23-Steps to see if an investment property is any good (or not)

Every Kiwi has their own opinion on what makes a “good investment”, so here at Opes we use a 23-step checklist to make sure properties measure up.

This is broken into 5 key areas:

• Location
• Developer
• Lending ability
• Building and Property
• Pricing

With so many properties out there, you can use this 23-step checklist like a sieve. It helps you sort the good from the not-so-good investments.

Here’s the truth: Most properties won’t make the grade.

In this article, you'll learn what the 23 steps are, and see an example of how it works.

We'll use the checklist to analyse a property Opes recommended to investors. It’s a development of townhouses located in Ranui, West Auckland.

Greenock Road is a development of six 2-bed, 2-bath townhouses.

The prices start from $699,000. The developer is NSJY Properties.

To be clear, your property doesn’t have to pass every step of the checklist to be a good property, but this will help you understand the investment you are making.

Checklist #1 – The location

First on the list is location.

#1 – Does it have strong historical capital growth in the region, suburb or build-type?

If a suburb has achieved strong capital growth in the past, there's probably a reason for it.

Perhaps it's an attractive place to live. Maybe the suburb is gentrifying, or the population may be growing.

You can then look for reasons why the capital growth might continue in the future.

You can find this data, here on the Opes website, up in the property markets section.

How did this property measure up? The Greenock Road development is located in Ranui.

The average annual capital growth rate in Ranui has been 7.15% since January 2000. This means Ranui is in the top 50% of suburbs for capital growth.

#2 – Is the region in an appropriate part of its property cycle?

Not all regions increase in value at the same time. Wellington house prices might be skyrocketing, while Auckland remains flat for a time.

That’s where we use a model like this, to see where a region is within its property cycle:

At the time of writing time, Auckland appears to be 9.3% undervalued, through this model. That gave us the confidence to recommend Ranui as an area to invest in.

You can find all of this data - again in the property markets section of this website.

#3 – Is the population growing quickly? 

High population growth is correlated with higher capital growth. 

An extra 1% of population growth per year indicated an extra 0.4% of capital growth per year. 

The Greenock Road development is located in Auckland. 

Auckland's population is expected to increase 24.91% from 2023 – 2048. That's among the fastest in NZ.

#4 – Does the area have high employment and lots of job opportunities?

Jobs attract people. So if there are opportunities for work, the population will follow. This is a positive sign for your ability to get and then hold down a tenant.

The unemployment rate in Ranui South is higher than the Auckland-average (5.8% vs 4.1% as at the last census).

So this is one point to consider when investing in this property.

#5 – Does the city have diverse industries, or is it a one-horse town?

If you're investing for long-term capital gains, you don't just care about the here and now. It's also about the long term.

That's why it's best to look for areas that have diverse employment opportunities. Because if one industry faces a tough time there are others where your tenants can get jobs.

Covid-19 hurt Queenstown’s rental market. The town has one industry – tourism. Take that away and your house price and rental income will suffer.

Greenock Road, on the other hand, is in Auckland.

The “city of sails” has the most diverse economy of any region in New Zealand, and GDP per capita is in the top 20% of regions.

#6 – Is it close to new or soon-to-be-built infrastructure? 

Infrastructure opens up new areas of a city. It makes them more accessible than before. 

These are things like motorways, public transport and bridges. 

So, newly-built infrastructure can often give a suburb’s property market a boost. 

For example, Greenock Road is near Swanson railway stations. West Auckland is marked for future rail upgrades. They are included in NZ Transport’s Strategic Rapid Transport plan.

Checklist #2 – The developer

Next up, we put the developer and the type of build under the microscope.

#7 – Is the developer in a solid financial position and able to complete the development?

If you’re investing in a New Build you need the developer to complete the job.

Sure, if they can't complete the development you'll get your deposit back. But you will have lost years where you could have invested in a different property that was built.

So you need to have the confidence that your developer has access to funds to build the properties.

In this instance, NSJY Properties (the developer) has strong financial backing.

This gave us the confidence to say, “Yes, the money is there to complete the project.”

So, make sure you ask the developer if they’ve got secure finance to build the project.

#8 – Does the developer have a good reputation for quality of build? Do they deliver what they say they will?

