouse]

Thanks for the insight.

[Natetrade]

I'm a cash flow investor so I based my investment decisions on the cash flow returns not the future capital gains that might come on any given location. My personal position would only vary by the paper value of my houses which is not relevant as I'm not selling. In reality the cash i spend every day funded by my investment strategy would not be far different if the capital appreciation that has occurred didn't eventuate. When I bought the house for the price i did, the financials made sense they made sense even WITHOUT any CG - I also make sure that when I invest I have an exit strategy in place in the event that things go wrong and I protect myself for the down side - income protection insurance, fixed term mortgages etc


With that in mind I keep a close eye on the market and to be honest when things started to move up in price I was very disappointed. While this sounds strange it is the case because in the old days I would be one of only a few people making offers and with such low demand we could use our negotiation skills to our advantage but as things started to heat up it became very hard to negotiate a deal and our buying ceased. Fast forward a few years and I have to accept that the market is now way above the level it once was and I can't imagine buying at this level which is an emotional response as if I was entering the market for the first time today and I was assessing things using the same financial criteria I always have then at the current levels Cannons Creek is a buy because the yields are still high (rents have gone up inline with prices).

Put simply - 2 x 3 units are selling for around $420k and the rent on a well presented 3br unit is $400/wk - this is nearly 10% gross. In the old days we'd buy at 10% gross even when interest rates were higher than they are today.

So if you think rents are not inflated (can be maintained at the current level) and you bought a block of units for $425k today even if the market crashed tomorrow and the unit prices dropped to $350k next week it wouldn't be a problem UNLESS you were forced to sell. The rent would continue to come in, service the mortgage and provide you positive income. The paper value of the asset will only come into play if and when you decide to sell. An emotional response might be that if you waited a week you could achieve the same rent $400/wk for a purch price of $350k which is 11.9% gross but as they say, timing the market is near impossible. You were happy with 10% then so why not now?

@ Don't believe the Hype - thanks for the above. I have trawled through this thread from its 2016 beginnings. To summarise, in your view is CC still a good area to invest in? How would it compare to Palmy or the cheaper parts of Hamilton???
Thanks = Natetrade

[Don't believe the Hype]

@ Don't believe the Hype - thanks for the above. I have trawled through this thread from its 2016 beginnings. To summarise, in your view is CC still a good area to invest in? How would it compare to Palmy or the cheaper parts of Hamilton???
Thanks = Natetrade

I'm not in a position to comment on Palmy or Hamilton as I just don't know enough about them so can't help on comparing the 3 locations.

What I can tell you is that buying on 10% gross is a buy in my mind on any location that is in a major city. The thing you need to consider and be satisfied with is if the current levels of rent are sustainable to maintain the 10% Gross if you don't think they can then the yield is lower. I think rents are sustainable as in all reality as with prices (capital values) and rents increasing owners become happy with the investment costs of updating homes. The newly updated homes then appeal to a different type of tenant who once rented in Tawa/J'ville or even Titahi Bay but has been forced out by increased rents in that location so they can get a grotty old house/unit in these locations for $450/wk or a fully renovated home for the same money.

Walking round the open homes and seeing who is looking to rent at these level we are seeing this. I saw a comment you made on Decile rating of schools - it's an interesting one as the Titahi Bay schools had to fight to keep their lower decile rating so that they maintained as much funding as they could. So as the rents go up and tenants with higher incomes move in the schools decile rating changes fast.

There is a fair variance between an unrenovated 3br unit/townhouse renting for $325/wk and one that is fully renovated - new carpet, new paint, heat pump, insulation tidy kitchen and bathroom renting for around $400/wk and if you go to the effort of a new bath/kitchen you might even get $450/wk. The return on investment for the upgrade is great. $15-20k of upgrades might get you $100/wk so you're looking at an ROI of 25% - 33%


Then to consider to overall purchase price, when you consider things like cost of construction at a staring point of $2000/m2 buying 2x3 ex state duplex (200m2) at $425k you're paying $2100/m2 which is the low end of construction cost (to be fair there's work to get them up to comparable to a new build so not completely apples to apples but a close enough comparison) - thinking of it this way you're getting a free section with every duplex you buy.

