$200,000 to invest

Question from Charles updated on 20th September 2015:

I have $200,000 to invest in what will be my first investment. I live in Auckland and my goal is to have a good passive income in 10 years (I'm 23 now). Is it better to buy a $1 million house in central Auckland, or even Mangere Bridge), for capital gain or is it better to buy two $500,000 properties in South Auckland, where I stay, with high yield?

Our expert Ron Hoy Fong responded:

There are many options to choose from as you have already suggested. However, it is a case of climbing the right property ladder that will achieve your goal. First, set a goal of purchasing a minimum of two properties per year on a buy and hold basis in central Auckland suburbs and you will most likely achieve financial independence in 10 years.

Positive rental yields will give you pocket money initially but it will never give you enough for a deposit on the next property. It is capital growth which eventually gives you the wealth to retire on and the equity to borrow against for further deposits on the next properties. The main point to remember is that mortgages stay constant, while equity continually grows with the value of the property and rent increases. 

Try buying units in a boom cycle, as there is less home-buyer competition, and houses during the slump periods. Home owners buy on emotion and push values up, investors buy on numbers and push prices down.

As a first time investor, rather than having all your investing eggs in one basket (ie: a $1 million house), perhaps you could consider purchasing two do up units in central Auckland suburbs around the $450,000 to $550,000 range. Then cosmetically renovate them to create instant equity in the current hot Auckland market. 

Ron loves to share his passion for property and his coaching course provides one-on-one mentoring and support that will empower you with tools, strategies and valuable insights so you can achieve investment success and become a property master.

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