
Property Investment
What is the actual process for buying a property at Opes Partners?
Learn how the property buying process works at Opes Partners.
Property Investment
8 min read
Author: Laine Moger
Journalist and Property Educator, holds a Bachelor of Communication (Honours) from Massey University.
Reviewed by: Ed McKnight
Our Resident Economist, with a GradDipEcon and over five years at Opes Partners, is a trusted contributor to NZ Property Investor, Informed Investor, Stuff, Business Desk, and OneRoof.
Sometimes investors will look at a property and think, âI donât want to invest in that house ... itâs in a dodgy suburb!â
When you think about âdodgyâ suburbs what comes to mind? Perhaps a few places, like South Auckland or Aranui (in Christchurch).
Investors donât want to spend hundreds of thousands of dollars to buy a property that tenants then trash.
But hereâs the thing: âdodgyâ suburbs change over time. And sometimes, an area that carries the stigma of being âdodgyâ, isnât that bad at all.
In this article, youâll get an unbiased analysis of the pros and cons of investing in a âdodgyâ suburb. That way you can decide whether investing in these areas is the right choice for you.
We use the word âdodgyâ because thatâs the word weâve heard investors use again and again. This article isnât here to perpetuate a stereotype. Itâs here to break down some of those stigmas.
When referring to a âdodgy suburbâ weâre talking about an area that is generally:
¡ Lower income/lower socio-economic
¡ It might have higher crime rates
¡ It might have a lack of development or a sense of disrepair
¡ Or it might have an âunsafeâ reputation
Itâs important to remember there is a big difference between a suburb with an unfair âdodgyâ reputation and one that is just bad.
To tell the difference, property investors need to set aside the stigmas and focus on facts.
Because sometimes you might think a suburb is dodgy â but in fact it works as an investment.
When it comes to âdodgyâ suburbs, there are two main types:
¡ Areas in long-term decline. These are suburbs that are unlikely to improve in the future
¡ Areas that are experiencing gentrification. These are areas that are likely to get better over time.
Most investors avoid areas that will continue to be âdodgyâ in the future.
But they might consider an area with a bad reputation today that will improve over time. That improvement could come from businesses moving into the area; that creates employment opportunities.
Here are some real-life examples of âdodgyâ suburbs:
In Auckland:
¡ Mangere Bridge and Mangere â these are both in South Auckland. Some people think these suburbs have a terrible reputation. But, we often recommend properties in these areas as they are experiencing development.
¡ Otara â is an area we are more cautious about, given that weâve observed less development planned there.
In Christchurch:
¡ Phillipstown, Waltham and Addington â people used to think these suburbs were âdodgyâ. But today theyâre improving and attracting development.
¡ Aranui â is an area we are more cautious about, given that weâve observed less development in the works.
Now letâs get into the pros and cons of investing in a dodgy suburb.
Here are some of the opportunities:
Because dodgy suburbs carry a stigma, they are often cheaper. This also happens because there are more renters (and fewer owner-occupiers) in these areas.
This makes them attractive to bargain-hunting investors.
If you invest in an area that becomes nicer over time, it will likely increase in value faster.
Why? Because gentrification takes away the stigma. That increases demand for properties, which pushes prices up.
Look at this map of Auckland suburbs. See how property prices in âdodgyâ suburbs like Mangere Bridge and Mangere went up fast?
Yields in dodgy suburbs are often high.
Why? Because there are a lot of renters in these areas. This means rents are healthy. But because there are fewer property buyers, the house prices are lower.
That means you get a good rental return for the money you spend.
For example, rental yields are higher in South Auckland compared with the rest of the city.
Generally, fewer people own their own homes in âdodgyâ suburbs. So there are lots of people who rent.
That can make it easier to find a tenant.
Thatâs especially true if you buy a property close to where people work. Or if you invest in an area close to public transport, shopping malls or other infrastructure.
There are legitimate reasons why investors hesitate when looking in a dodgy suburb.