[Natetrade]

I'm not in a position to comment on Palmy or Hamilton as I just don't know enough about them so can't help on comparing the 3 locations.

What I can tell you is that buying on 10% gross is a buy in my mind on any location that is in a major city. The thing you need to consider and be satisfied with is if the current levels of rent are sustainable to maintain the 10% Gross if you don't think they can then the yield is lower. I think rents are sustainable as in all reality as with prices (capital values) and rents increasing owners become happy with the investment costs of updating homes. The newly updated homes then appeal to a different type of tenant who once rented in Tawa/J'ville or even Titahi Bay but has been forced out by increased rents in that location so they can get a grotty old house/unit in these locations for $450/wk or a fully renovated home for the same money.

Walking round the open homes and seeing who is looking to rent at these level we are seeing this. I saw a comment you made on Decile rating of schools - it's an interesting one as the Titahi Bay schools had to fight to keep their lower decile rating so that they maintained as much funding as they could. So as the rents go up and tenants with higher incomes move in the schools decile rating changes fast.

There is a fair variance between an unrenovated 3br unit/townhouse renting for $325/wk and one that is fully renovated - new carpet, new paint, heat pump, insulation tidy kitchen and bathroom renting for around $400/wk and if you go to the effort of a new bath/kitchen you might even get $450/wk. The return on investment for the upgrade is great. $15-20k of upgrades might get you $100/wk so you're looking at an ROI of 25% - 33%


Then to consider to overall purchase price, when you consider things like cost of construction at a staring point of $2000/m2 buying 2x3 ex state duplex (200m2) at $425k you're paying $2100/m2 which is the low end of construction cost (to be fair there's work to get them up to comparable to a new build so not completely apples to apples but a close enough comparison) - thinking of it this way you're getting a free section with every duplex you buy.

Thanks Don't believe the Hype (and thanks for the considered response - not as common as you may think in this forum unfortunately). I'm a newbie investor (as in I only have my own home at the moment), however I'm all ready to purchase an investment property. I understand my timing of the markets is not ideal, but to the extent there is still a residual afterglow of the recent property boom then I want to be all over it. In that regard, it seems the likes of Palmy and Porirua may fall into that category (Hamilton and certainly Auckland are past the growth phase).

I will have a good look at Cannons Creek. I'm actually down in Wellington on the week starting 7 May in court (I'm a lawyer) so I will grab a car and take a look at that suburb that week - are there any other "up n coming suburbs" in the greater Wellington area that you would recommend me to look at?

Thanks
Natetrade

[Anthonyacat]

Thanks Don't believe the Hype (and thanks for the considered response - not as common as you may think in this forum unfortunately). I'm a newbie investor (as in I only have my own home at the moment), however I'm all ready to purchase an investment property. I understand my timing of the markets is not ideal, but to the extent there is still a residual afterglow of the recent property boom then I want to be all over it. In that regard, it seems the likes of Palmy and Porirua may fall into that category (Hamilton and certainly Auckland are past the growth phase).

I will have a good look at Cannons Creek. I'm actually down in Wellington on the week starting 7 May in court (I'm a lawyer) so I will grab a car and take a look at that suburb that week - are there any other "up n coming suburbs" in the greater Wellington area that you would recommend me to look at?

Thanks
Natetrade

I just sold my rental in Wainuiomata (too annoying to handle from up in Auckland) and I understand the area is still in steady growth mode. Lots of tenants looking for houses, lots of home buyers looking for houses.