This one is obvious. When buying a New Build you're purchasing something that hasn't been built yet, so you need to trust the developer.

You need to check out their reputation, or you can talk to people who have experience with them.

In this instance, NSJY Properties has a good reputation. Their builders, Ashcroft Homes, have historically completed a top-quality development.

This is a good example, where a small developer can have a good reputation for delivery, even if they're not a nationwide brand or don’t have 154 5-star Google reviews.

That's why it can pay to ask around the industry to get a sense of the developer's reputation.

#9 – Is the developer a reasonable person to deal with when things go wrong?

This one is a bit harder to figure out if you're not in the industry. But, you've got to remember that in property … things will go wrong.

So you want to work with someone who’s going to come to the party and be reasonable.

You want to talk to people who have got experience with the developer.

In this instance, Opes has a good relationship with NSJY Properties; they have been good to deal with.

#10 – Is this an all-inclusive turn-key build?

When buying off-the-plans, you might think the property will come fully finished, but not all do.

Sometimes New Builds don’t come with all the stuff you’d expect. Things like curtains, appliances, heat pumps, landscaping or a letterbox.

So you need to work with your lawyer and developer to figure out “What does this price/package not include?”

For Greenock Road, the properties were all turn-key builds. They came with curtains, heat pumps, appliances and landscaping.

Checklist #3 – Getting finance from the bank

The next section makes sure the property is worthwhile in the bank’s eyes.

#11 – Can you buy the property with a low deposit? And will banks lend you the money?

The bank won't lend the same amount of money for every property. You might need a 50% deposit for some types of apartments, and only a 20% deposit for others.

So, if you don't have a big deposit you'll often buy properties the bank will lend lots of money against.

This is one reason Opes tends to favour New Builds. They generally require a 20% deposit. Compare that to existing properties, which require a 35% deposit.

In this example, banks were willing to lend up to 80% of the money to purchase these New Build townhouses.

Investors then only required a 20% deposit, which they could borrow against their own homes or pay in cash.

#12 – Is this property widely insurable?

If you can't get insurance on a property, good luck getting a mortgage. The banks won't lend money against a house if there isn't any insurance.

In some cases properties can't get insurance. For example, you can’t usually insure an earthquake-damaged house.

In other areas, insurance may be unaffordable and only offered by specialist companies. That makes insurance hard to get.

This tends to be the case for some apartments in Wellington where there is a seismic risk. In that case, insurance can cost up to $10k a year.

But what about our Auckland case study? Insurance will be organised through a Residents' Association. And it’s easier to get insurance since it was a New Build.

Checklist #4 – Building and property

#13 – Are there healthy and acceptable yields for the growth expected?

A property's yield isn't always everything, but it is still important. So you want to invest in a property that has an acceptable yield for the amount of capital growth you expect.

These Ranui properties have a 4.31% yield for a property worth $699,000 with a rent of $580 per week. This is above average for Auckland yields.

And Ranui is in the top 50% of yielding suburbs in Auckland.

#14 - Is there good tenant demand for this type of property?

Every investment property needs a good tenant. So you want to make sure that tenants want to live in the property you buy.

Let's say you buy an apartment in the middle of Gore. You'll probably struggle to find a tenant since most people in small towns tend to live in standalone houses.

Whereas plonk that apartment in the middle of Wellington and what happens? You'll have tenants galore. People expect to live in apartments in the capital.

Greenock Road is a small development of 6 townhouses. This met tenant demand since 15% of properties rented in Ranui are 2-bedroom houses.

#15 - Would the tenant you’re trying to attract want to live in the property?

Investors need potential tenants to want to live in their properties.

Vacant properties are costly. Generally, after 2 weeks of vacancy your cashflow will start to hurt.

That doesn't mean you as an investor wants to live in the property, but it does need to be desirable to your tenants.

For instance, if you have a big family and a big dog, you’ll probably need a big standalone house.

You might not want to live in a studio apartment, but it could be the perfect place for a university student if it’s in the right location.

Desirable properties are visually appealing. They’re close to shops, schools, public transport and motorways.

The Greenock Road development fell well within these specifications. It was visually appealing and close to the motorways.

