Articles by Matthew Gilligan
Remuera vs Otara
The Great Property Debate: Cash flow vs Capital Growth
Property investor compares investment returns
Tyson is a property investor, looking at investing in the Auckland market. He has been told by his parents that he should 'buy the worst house in the best area, and only invest where he would be comfortable with having his tenants over to dinner'. (Now note that some people call Tyson's parents awful snobs and say they should get out in public a bit more often.) But personal bias and snobbery aside, do Tyson's parents make a valid point? Does the quality of an area and socio-economic status of the tenants dictate returns in the Auckland market?
Tyson decided to test the theory and look at the maths of the 10-year return on two specific suburbs, and make his investing decisions based on numbers, not old sayings and emotion.
Otara vs Remuera
Tyson was interested that Otara, with its higher cash flow but similar capital growth, won the contest on total return. He wanted further convincing so looked at the five-year and two-year comparative growth rates to see if the shorter term trends were changing. This revealed as follows:
22 Year: Otara was doing 22% vs Remuera 17%
9 Year: Otara was doing 9.4% vs Remuera 9.3%
5 Year: Otara was doing 12.2% vs Remuera 10.5%
2 Year: Otara was doing 22.3% vs Remuera 12.5%
Source Property Ventures Real Estate / REINZ Median House Price Data
Otara is still standing up.
From an internal rate of return (IRR) perspective, selling at year 10, this is how it stacks up:
Comprehensively then, looking at the total return and IRR, Otara keeps up with Remuera's capital growth, but thrashes it when cash yield is added into the analysis.
Author notes & morals of the story
I am not saying, 'Here is a silver bullet, go buy in South Auckland for cash flow and high growth and this should be your only property strategy'. Far from it. I'm simply pointing out to those that 'want to be able to have their tenants to dinner', that there are other places you can invest in Auckland, and do very well, possibly even better than in the perceived prime residential suburbs.
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Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.