How To Invest Outside Your City
You like living there, but your own neighbourhood might not be the right place to invest. Andrew Nicol of Opes Partners says you may be able to buy cheaper and better in another town.
11 October 2021
Buying what you know makes sense when we’re talking about replacing your faithful running shoes, your go-to toothpaste, or your favourite pair of jeans.
But that doesn’t necessarily translate into a wise property investment strategy.
That’s why many property investors will buy real estate in different cities, especially away from where they usually live. This offers three main benefits:
Diversification. If you already have significant exposure to the property market through your own home, do you really need more exposure to it?
Timing. Different regions are often at different points in their property cycle. Investing outside your home city allows you to put your money in areas where there is an opportune time to invest.
Affordability. If you live in Auckland, you may not be able to afford to buy another property in the Queen City. However, Canterbury’s median house price is just over half that of Auckland’s, so investing there may be more attainable.
There are clear benefits to investing outside your home city, but what is often less clear is how to actually do it.
In my experience, there are five steps to take to purchase a rental property outside your home city:
1. Find the right region
Find the right region that is at an opportune point in its property cycle. Suppose you’re the type of investor who cares about the long-term price of your property. In that case, you need to consider where each region sits within its current property cycle.
Often you can use a graph that considers where a region’s median house price sits compared to the New Zealand median house price.
If you’d like to explore this data in more detail, you can find the data for each of the regions on the Opes Partners website, www.opespartners.co.nz.
This can give a sense of how over-priced or under-priced a region’s houses are, compared with their long-term fundamental value.
Over the past 27 years, Canterbury’s median house price has, on average, been 87.75 per cent of the national median house price.
That means that if the New Zealand median house price were $500,000, on average, we would expect the average house price in Canterbury to be $438,750.
But right now, Canterbury’s median house price is 73.23 per cent of the national median house price – 16.55 per cent below its long-term average.
That suggests that for long-term buy and hold investors, Canterbury could be an excellent region to invest in right now.
2. Find the right suburb that has a mix of growth and yield
Find the right suburb that has a mix of growth and yield. Once you’ve selected a city to invest in, you need to get even more specific.
If you decide to invest in Auckland and go to realestate.co.nz, you’ll find that there are more than 10,000 properties for sale in the region.
That’s why you need to pick a few suburbs you want to look into and conduct further research into these.
You can look at hard data, like projected population growth; estimates of income per person, or the level of education within a suburb.
However, I find maps showing the median gross rental return for suburbs in Auckland most useful.
Some show the historical house price growth of Auckland suburbs over the past 20 years. This can show areas that have solid fundamentals that may attract better house price growth in the future.
Maps can help investors find suburbs with a mix of good rental yields and good historical growth. Long-term investors will ideally want a combination of both.
The Auckland suburb of New Lynn, for instance, has experienced 7.41 per cent compounding annual growth over the past 20 years and achieves a gross yield of 3.5 per cent in this data set.
This mix of both growth and yield could make it worth looking at further.
3. Find the Right Properties
Find the right properties that meet your buying criteria.
To find the right property within your chosen suburb, you can either do this yourself or work with professionals who can source properties on your behalf.
If you’re running this process on your own, then you can look online at websites like TradeMe, realestate.co.nz, or specific real estate agents’ websites.
But it’s also essential to build a relationship with developers and real-estate agents in the area, so they can tell you about future opportunities.
If a developer or agent knows they’ve got a good deal, they’ll often first talk to investors and companies they’ve worked with in the past.
The alternative is to work with a professional property partner or property-finding agency to find properties on your behalf.
Once you’ve found the right property, get it under contract and go through the due-diligence process.
4. Talk to professionals
Talk to professionals on the ground – they’ll know something you don’t.
When you’re working through due diligence, and working with a solicitor to review council documents, I recommend that you talk to a local property manager.
To be a successful property investor, you need a tenant paying rent, so you can pay your bills and service the investment mortgage.
For each specific property you invest in, you’ll want to know:
- What sort of tenant are you likely to get in the market?
- How long the average tenant might stay in your property?
- Does the property manager have any concerns about your ability to rent out the property you’re buying?
As an investor, if you’re purchasing a property outside your city, you’re unlikely to have a deep understanding of that local market.
So, it’s essential to lean on the expertise of people who are active in that market day-to-day.
5. Do a site visit
Conduct a site visit or do a pre-purchase inspection to make sure it stacks up.
All these steps, up to this point, can be done from the comfort of your home city. Your next step is to go and see the property.
Even if you invest in a new property that hasn’t been built yet, you should still go on a site visit to build a relationship with the developer.
This will also give you the chance to see examples of their previous work.
This is usually the point where the rubber meets the road, and you’ll decide whether this investment is right for you.
Go one step further
This process may seem daunting at first. However, once you’re familiar with each property market, you can truly get the benefits of diversification.
If you’d like to dig more into the data, you’ll find all the data for each of New Zealand’s 16 regions and four major cities is available for free on the Opes Partners website. Go to www.opespartners.co.nz.
JUNO’s content comes from sources that JUNO magazine considers accurate, but we do not guarantee its accuracy. Charts in JUNO are visually indicative, not exact. The content of JUNO is intended as general information only, and you use it at your own risk.
Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.