#16 - Does the property have an appropriate finish and spec for an investment?

Every property should be well-built with good quality materials, but for an investment property the materials shouldn’t be too expensive.

So the quality of materials for a rental will be different to those you’d put in your forever home.

For instance, a "high-spec" property might add a lot of cost without attracting the same amount of rent.

That is one reason more expensive properties tend to be lower yielding.

The Greenock Road properties are well built, but they aren't overly luxurious or too premium to be an investment property. Instead, they're good properties built for regular families on normal incomes.

#17 - Is the property built of robust and low-maintenance materials?

The materials used must also be easy to replace if needed. Because as a landlord if something breaks, you have to replace it.

For example, those luxury tiles imported from Italy will look great in your own bathroom, but it might get a bit costly, and difficult, to replace if a tenant breaks one.

The Greenock Road townhouses fall within the suitable material category … not an imported tile in sight.

All materials are appropriate for an investment property. They’re easy to replace when needed. Plus, they all fall under the current NZ building code.

#18 - Are the grounds and landscaping relatively low maintenance for tenants?

Properties start looking a bit scruffy when tenants ignore the gardens.

And, most importantly, not all tenants own a heap of gardening equipment.

That's why lower maintenance grounds tend to be more attractive to a tenant, at least compared to a property with a garden they'll need to give up their weekends to maintain.

As a townhouse, the outdoor spaces of Greenock Road are compact. They’re low maintenance and easy for tenants to look after.

#19 - Is the property built to meet Healthy Homes Standards?

This is a big one.

All rental properties must meet the requirements for Healthy Homes standards. So, this is a must for any potential investment.

That means heat pumps installed and ventilation in the bathrooms and kitchens. Plus there must be enough windows that open to the outside.

The Greenock Road development will meet the Healthy Homes standards. And here at Opes we wouldn't recommend a property that didn't meet these standards.

Check out our Healthy Homes article for a more in-depth discussion about what is required.

#20 - Are the expenses appropriate? Is the cashflow going to work?

If your property has large ongoing costs cashflow is likely to be impacted.

For instance, if you buy into an old apartment, your body corporate fees could well be over $10k (in some instances). This will massively impact the cashflow of your investment, making it a bad deal.

Similarly, leasehold properties attract a high gross yield, but they can have expensive ground leases, so it's generally best to steer clear.

In terms of Greenock Road, the operating costs are estimated to take up 30-40% of rent. This is about right for a New Build.

Checklist #5 – Pricing

The final checklist looks at how the property is priced.

#21 - Is it priced appropriately and affordably as an investment property?

Properties need to be appropriately priced to be viable as an investment.

If the initial price is too high, the return on investment won’t work. You may find yourself “topping up” your investment out of your own pocket.

And from our research, higher-priced properties earn lower rental returns.

The Greenock Road properties start from $699,000.

This is well below the average house price in Ranui ($893,900), which means they are relatively affordable.

#22 - Is it priced at or under its valuation?

You don’t want to overpay for a property. No investor wants to pay $1 million for a property only worth $950k.

That’s why it’s really important to either:

• Get a valuation done – even for a property that isn’t built yet, or
• Work with a property investment company, which can tell you the market rate.

Valuations haven’t been undertaken yet for Greenock Road because the properties are at the early stages of development.

But the prices are reasonable based on our experience in the area. Investors can conduct a registered valuation if it's needed for finance.

#23 - Will lots of people want to buy the property from you when it comes time to sell?

It's no good waiting all this time for capital growth to build up if you can't sell the property when you want to.

Some properties, like hotel units, will only appeal to investors. That can make it harder to achieve a premium price when it comes time to sell.

The townhouses at Greenock Road will likely have long-term appeal to buyers over the next 15 years when townhouses become even more acceptable.

What should I take away from all this?

The 23-step checklist shows you what to look for when choosing an investment property.

You need to scrutinise the investment from all angles to make sure you're not making an emotional decision.

If you run the checklist over two properties, you’ll quickly figure out which is the better one.

When you work with us here at Opes, every property will come with this checklist. That’s so you can see which parts of the checklist it passes. It will also show where the property doesn’t measure up.

That allows you to make an informed decision about your investment.