South Auckland vs Hamilton

[Natetrade]

Hi All

I am very keen to start investing in residential investment property - I currently only have a main home, but have equity in it that I can borrow against for an investment.

I am looking to initially use a buy and hold strategy with my ultimate port folio being a mixture of cash flow and capital growth properties (in order to mitigate future (potential) solvency risk while at the same time obtaining long term (15 year time frame) capital growth. I may trade later, but that will only be to assist with the recycling of a deposit.

I want to start with a cash flow property (6-7% net yields) but still but in an area with moderate capital growth (doesn't have to be stellar, but can't be flat lining growth). I realise that obtaining this type of net yield range will require a purchase below market value together with subsequent value add (e.g. extra rooms, sleep out etc.) I can afford up to around a 700k purchase price (equity plus debt).

I live in Pukekohe, hence my two main areas under consideration are Hamilton and South Auckland. I am wondering if anyone had some general thoughts on these two investment areas in terms of a comparative analysis and given my above stated investment objectives.

Thanks again everyone.

Nathan

[PC]

It is usually easiest to get to know your local area well.
Driving around viewing houses can be tedious and time consuming.
To get a good buy it can be more productive with face-to-face talking rather than wasting hours on the internet.

Are you going to renovate a do-up yourself?
How much time do you have for commuting?

[Nick G]

6-7% net = 8-9% gross? You're probably talking decent sized project such as subdividing off a section and selling or something else to increase yield. Best to look where you can quickly get around prospective properties and get a surveyor or builder out there quickly. If you can't find a good once after 3 months of giving it a real crack then expand? Be prepared to pay for people's time to come visit your potential deals. I pay my architect $100/hr for each property he visits to confirm my grand designs.

[Natetrade]

Hi PC - I agree with your first three points in principle. Problem is I line in Pukekohe (20 mins to South Auckland and 50 mins to Hamilton). Either way it will be a drive unless I invest in Pukekohe (which I don't want to as I feel it is a bit overvalued, may crash harder in a recession (due to lack of employment diversity and distance from Auckland proper) and some massive new subdivisions being developed (i.e. not really a scarcity of land supply) - by massive I mean subdivisions of 5,000 odd houses...

In saying the above, I am willing to conduct face-to-face time during my sourcing phase (i.e. half a day per week minimum). I may renovate it myself (I have done it before to several houses (and was a house painter in a former life...).

Question remains though, in comparing Hamilton to South Auckland what are the pros and cons...?

Thanks
Nathan

[Natetrade]

Hi Nick G

Thanks for your comment. The yield criteria obviously need to be tested in the current market, if they are unobtainable then I will drop them a little lower.

To my question, however, if convenience is the most important factor then I take it you would recommend South Auckland over Hamilton - for me anyway, due to the proximity to where I am (Pukekohe)? I also take it that while capital growth for Hamilton will be good over the next 20 years, South Auckland's will be better?

[Nick G]

Haha I have no idea what capital growth will be like in 2 years let alone 20 and if you're looking to great those kinds of yields it doesn't really matter.

My point is more that you should pick the area where you are easily able to operate and try that.

[Natetrade]

Haha I have no idea what capital growth will be like in 2 years let alone 20 and if you're looking to great those kinds of yields it doesn't really matter.

My point is more that you should pick the area where you are easily able to operate and try that.

Hmm I disagree on some of that Nick. Capital growth does indeed matter irrespective of your obtained yields - capital growth on an asset is the fundamental driver of long term wealth creation from property investment - good yields assist with wealth creation and they keep you solvent (which is vital), but not as important to creating wealth. Future capital growth trends may be difficult to predict, but they should be taken into account in my view so long as you are aware of the limitations of such an analyses. I guess that's where I disagree with the likes of Orion and others on these forums who take a yield-centric view to property investment.

What I was trying to get from this thread was given historical data and given potential future trends (i.e. land supply/scarcity, population growth, forward demand curves, employment diversity etc etc) how do South Auckland and Hamilton compare.

p.s. I agree with your tip around investing in a close geographical location to where you live due to convenience and practical scouting issues - thanks.

[Wayne]

What I was trying to get from this thread was given historical data and given potential future trends (i.e. land supply/scarcity, population growth, forward demand curves, employment diversity etc etc) how do South Auckland and Hamilton compare.

I await, with interest, what peoples guess's will be, because that is all they can be.
The past is no predictor of the future.

[ripeka]

[QUOTE=Natetrade;428291]Hmm I disagree on some of that Nick. Capital growth does indeed matter irrespective of your obtained yields - capital growth on an asset is the fundamental driver of long term wealth creation from property investment - good yields assist with wealth creation and they keep you solvent (which is vital), but not as important to creating wealth.

I am wondering how you can consider solvency to be vital yet wealth creation to be more important. No wealth created if you are insolvent. Correct me if I am wrong but my guess is that you perhaps weren’t investing at any of the several bust cycles over past 30 years? For me, Lessons learnt then still hurt years later! The bad times taught me that cashflow is indeed king.

[Nick G]

I'm confused, you're talking 7% net yields, what's that, 8.5% gross? You're only going to get it if you develop it yourself, which is going to add a TON of equity and cashflow to your bottom line. If you're adding 25% to the value of your asset or getting something for .70c on the dollar because of a subdivision or something then the 20 year growth projection is irrelevant because you'll be wealthy long before that.

Hmm I disagree on some of that Nick. Capital growth does indeed matter irrespective of your obtained yields - capital growth on an asset is the fundamental driver of long term wealth creation from property investment - good yields assist with wealth creation and they keep you solvent (which is vital), but not as important to creating wealth. Future capital growth trends may be difficult to predict, but they should be taken into account in my view so long as you are aware of the limitations of such an analyses. I guess that's where I disagree with the likes of Orion and others on these forums who take a yield-centric view to property investment.

