How to Choose the Right Investment Property: The Finders’ Framework

When assessing an investment property, it can be tempting to focus on one number.

The yield.

A property returning 7% looks better than one returning 5%. But does that automatically make it the better investment? Not necessarily.

A high-yielding property can come with significant maintenance, poor tenant demand, limited future resale appeal or little opportunity for capital growth. On the other hand, a property in a highly desirable location might have excellent long-term prospects but require the owner to contribute more towards the mortgage each week.

At The Finders, we believe a good investment property needs to be considered as a complete asset. That means looking beyond the advertised rental return and assessing four key areas: Yield. Growth. Risk. Opportunity.

And importantly, considering how each of those fits the individual investor.

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Start with the investor, not the property

One of the biggest mistakes we see is investors searching for properties before clearly defining what they are trying to achieve.

Before searching, we want to understand:

• What is your overall investment strategy?

• Are you prioritising cash flow or long-term capital growth?

• What level of lending are you comfortable with?

• How much of a weekly shortfall could you comfortably carry?

• Are you looking for a passive investment or something you can improve?

• What is your intended ownership period?

• What does your existing property portfolio already look like?

• Are you trying to buy one property, or build a portfolio over time?

A property can be a good investment for one person and completely unsuitable for another.

The property should fit the strategy. The strategy shouldn't be changed simply to justify buying the property.

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1. Yield: What income does the property actually produce?

Gross rental yield is one of the quickest ways to compare investment properties.

The calculation is simple:

Annual rental income ÷ Purchase price × 100 = Gross rental yield

For example, a property purchased for $650,000 and renting for $700 per week produces:

$700 × 52 = $36,400 annual rent

$36,400 ÷ $650,000 = 5.6% gross yield

That's useful, but it's only the beginning. Two properties producing exactly the same gross yield can perform very differently once the actual costs of ownership are considered.

We also want to understand:

Rates + Insurance + Property management + Maintenance + Vacancy + Body corporate or shared costs + Compliance costs + Finance costs

This starts giving us a much clearer picture of what the property may actually cost to hold. And assumptions need to be realistic. If the salesperson says the property could rent for $750 per week but multiple independent rental appraisals indicate $680–$700, we aren't going to build an investment case around $750.

Good investment analysis should work on sensible numbers, not the most optimistic ones available.

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2. Growth: Who is going to want this property in the future?

Capital growth is much harder to calculate because nobody knows exactly what a property will be worth in five, ten or twenty years. What we can assess are the fundamentals likely to influence future demand.

That includes factors such as:

Location. Land. Scarcity. Employment. Population. Infrastructure. School zones. Amenities. Development. Housing supply. Owner-occupier demand.

But we also look at the property itself. Ask a simple question:

Who is likely to want to buy this property from you one day?

For example, a standard three-bedroom home in a desirable residential suburb may appeal to investors today. But when it comes time to sell, your potential market could also include first-home buyers, families, downsizers or owner-occupiers. That broader buyer pool can be extremely valuable.

Compare that with a property that produces an exceptional rental return but appeals almost exclusively to investors. If investment demand weakens, your future resale market may become considerably smaller. This is why we don't believe investors should assess property purely as a spreadsheet.

You are eventually going to need another buyer to see value in the property too.

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3. Risk: What could go wrong?

Every property investment carries risk. The objective isn't necessarily to eliminate every risk. That's impossible. The objective is to identify, understand and appropriately price the risks before buying.

Depending on the property, we may investigate:

• Building condition and deferred maintenance

• Healthy Homes compliance

• Methamphetamine contamination

• Insurance availability and cost

• Flooding or natural hazard exposure

• Title interests

• Cross-lease defects

• Unconsented alterations

• Tenancy agreements

• Current rental levels

• Vacancy risk

• Future maintenance requirements

• Development or subdivision restrictions

• Planning and zoning

• Nearby development

• Finance requirements

• Resale limitations

A property returning 8% isn't particularly attractive if significant capital expenditure is required immediately after settlement. Likewise, an apparently cheap property may not be cheap at all once you understand why the market is discounting it. Sometimes risk creates opportunity. But only when you understand what you're taking on.

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4. Opportunity: What can you change?

This is an area we pay particular attention to.

We don't just ask:

"What does this property produce today?"

We also ask:

"What could this property become?"

That might include the ability to:

• Increase an under-market rent

• Renovate kitchens or bathrooms

• Improve Healthy Homes compliance

• Add a bedroom

• Reconfigure the existing floor plan

• Create additional accommodation

• Subdivide land

• Separate titles

• Develop surplus land

• Improve garaging or parking

• Add a minor dwelling where permitted

• Improve the property's presentation and owner-occupier appeal

This doesn't mean every investment needs to be a renovation or development project. Sometimes the best investment is simply a good property, in a good location, purchased at the right price. But identifying additional ways to create value can give an investor options that aren't entirely dependent on the wider market increasing.

