Podcast: How to Find The Most Profitable Areas to Invest In: A Webinar Recap | Ep. 252

Posted by Ed McKnight on 21/05/20
How to Find The Most Profitable Areas to Invest In 001
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Show Notes

What's Covered in the Show?

In this episode, we discuss and recap our recent webinar: How to Find the Most Profitable Areas to Invest in. Within this webinar we looked at the distribution of yields and historic capital growth rates within suburbs located in the four main centres: Auckland, Christchurch, Hamilton and Wellington.

As part of this webinar, we also created eight new maps – 2 for each of the four main centres. These maps show the capital growth rates and yields for each suburb so you can use them to find the most profitable areas to invest in.

Map of the Auckland Property Market Map of the Christchurch Property Market Map of the Wellington Property Market Map of the Hamilton Property Market

Click here to watch the full webinar replay.


Transcript of the Podcast

Ed McKnight: Hello and welcome along to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and today on the show we're doing a wrap up of our last webinar, which was how to find the most profitable areas to invest in.

Now, this was what I thought was a relatively well received webinar that we did just last Tuesday, and the whole purpose behind it was the fact that if you go on Trade Me right now, and the numbers might have changed slightly in the last week, but it'll be roughly the same, there were about 31 or 32,000 properties listed for sale in New Zealand right now, even as we came out of lockdown.

About 30/31,000 so whole heap of properties and there were more, if you were to look at the private market and they were more, if you were to look at realestate.co.nz. But there are a whole heap of properties available to buy.

Now the big question is how do you narrow that down to create a hit list? Because you can't do due diligence on 31,000 properties. You can't build any model to find the right property for you within those 31,000, it would be like an actual needle in a haystack.

So how do you find the right suburb so that you can create a hit list or a hit-list of suburbs so that you can do more due diligence and dig deeper to see whether you can find some appropriate investment properties within those kinds of suburbs.

So what we did within this was narrowed it down from regions to cities and suburbs, and we're just going to focus on cities and suburbs within this particular episode today, and we are going to link to the full webinar. It was about, I think, 75 minutes long, as well as some of the really cool maps and analyses that we created for this webinar.

Because one of my favourite things to do on my weekend is to create new maps, new tools for you guys so you can understand and really get to grips with the data about property investment.

But the first takeaway I want to give, and there were three takeaways we're going to go over today, is that there is distribution across cities.

And what I mean by that is that although the average or the median suburbs growth rate in Auckland say is Bayswater which was 7.02% so although the average house and the average suburb grew at 7% per year, capital growth every year over the last 20.25 years. There is a distribution. Some did better than that and some did worse than that.

So you can't just go out and buy any property. You've got to be strategic about how you do it. Because in Auckland central, for instance, which was the slowest growing Auckland suburb in terms of capital growth over the last 20 and a quarter years, and that only grew at 4.52% year on year.

Compare that to Westmere, the fastest growing suburb, which grew at 8.84% over the last 20 years.

So there is within that 4.3 percentage points difference between the fastest growing suburb and the slowest growing suburb.

So you can't, and I, I really bang the drum about this quite a bit on the show,. I know, is you can't just go out and buy anything. You can't just go out and pick any suburb. You can't just go out and pick any house.

You've got to think about, well, what's going to get the fastest growth? What are the ones that are going to put me in the better financial position in the future than I am in today?

And that's why we did this webinar just to begin with. And of course the other thing to do is you've got to balance that growth against yield.

And that's why we've actually created, and I'll kind of skip ahead a little bit right now and say that we've created some really cool maps for the four major centres, Auckland, Christchurch, Wellington, and Hamilton, and I've created two maps for each of these.

They're really interactive and they are on our website, and you can go across and see, well, let me hover over each of these different suburbs. What was the average capital growth rate in that suburb over the last 20 years? What's the average gross yields there right now?

So you can get a sense of, well, where can I get some good capital growth if you're basing it off previous or historical growth, and using that as a bit of a proxy for good underlying fundamentals, but also balancing that against gross yields.

Because what I also know is that while Westmere in Auckland grew at 8.84% every year over the last 20 years, it's also currently got the worst gross yield.

So in Westmere it's currently got a gross yield and I know I always talk about don't focus on gross yield, but let's use it as a proxy right now of 1.4% so got great capital growth, but very poor yield, so it's not necessarily the place that you would actually go and invest.

So you've got to balance these two things, which is really interesting. So Andrew, why don't you just take us to take away two where we started looking at the different main centres and how they compare both in terms of capital growth and yield, because there is distribution across these as well.

They're not all the same.

Andrew Nicol: Yeah, so this is where we actually looked at what the spread looks like in terms of capital growth on the different areas and then also the same with yield.

And so it becomes probably not much surprise to a lot of people that Auckland obviously has really, really strong capital growth, and there's a wide spread between the highest and the lowest.