What I was trying to get from this thread was given historical data and given potential future trends (i.e. land supply/scarcity, population growth, forward demand curves, employment diversity etc etc) how do South Auckland and Hamilton compare.

p.s. I agree with your tip around investing in a close geographical location to where you live due to convenience and practical scouting issues - thanks.

[Don't believe the Hype]

Hmm I disagree on some of that Nick. Capital growth does indeed matter irrespective of your obtained yields - capital growth on an asset is the fundamental driver of long term wealth creation from property investment - good yields assist with wealth creation and they keep you solvent (which is vital), but not as important to creating wealth. Future capital growth trends may be difficult to predict, but they should be taken into account in my view so long as you are aware of the limitations of such an analyses. I guess that's where I disagree with the likes of Orion and others on these forums who take a yield-centric view to property investment.

What I was trying to get from this thread was given historical data and given potential future trends (i.e. land supply/scarcity, population growth, forward demand curves, employment diversity etc etc) how do South Auckland and Hamilton compare.

p.s. I agree with your tip around investing in a close geographical location to where you live due to convenience and practical scouting issues - thanks.

There are many who have made lots of cash, lots and lots of cash out of your thinking... the issues is that this has had more to do with luck than skill. See a thread on here 'my investment journey - gary lin'

The feedback you're getting from the majority is that what is known is your yield, what is unknown and is nothing more than a guess is the future CG that will come from any given location.

While you're right you can find areas that are more likely than others to increase due to some of the infrastructure, employment or population plans/predictions none of these are guaranteed nor is any potential CG you're hoping for.

If you spend your time chasing potential gain, you just might get lucky and buy in the right area at the right time... you're more likely to buy a dud.

The final point I'll make on CG - the ONLY time capital gain has any relevance to you is the day you cash in your chips... you can convert the capital gain you made on said property ONCE - you exchange that property for some cash - that cash you can use once.

To me that would be hugely frustrating. I would hate to be going to work every day knowing i had X millions of equity gains tied up in a property that i can't access unless i sell but have to go to work for the man (or woman) every day to pay for the food i put on the table and the petrol i put in the car to run my life. I'd much prefer to have a cash flow strategy with CG as a additional bonus if and when it come - and over the past 3 years boy has it come - than a CG strategy designed to keep me chained to a desk for the majority of my natural life.

But each to their own.

[Wayne]

The final point I'll make on CG - the ONLY time capital gain has any relevance to you is the day you cash in your chips... you can convert the capital gain you made on said property ONCE - you exchange that property for some cash - that cash you can use once.

To me that would be hugely frustrating. I would hate to be going to work every day knowing i had X millions of equity gains tied up in a property that i can't access unless i sell but have to go to work for the man (or woman) every day to pay for the food i put on the table and the petrol i put in the car to run my life. I'd much prefer to have a cash flow strategy with CG as a additional bonus if and when it come - and over the past 3 years boy has it come - than a CG strategy designed to keep me chained to a desk for the majority of my natural life.

But each to their own.

Property is great for generating equity - leaverage is a real friend here (so long as you stay solvent).
At the moment property is not very good at generating cash.
The idea that you can use the cash once is false.
Convert the poor returning equity into something that has better returns then retire.

In short - use property to gain equity and convert to something else to get cashflow and retire.

[Nick G]

That's a pretty one dimensional point of view. I have a property that generates over 35K per year after all expenses. Actually I have 3 of them. Why would I sell? The capital growth has been good too. I also added equity. Hopefully I can buy another one this year.

The OP is talking about creating very high yields. If he can do that he's set.

There is no single path so don't fixate on being perfect, it's the enemy of starting. I'm having lunch on Friday with some multi-millionaire Rotorua cashflow investors. Last week I met a couple from Auckland who traded for several years and now have 6 north shore properties free hold. Both no longer have to work.

[Wayne]

That's a pretty one dimensional point of view. I have a property that generates over 35K per year after all expenses. Actually I have 3 of them. Why would I sell? The capital growth has been good too. I also added equity. Hopefully I can buy another one this year.

The OP is talking about creating very high yields. If he can do that he's set.

There is no single path so don't fixate on being perfect, it's the enemy of starting. I'm having lunch on Friday with some multi-millionaire Rotorua cashflow investors. Last week I met a couple from Auckland who traded for several years and now have 6 north shore properties free hold. Both no longer have to work.

I have a lot of equity ($4mil) and better than 60% LVR but couldn't retire with the income I want.
So I'll convert that $4mill to something that returns more (and grows at the same time) and retire.
Often you can keep accumulating to get to the point where the cashflow is what you require, or you could have retired earlier if you have higher returns.

You are right though that there are many paths that lead where you want to go and that the important thing is to start the journey.
Often you can work out the details and tune the correct path (for you) later.

[Don't believe the Hype]

Property is great for generating equity - leaverage is a real friend here (so long as you stay solvent).
At the moment property is not very good at generating cash.
The idea that you can use the cash once is false.
Convert the poor returning equity into something that has better returns then retire.

In short - use property to gain equity and convert to something else to get cashflow and retire.

wayne - by 'use' I meant 'spend' - if you can show me a way to spend cash more than once I'll pay for that info. You can move your equity gain once it has happened into an asset that provides cashflow but investing is different to spending.

leverage can be a great friend in a rising market but equally can wipe you out in a falling market. It's a double edged sword.

Living in the world of hoping the price escalation will continue infinitely is one way to go,and your in short summary relies completely on future gains. Good luck to you and Natetrade if that is the investment strategy you want to employ.

I consider that too much of a gamble, I took a higher certainty route to my retirement before 40. In hindsight I could have had many more millions in equity but not the flow to leave the rat race.