How to identify an investment property that will increase in value

The percentage of Kiwis who own an investment property is steadily rising, with brick-and-mortar assets still seen as a fairly secure investment in the overheating housing market. But hunting for an investment property is a whole different ballgame to setting out to find your own forever home. While the latter is a process led by personal preference and intuition, finding an investment property which will increase in value as the years pass requires a more objective eye. Here are some top tips for identifying whether a property has high-yield investment potential.

 

Start with location, location, location

Arguably the most important consideration when scoping out an investment property is its location. Typically, a high-value location will: be a growth suburb; have a healthy median rental yield; boast low vacancy rates; and have a small average number of days on market (DOM).

An important question to ask is whether the suburb or zone likely to increase in value or to be overshadowed by its neighbouring areas in the coming years. An increasing population and work underway to improve local infrastructure are two signs that property value is likely to increase in the neighbourhood. You may also want to check out the local council’s website for any announcements regarding important development plans which may impact property value in the suburb. Such developments might include the installation of a light-rail link to the city (value-increasing) or the construction of a large complex likely to block the view of the property you’re interested in (value-decreasing).

Even within a single suburb, not all sections will be of equal value. Proximity to noisy thoroughfares like airports, main roads and train tracks can significantly lower the value of a piece of land, while proximity to good schools or universities and up-and-coming gastronomic hubs can add value.

 

Assess the house itself

If you’re looking at purchasing a section with a home already built on it, there are a host of important building-related considerations to take into account. The first is whether the build itself is structurally sound, with strong foundations and quality insulation. If a property hasn’t been constructed with durable materials, the work you’ll have to do to when taking it over may come as a nasty surprise to the wallet.

A sure-fire way to ensure you’re investing in a quality build is to get a professional building inspection done prior to making an offer. The extent and nature of the renovations you may have to undertake will become much clearer with an inspection in hand, and will allow you to calculate with more certainty whether the property will make a worthwhile investment.

Another important thing to keep in mind relates to period features. Older properties with period features are in high demand, but there’s a fine line between a “character” home and one that’s plain outdated. The extent to which properties boasting period features can still be kept current is an important marker of how much their value will increase in the future — and how much work you’ll have to do at the outset to modernize.

 

Ensure whether the property has subdivision potential

With the price of land in most residential areas across the country skyrocketing, the subdivision potential of a property is something many investors will want to keep in mind. By making an investment of between $100,000-$150,000 to subdivide, you could make 9-10 times as much as that in a city like Auckland.[1] So whether you want to sell a portion of your section on to a developer or build on it yourself for rental income, it’s important to know from the get-go whether the property you’re looking at is suitable for subdividing.

There are a couple of easy-to-check-for criteria when determining the subdivision potential of a property. The first is the size of the section, and whether it’s actually large enough to subdivide — something you can check against local council policies, which verify the minimum square metrage for subdividing in the zone you’re looking at. Other important features to assess include the availability and accessibility of storm and wastewater connections (also known as servicing); whether the property is in a danger zone for flood risks and other hazards; whether the shape and gradient of the land is amenable to subdividing; and driveway and vehicle access.

If you’re thinking seriously about investing in a property and have your heart set on eventually subdividing it, then getting in touch with the professionals to assess the site prior to committing may be well worth doing. The experts from Subdivide Simplified offer a free site assessment and can help you grasp what can be a complicated legal process, involving everything from initial feasibility reports to obtaining consents. They’ll tell you about the separate titles which can be established under subdivision, as well as the type of zone in which your potential property is located — offering a much clearer idea of whether the section is subdivision-suitable.

 

Although none of us have a crystal ball to determine the ebbs and flows of the market or even the fortunes of particular suburbs, assessing a potential property against the criteria outlined above should give you a fairly good indication of whether it will increase in value in the years to come. Armed with that knowledge, you can invest with confidence, knowing that your chosen property will yield solid returns into the future.