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The purchase price matters

A great property can still be a poor investment if you pay too much for it. This is why we separate the property from the deal. We analyse comparable sales, rental evidence, current competition, property condition and the vendor's position to establish what we believe the property is worth. Then we consider what price makes sense from an investment perspective.

If a property produces $700 per week in rent:

At $700,000, the gross yield is 5.20%.

At $650,000, it's 5.60%.

At $600,000, it's 6.07%.

Same property. Same tenant. Same rent. A very different investment depending on what you pay.

You don't make money simply by buying property. The price and terms you buy it at matter.

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Stress-test the investment

We also believe investors should look at what happens when things don't go perfectly.

What happens if:

• Interest rates increase?

• The property is vacant for several weeks?

• Rent is $30 lower than expected?

• Insurance premiums rise?

• A $15,000 maintenance issue appears?

• The renovation costs more than anticipated?

If the investment only works when every assumption goes right, there isn't much room for error. We would rather understand that before purchasing than afterwards.

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Don't chase yield for yield's sake

A high rental yield is attractive, particularly for investors wanting to grow a portfolio. But there is usually a reason one property produces 8% while another produces 5%. Sometimes you've genuinely found an excellent opportunity. Other times the additional yield is compensating you for additional risk.

It could be location, property condition, tenant demand, leasehold ownership, unusual construction, limited finance options, high maintenance or poor resale appeal.

The important question isn't:

"Which property has the highest yield?"

It's:

"Why is the yield higher, and am I being adequately compensated for the additional risk?"

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Don't chase capital growth blindly either

The same principle applies at the other end of the spectrum. Buying a desirable property in a premium suburb doesn't automatically make it a great investment.

If the rental return is extremely low and you're contributing hundreds of dollars each week to hold it, you need to understand the opportunity cost and whether that position fits your wider strategy.

Future capital growth isn't guaranteed. The numbers still need to make sense.

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The Finders' investment property framework

When we assess an investment property for a client, we're ultimately trying to answer four questions.

YIELD

What income should this property realistically produce, and what will remain after the costs of ownership?

GROWTH

What characteristics could support future demand and value, and how broad is the future resale market?

RISK

What could cause the investment to perform differently from expectations, and can those risks be mitigated?

OPPORTUNITY

Is there anything we can improve, change, develop or negotiate that could create additional value?

Sitting underneath all four is one final consideration:

PRICE

Because even an outstanding investment property needs to be purchased at a price that makes sense.

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There isn't one perfect investment property

Some investors need cash flow. Others have strong incomes and borrowing capacity and are prepared to accept a lower yield in exchange for what they believe are stronger long-term growth fundamentals. Some want something completely passive. Others actively seek properties where they can renovate, subdivide, develop or increase the rental income.

That's why we don't believe in simply finding the "best investment property".

We're looking for the right property for the investor, at the right price, with the risks understood before they buy it.

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How The Finders helps property investors

At The Finders, we work exclusively for property buyers.

For investment clients, our role can include defining the investment brief, searching both the advertised and wider property market, identifying pre-market and off-market opportunities, completing property and investment analysis, arranging and coordinating due diligence, assessing comparable sales, developing a negotiation strategy and securing the property.

We're not there to sell you a particular property. We're there to help you determine whether you should buy it at all, and if you should, what you should be prepared to pay for it.

And importantly, we don't limit our search to what's publicly advertised. Currently, 80% of the investment properties we've sourced for our clients have been off-market, giving our clients access to opportunities they may not have found through the usual property portals alone.

Our local connections and relationships across the Taranaki property market give us insight into properties that may be available before they reach the open market, as well as quiet and off-market opportunities that may never be publicly advertised.

Find it. Assess it. Due diligence it. Negotiate it. Secure it.

That's buyer representation.

Disclaimer: This article provides general property information only and should not be relied upon as financial, tax, legal or investment advice. Property investment involves risk and future returns or capital growth cannot be guaranteed. Buyers should obtain independent legal, financial, tax and other specialist advice appropriate to their circumstances before purchasing property.

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Thinking about buying property in Taranaki?

Whether you're just starting to look, have already found a property, or simply want to know what your options are, Thomas is happy to have a chat.

The first conversation is free, there's no obligation, and no pressure to proceed. Just straightforward advice from someone who knows the Taranaki market.

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