[Don't believe the Hype]

I just sold my rental in Wainuiomata (too annoying to handle from up in Auckland) and I understand the area is still in steady growth mode. Lots of tenants looking for houses, lots of home buyers looking for houses.

wainuiomata is another obvious choice as a comparison good suggestion. Looked at Linden the other day.. agents will call it Tawa but it's not. It's close to train line but by far distant to other amenities. The upside is it's wellington not porirua so rates are significantly less for comparable properties - from a cashflow management POV might be an option worth considering

[Don't believe the Hype]

Eastern Porirua update - 3 recent sales of single renovated townhouse for high $300’s ($370k and $380k) in Bedford Street.

2x3br townhouses listed by Ray White at 78-80 Gear Terrace sold for around $470k with multiple offers I only a couple of weeks. This is a record price for this type of property in original condition.

Still good old strength in both the home buyer and investor market out this way.

https://www.trademe.co.nz/property/residential-property-for-sale/auction-1668117775.htm

[Don't believe the Hype]

More positivity around Porirua as an investment choice. This time the low end - Cannons Creek.

http://www.stuff.co.nz/business/82334127/some-parts-of-the-country-are-still-to-reach-their-price-peak-data-suggests

Long lambasted by almost everyone as the end of the world, avoid at all costs it is now emerging as a potential hotspot.

Porirua median house prices are unreliable given the large area and huge variance in property types and suburb demographics... For this area you need to break it down into specific suburb growth - Cannons Creek, waitangirua and Ranui Heights have picked up since Jan this year and continue to be hot.

Articles like this one and the one last week on Titahi Bay auction result will likely move the herd opinion and when they take a look they'll see great value...

Add this to the fact that these areas (even fully renovated) sit comfortably under Kiwisaver limits for support and now you have First Home Buyer interest...

Now for you investors - needing 40% of $300k is about the same as 20% deposit on $600k for something in the inner ring suburbs of Wellington... So you're still able to buy an investment property but your location choice may be about to change!!

two years later and still running hot. Fast becoming the preferred first home buyer market. $400-$500k will get you a great first home.

https://www.nzherald.co.nz/index.cfm?objectid=12087807&ref=twitter

From the article - ‘By contrast, Porirua and the Wairarapa in the lower North Island were home to six of the 10 best performing markets, including Waitangirua, Cannons Creek, Ranui, Featherston, Greytown and Martinborough.’

[newbie86]

Neighbouring suburb Waitangirua is getting hotter and hotter too - This May 4x3br units went for $1.32 million

[Don't believe the Hype]

Game on

https://www.stuff.co.nz/national/108181430/plan-for-thousands-of-new-houses-being-nailed-down-in-porirua

[Don't believe the Hype]

The government has confirmed its commitment of a $1.5 billion investment in a regeneration housing project in Porirua East and West over the next 25 years. The Prime Minister made the announcement today.

The Government is working alongside Porirua Council, the community and Ngāti Toa Rangatira, to provide better housing, infrastructure and facilities in eastern Porirua by:

• replacing 2900 old, cold and damp Housing NZ houses with warm, dry modern housing better suited to tenants’ needs
• building 2000 new, affordable market and Kiwibuild houses
• improving neighbourhood design, including upgrading parks and streets, to make it easier to get around eastern Porirua, and do business there
• providing the community an opportunity to think about their future education needs and
• creating jobs for locals

https://poriruadevelopment.co.nz/

[Don't believe the Hype]

https://www.trademe.co.nz/property/residential-property-for-sale/auction-1835911443.htm 4 Unit Cash Printing Press & Additional Land

Sold today cash unconditional - guess how much?

[AlFa]

https://www.trademe.co.nz/property/residential-property-for-sale/auction-1835911443.htm 4 Unit Cash Printing Press & Additional Land

Sold today cash unconditional - guess how much?

800s? assuming rent is above 300pw

[Don't believe the Hype]

Current rent is $250/wk/ unit - $52k yr.

sold cash unconditional for $905k.

i suspect some betting on value increases or ability to develop as part of the $1.5 billion investment Auntie J announced 6 wks ago.