Uncertainty still exists today as to the origin of the famous real estate quote, ‘Location, location, location!’ Potentially, it dates back to Lord Harold Samuel, the English real estate baron who died in 1987, or to a real estate advert published in the Chicago Tribune in 1926.

Regardless of who came up with it first, the phrase is referenced by most real estate agents trying to promote a well-placed house, especially when good schools, the CDB and transport routes are close by.

Location in real estate is often the difference between hundreds of thousands of dollars in capital growth over time. In a purpose-built investment complex, however, the valuation methodology is a by-product of the rental return. Gross yields and capitalisation of rental rates usually determine the value of the property.

Realising Real Wealth

These complexes and properties are still important in sustaining debt servicing for an investor but the real wealth comes from the capital growth properties in an investor’s portfolio.

You can have the best of both worlds when the rental property is:

▶ Located in a subdivision, complex or apartment tower with a higher percentage of owner-occupiers vs tenants; and

▶ If you buy early in the market cycle. In this situation, the value and re-sales of the owner-occupier real estate once complete is typically driven by location. History shows that the house or apartment value is raised above a rental-based valuation because of the prices owner-occupiers pay.

In mixed-use complexes (with a higher percentage of owner-occupiers) the value multiplier is even greater because they are hard to find.

While a savvy investor is always driven by the bottom line numbers of their portfolio, it is also important to look at and predict the capital growth rate of the location and surrounding properties.

The inverse can be said for slow growth locations. If the offering looks too good from a rental point of view, look under the hood to see the historical growth drivers and if there are any future changes on the landscape that support owner-occupier growth.

Early Investors

Gentrification, infrastructure spend, rezoning and new schools can all equate to a shift of more owneroccupiers vs renters and investors who get into these locations early gain the benefits. I often see the early adopters winning here, with the remainder of the pack following after the initial growth has occurred and missing out on valuable profits. Right now such locations as Hamilton and

Wellington (which were flat for so long leading lateadopter investors to sit on their hands) are seeing an influx of investors attempting to get into the market after the initial growth phase has passed.

Choice Locations

With most of New Zealand bubbling away at record capital growth rates, savvy investors are buying in such locations as the Christchurch CBD and surrounding suburbs, still very early in the growth cycle. Locations where entry prices are low (compared with average national house prices) still offer acceptable after-tax returns with capital growth forecast.

Such developments as the Verve Precinct in Christchurch would arguably be twice the price and half the rental return if the CBD rebuild was complete. They are affordable because even premium locations like this are very early in this current property cycle. Early adopters and those ready to move will reap the rewards.

Campbell Venning has been investing in property for over 20 years and is the Head of Property at The Property Factory. He can be contacted at campbell@thepropertyfactory.co.nz or on 021 515 085