The answer to a question I am often asked ‘What makes a good property investment?’ is somewhat driven by personal motives. So, before setting out on your quest to become ‘The Donald’, it is best to consider ‘what do you want out of your investment?’
Properties generally fall into two camps:
1. Properties that are likely to make good capital gains; either through buying and holding or creating gains from making improvements
2. Properties which have a positive/high yield i.e. a positive income after outgoings
Very few properties allow for both capital gains and a positive income return from the outset, but with time properties start to create both thanks to inflation. It is best to adopt a long term view of property investment, as short term gain has a higher degree of risk. To highlight this fact: Wellington property prices only moved approximately 5% from the end of 2006 until 2015, but since the middle of 2015 the market has moved around 15%.
What makes a good property?
When you are considering an investment, it is best to avoid those that require dead money. That is money spent on important aspects which buyers see little value in. A simple rule of thumb is ‘if they can’t see it, they don’t value it’. Things like replacing the roof, upgrading linings, foundations, wiring and plumbing can all be costly exercises with little to no return. Avoid this type of work and you have a much better chance of creating capital gain via improvements.
Where should you buy?
Personally I like properties that are located within close proximity of amenities and public transport. People tend to favour suburbs which have a community or village like feel. Naturally these locations are more popular so have better long term capital gains. Stronger land values in these types of areas are your natural protection in a softer market when fringe suburbs lose popularity the fastest.
When should you buy?
The best time to purchase an investment property is when you decide that’s what you want to do. One thing you can’t change is market factors. Waiting for changes in the market leaves you behind the game. Just imagine those investors waiting for the Auckland market post 2008 to take a massive drop, only to realise they really did miss the market. With a little bit of courage and some consideration given to your target property, it can be a wonderful long term strategy for growth.
The Wellington market
The Wellington market continues to run hot with days on the market falling and sale prices continuing to rise. We are having daily discussions with frustrated buyers regarding low stock levels and the outrageous sales prices that are being achieved. Prices are driven by a number of factors. One that is very apparent is the mind-set shift that has taken place recently which has seen buyers offering more to secure property today for fear of missing out and paying much, much more tomorrow.
The investors are back, something we haven’t seen much of for a number of years, but they are being pipped at the post by emotional owner occupiers desperate to secure their slice of the property pie.
First home buyers have started to look further out from the CBD and inner city suburbs with the Hutt and northern suburbs (north of Johnsonville) achieving great sale prices. We see this positive market continuing in the short term.
Wellington property quick facts
The average sale price for the Wellington city area for January 2016 was $561,950
January 2015 |
January 2016 |
|
|---|---|---|
| Central | $439,500 | $445,000 |
| Southern | $520,000 | $559,750 |
| Eastern | $526,500 | $650,000 |
| Northern | $454,184 | $540,000 |
| Western | $660,000 | $615,000 |
Average days on the market: 32.8 days
