Why do many investors prefer to buy in Auckland?
All variables the same, except location, buying in Auckland instead of somewhere in the regions, will get you a better long term return on your investment. This is based on historical and future predicted outcomes. Yes this is assuming the trends will continue but looking at the numbers the capital gains in Auckland over the last 50 years has been much better than in other areas.
I will use simplified figures.
What does this mean? Buying a $1,000,000 house in Auckland and getting 6% capital gain over the next 20 years will mean your house will be worth over $2.2mn+ ($60,000 a year or more). If you buy somewhere with capital gains of 4% then your house will be worth $1.8mn+ ($40,000 a year or more). This is the average.
So why do people choose lower expected capital gains? Because of cashflow – higher rents. Let’s assume the Auckland property has weekly rental of $650/week and the regional property has $750/week. Taking 50 weeks of rent a year, this is a $5,000 difference. However the capital gains difference is still $15,000 better off by buying in Auckland.
I stress that this is simplified for illustrative purposes. You need to choose the best investment for your own situation. Many investors do not suggest relying on capital gains, however it is common that these same investors have had significant capital gains themselves!
To see what equity and servicing options you have – take the mortgage snapshot which automatically calculates your purchasing ability, potential mortgage savings, or ability to top-up your mortgage.