Is west best?
Question from Rchakma updated on 11th January 2013:
I'm a newbie in property investment. I have choices to make re investments in rental property and I would like to get your advice. First is (A) buying a three-bedroom brick and tile house in Glendene area. Second is (B) buying a refurbished three plus two bedroom house (brick base) in Manurewa area with a possible sub-dividable section. Assuming the purchase price of both house is about the same then which option would give more rate of return in the long run? Also, how is the capital growth rate of housing in Manurewa compared to Glendene?
Our expert Ron Hoy Fong responded:
Ultimately both properties will double in value after 10 years. The Manurewa property is likely to give you the better cashflow and yield over the same period of time. However, massive wealth is made through capital gains which outstrip any advantages of cashflow. You need to consider the bigger picture. After a boom period comes the falling market followed by a flat market. It is in these latter markets when property values drop that bargains are available to buy and you will want to recycle equity out of existing properties. If your property is in Manurewa where other investor are heavily buying and pushing price downwards, you may find the banks will not sufficiently top up your loans to recycle any equity you have to purchase further properties. However in the Glendene area you will find homeowners buying properties and pushing prices upwards. These properties will hold their values better in the falling and flat markets and you will more likely find that the bank will top up any loans against equity, which will give you the deposit to go out and buy more properties. Personally my preference would be to invest in Auckland central suburbs where rentals and market values remain more consistent.
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