Small town considerations

Question from Annie updated on 4th February 2015:

Hi there, we’re looking at getting into property investment. We want to get a cheap property in a rural town that has a good return (over 10%). We also want to top it up so that we're able to increase the equity faster and buy another property. If we were to buy our next property in Auckland (once we built up enough equity in our first investment), would the banks be biased against us? Knowing that our initial property is in a small rural town? Many thanks for all your help.

Our expert Kris Pedersen responded:

Hi Annie, firstly make sure if you are going to look to invest in a small town that you work your investment numbers off net yields. This is annual rent less property expenses (except for mortgage interest) divided by purchase price. This is rather than gross yields (just annual rent divided by the purchase price). The reason for this is often while the small towns have high gross yields the rates and insurance costs can often be similar to the main centres and so the real return is actually a lot lower than what some investors think. Some lenders definitely don't have the same appetite for small towns as others. This is dependent however on where you are looking to invest though and what property values you are looking at. Regards, Kris

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

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