Is it still viable to invest in townhouse/units in Auckland?

[semaj_nil]

Hey folks,

Just had a quick look at the townhouse/units market, my budget is about $500 fully mortgaged(leverage from existing equity), the rents are approx $400-$500 for the price I am looking at. I did some quick calculation based on existing interest rate and regular cost, it's going to be about break even, if interest rises it will be negative cash flow. It seems to me it's a bit risky since I also need to factor in vacancy periods. The only thing I can hope is the property value appreciates and rent rises(which is so slow that doesn't even matter).

I am writing here to wonder if I got my thinking right as above? What do you guys reckon in the next 10 years? What and where would you invest?

My other option is to build on existing IP, which is 733 sqm land in Manurewa, has an existing house currently rented at approx $550. But the storm water connection stopped at my neighbours driveway, which I will need to get their permission to dig up and extend it. Plus the cost of resource/building consent etc which is going to be huge but still has nothing built. What would you do?

Cheers
J

[elguapo]

I'm not much interested in just buying a property just for renting. That to me is just an arbitrage between rents and interest rates. Over time it works OK for most, but I'm looking for more out of an investment. If you can buy at a price that allows you to lock in finance for a longer time (i.e. 5 years) that can be a reasonable investment assuming the rent is covering costs. You say rents are slow to rise, but don't ever forget this is a long term investment and that rise compounds to your advantage over 5/10/20 years. The people who do well at this don't forget the time factor.

Development is a higher risk, so that depends on your experience and taste for challenges. Make sure you know if you are developing for resale, or to hold and rent before you start.

[semaj_nil]

We have built a house on ready built land, but we don't have experience in subdividing and applying resource consent, I can get some companies to help but they seem to charge heaps.
Also the storm water connection is a headache, plus subdividing on existing IP seems to have huge upfront cost, especially on the council side.

[OnTheMove]

I think the issue is more the ROI is often around 3-4%. In the long run that increases, but who has 30 years to wait (outside younger clever investors).

IMO the whole of the NZ market is too rapid CG and is in for either a correction or a long plateau like Auckland has started. I can see smaller cities losing CG simply because there isnt enough PPOR buyers and the lack of ROI will lose interest from investors, so they should return to a state closer to affordability for PPOR buyers.

Its not PPOR buyers raising the house prices imo.

Meanwhile my managed fund has returned 9.5% for 10 years. Of course its not leveraged though. But nor are rental properties if they arent freehold.

Not saying you cant find good yields, just manage the expectations on where and equity risk factor.

Not a NZ market expert but thats my unqualified 2c

[Bluecoat]

Meanwhile my managed fund has returned 9.5% for 10 years.

I have had similar returns - what fund type is yours and who is the fund manager ?

[Minz]

I have had similar returns - what fund type is yours and who is the fund manager ?

Sounds very like Milford Asset Management's Diversified Income Fund.

[OnTheMove]

I have had similar returns - what fund type is yours and who is the fund manager ?

Thats what I have left in my managed Super Fund - Australian Super Balanced. I have a few but dont look after them good enough. Im moving them to SMSF in the next decade and looking to leverage. Will see.