Some of the main fears are:
Some property investors will say, âIâm not sure about that area because of the type of tenant it will attract.â
They fear the tenants will have more social issues and be more unreliable in paying the rent. Or, they might worry that the tenants wonât look after the place.
While this is a legitimate concern, be careful not to tar all tenants with the same brush. While there may be a few ârotten eggsâ, there are also lots of friendly, hard-working Kiwis who live in these areas. Because thatâs what they can afford.
Remember, you can vet your tenants to find the one youâre comfortable with.
Some property investors donât want to buy a house in an area with lots of KÄinga Ora homes nearby.
Some investors think: âI'm not sure about that area ⌠it's full of state housing. People who rent from KÄinga Ora will annoy my tenants. So, itâs going to be hard to rent my property.â
Itâs easy to think that lower socio-economic areas are full of Kainga Ora builds.
But again, itâs essential to consider the facts.
Thereâs a good chance you already live on the same street as a KÄinga Ora property and donât even know it.
There are 67,000 rentals managed by KÄinga Ora.
These make up about 10% of the rental properties in New Zealand. And since about 40% of houses in Auckland are rentals, KÄinga Ora manages about 1 in 25 Auckland homes.
So, if your street has more than 25 letterboxes, thereâs a good chance at least one is a KÄinga Ora house.
Again, itâs also important to recognise that not all KÄinga Ora tenants appear on Crime Watch or Police 10/7.
Yes, some will have social problems and show anti-social behaviour.
But KÄinga Ora also serves disabled people, like those in a wheelchair. Or people who are down on their luck. These people need places to live too.
Other times, investors will say, âIâm not sure about that area because â I saw on the news there was another stabbing.â
At the time of writing, our financial advisers are recommending properties in Massey. Shortly after that there was a media headline that read: âMassey Stabbingâ.
We get it. Thatâs not exactly a positive headline, and could make investors nervous.
But, just because a suburb improves doesnât mean it will be perfect overnight. This is one of the factors to consider when purchasing in these areas and weighing up the pros versus the cons.
Also remember that crime is unavoidable wherever you choose to invest.
You might be surprised to hear that a posh area like Epsom is a crime hotspot too.
Since people have more valuables in their homes, there is a higher chance of break-ins.
Other times investors will say, âIâm not sure about that area because â I grew up in X suburb, and I know how bad it isâ.
Sometimes, âdodgyâ is a perception.
Whatâs considered dodgy in Christchurch may not be dodgy to an Aucklander â and vice versa.
For instance, if you grew up in Massey (West Auckland), you may still have the same perception you had as a kid, even if you havenât lived there for years.
But someone who grew up in Wellington wouldnât have those same perceptions. To them, they might look at the numbers, see the property and decide to invest.
If you live in a city you are more sensitive to these stigmas compared with people who live outside your city.
Someone from outside the city can be more objective.
People from Christchurch are often happy investing in South Auckland; they donât have 30 years of stigma to fight.
And it goes the other way too.
For example, an Aucklander might go for a site visit in Phillipstown, Christchurch. When they drive down the road theyâll see tree-lined streets. Theyâll also see yields and low property prices.
They're happy to invest because they see it as it is today, not how you remember it when growing up.
The bottom line is, donât let your preconceptions get in the way of a good investment.
As long-term property investors, you should ask: âWhat will the area be like in 20 years when I sell the property?â
Rather than asking, âWhat is the area like today?â
But from our analysis, many âdodgyâ areas stack up as worthy investments because they have:
¡ Good population growth
¡ Property prices are affordable
¡ And they have higher rental yields.
Having said that, if investing in a dodgy suburb causes you to lose sleep â it wonât be the right investment for you.
At the end of the day, invest in an area that you feel comfortable with.
Journalist and Property Educator, holds a Bachelor of Communication (Honours) from Massey University.
Laine Moger, a seasoned Journalist and Property Educator with six years of experience, holds a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism. She has been an integral part of the Opes team for two years, crafting content for our website, newsletter, and external columns, as well as contributing to Informed Investor and NZ Property Investor.