$200,000 to invest

Question from Nicky updated on 14th April 2015:

Hi, I have $200,000 to invest as I want to achieve a good passive income in 10 years. I'm now 45. Is it better to buy two properties worth $350,000 with a 30% deposit or to invest $200,000 in a $400,000 to $500,000 property? All my calculations are on current Christchurch properties. I'm interested in a gross yield of 5% to 6.5%. Should I look out of Christchurch? I've already got a half interest in two $500,000 properties in Hamilton and Auckland. But I would like to make investments with the Christchurch rebuild in mind.

Our expert Kris Pedersen responded:

It depends on the cashflow you want over the next 10 years. If you purchase well then having a larger capital base by purchasing two properties rather than one should put you in a better position in 10 years. However you need to analyse the capital growth potential of each kind of property as you may not get the same capital growth/rental gains from each property. For example, a $350,000 property is likely to be in a different location with different demographics than a $500,000 property. If you are not reliant on the cashflow then potentially going for two gives you multiple options over time as it allows you to sell one off if the market changes while still retaining one property. Do your calculations on net yield rather than gross yield as this may give you a better indication of which option to take. If you know the locations in Christchurch that you would be looking at it is potentially worth spending the money to ask for a paid consultation from a reputable local valuer and potentially a property manager as they can give you  a clearer idea on where they see things going.

Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer