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Three things to look for in an investment property and why time in the market is important by Adam Cockburn

18 May 2023

Three things to look for in an investment property and why time in the market is important  by Adam Cockburn

Is Property still a good investment?

Overall, property is a good investment. You don't have to be a business expert to be able to do reasonably well in real estate. It's really the lay person's investment. You don't have to understand how to read financial statements and so on. 

Property values tend to go up over time in the long run. So over the last multiple decades in New Zealand, property values have gone up by about 7% per annum. That's a good, strong return. Also, property values are not terribly erratic. They don't go up and then down and then up. And if they do go down, they tend to go down only by a small amount. Now, obviously here we are in 2023 and we've just seen a really big drop in property values, about 17% across New Zealand, 22% in Auckland and almost 25% in Wellington since the peak in late 2021. These are quite exceptional times and I'm not aware of any time in history in New Zealand when that's ever happened. So it's very unusual. 

 

What kind of property makes a good investment property?

The answer is not a particular kind of property in and of itself, but more principles. And the principle is based on a well-known phrase in investment and that is that it's time in the market, not timing the market that is most important. 

What that means is if you own the property for a very, very long time, you will win. So how do you own a property, or how do you choose a property that you are comfortable owning for 10 years, 20 years, even 50 years? There are three things that I think are most important to look out for. 

 

Cashflow

Number one, in my opinion, is the cashflow. If the property is costing you money every month, you will very quickly get tired of that. And sometimes people justify that and they say, "No, that'll be okay." But if you go through periods of five years or so, like we did with the GFC, seven years that was in Wellington, where the value of the property did not go up, and in the meantime, it's costing you money every month, that becomes very tiring, as far as I'm concerned. 

 

Maintenance

Number two, you want a property that's reasonably well maintained. Now, that doesn't mean beautiful. That doesn't mean you want to live there. It just means that it's not going to eat your time. It's not going to eat the cashflow. It's not going to eat your bandwidth and consume a lot of stress and constantly require your attention to keep the property maintained. 

 

Location, Location, Location

And then lastly, you want to buy a property that's well located. And again, well located where you want to live is different from well located for tenants. So if you can buy something in a decent sized city that's close to shops, close to places of work, and close to transport links, you will be right. 

I think if you can satisfy those three things, and the number one, remember, is the cashflow, make sure it covers the expenses and then some to accommodate any bumps in the ride, something that's well located for tenants and something that's not going to chew up too much time in terms of maintenance, then you're on to a winner. 

 

*Adam Cockburn is not a financial advisor, and this should not be considered as financial advice. His thoughts are based on his own extensive experience in the property market.

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