But then from a yield perspective there's a much higher disconnect than your other centres. And so, and are very widespread as well.

Christchurch on the other hand, has got quite a low spread, when it comes to capital growth, and the yield is much more in line to the value.

And so, you know, just as a rough rule of thumb, you buy a property for 500,000, you get $500 a week, give or take. Wellington has a very good, very big spread when it comes to capital growth. And actually just look at this graph here. Does that peak Auckland in this case Ed?

Ed McKnight: Let me just pull up the actual data for you in this case, Andrew, cause I know that we were sharing screens.

So the maximum growth in Auckland was Westmere at 8.84%. Now Wellington, greater Wellington region was Cannons Creek had a higher capital growth rate over the last 20.25 years with 9.43% growth.

I just want to speak to that just for one moment. The reason you had such astronomical growth for some of those suburbs in Porirua city was because they had very low starting points, starting prices.

So I believe from memory, and I could actually pull up that the map, because it's available on our website. It started from something like $75,000 and grew up to about $550,000.

So depending on your starting price, you can get really good capital growth, but just because it was really cheap at the start.

And just remember that Wellington has just come to what I believe is the end of their property cycle. So we may not see more capital growth in Cannon's Creek over the kind of medium term until we see another spike in house prices.

But that is the case that when you look at that distribution, some Wellington suburbs have done better than some Auckland suburbs over the last 20 years, but on the whole, Auckland still does perform better in terms of capital growth, but Wellington gets slightly better yields within that.

And hey, I just want to talk about the trends that we start to see within these maps as well. And I know it's quite difficult to visualise this listening to a podcast, but what we said again is we have a map of all of these three different major centres, sorry, four major centres, Auckland, Wellington, Christchurch, Hamilton with little dots on top of all of the different suburbs as a bit of a heat map of, well, which ones have the hottest capital growth, which ones have the hottest gross yields, and they are available for free on our website, Opespartners.co.nz, and I'll link it up in the show notes, so you are able to see it.

But the trends that we do tend to observe, and this is really interesting, is that there is an inverse relationship between capital growth and gross yield. So generally speaking, the higher the average gross yield in an area, the lower that percentage capital growth would typically be and we've talked about why that's the case in the past as well.

So for instance, the fact is that Christchurch central tends to get relatively low capital growth, but that's actually because it's got a high proportion of apartments there, which tend to get higher gross yields as well. So sometimes it's about the makeup in terms of demographic makeup of a suburb.

Sometimes it's about the properties that make up that suburb as well. But what we do tend to identify, is that the centre of most cities tend to get lower capital growth, but higher yields again, because that apartment phenomenon.

Then within the kind of inner city suburbs we tend to see really high capital growth, but tend to get lower yields.

Now that tends to be the case because you've got more expensive homes in the middle of the city or inner city. So I'm thinking about Ponsonby or Remuera, Epsom in Auckland or places like Fendalton and Strowan in Christchurch, and I don't know Wellington so well. So I won't to start naming suburbs there.

And then what we see once we get to the outer suburbs, is we see lower capital growth. But we also see higher yields as well. So we're looking for that balance.

And the whole idea behind creating these maps is not just that they're very interesting, but it's can we identify areas of a city that tend to get really good yields and tend to get good capital growth over the last 20 years. And again, you're using these as proxies to try and find areas that you should investigate more to see if there are really good opportunities within there.

And I just want to give you an example of Addington in Christchurch because this is one of the suburbs where we've identified, look, it's got I mean just to bring it down and orange circle over it in terms of yield and capital growth, which shows that it's got a decent amount of capital growth over the last 20 years, but also good yield.

So the yield in Addington gross yield is about 4.6% the median house price there is about 460 K and for that you get about 320 median rent a week.

And then you've got an average of 5.65% capital growth over the last 20 years. Now again, what you then do once you identify these areas that kind of buck the trend in terms of having decent yields and also good capital growth, is that's when you would start to do dig deeper into, well, can I get a better yield than that?

Can I find a property that's probably going to get more capital growth than the median? And in fact, looking at something like 4.6% gross yields in there, we've looked at properties and recommended properties, Andrew, over the last couple of months that have been gross yields well over 5% and in which case you've probably got a better investment than the median property.

You don't want to invest in the median property. You want to invest in something that's above average, that gets above average yield if you can. And your strategy isn't to go for something like Westmere, which has really high capital growth and really low yields in that case. So this is how you'd use these maps.

I'm going to link to them in the show notes, both to Christchurch, Hamilton, Auckland, Wellington, so you can go around and play around with these. And I know because we sent these out to our database on Thursday last week. I know these are really popular, I know you'll get a lot of benefit out of them, but let's wrap it up there.

Please don't forget to rate, review and subscribe and as I said if you want to take a look at these maps that are available in the show notes, bye now.

Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies, tactics and insights to help you get the most out of the New Zealand property market.

Until next time.