Hobbit-House-New-ZealandIf you’re a first home buyer, you’ve probably heard the phrase ‘capital gain’ – but what does it really mean for you? 

In Auckland getting capital gain is something of a weekend sport so most people know what it is, but just to be clear: it is the difference between what an asset is worth today which exceeds the initial price it was bought for.

In terms of buying a house, if you bought for $500,000 and sold for $650,000, you’ve gained $150,000 of capital over the period – that’s your capital gain. If you’ve put money into the property by renovating or making additions, you would deduct what you’ve spent off your capital gain to give you a more realistic figure.

In the Auckland property market of late, capital gains have been rather magnificent – some home owners have made several hundred thousand dollars after just a couple of years (sometimes even a couple of months) of ownership. With those kinds of figures at stake, you can see why capital gain is a pretty important thing to consider in purchasing a property. With that in mind, there are a couple of key strategies to influence your potential gain:

  1. Buy a ‘do up’ and make it fab: The more elbow grease you put in, the more financial benefit you’ll reap… as long as you do a quality job. Remember that old adage ‘buy the worst house on the best street’? If you buy rough and reveal a diamond, chances are you’ll walk away with some money.
  2. Buy in an area where values are increasing… and wait: In Auckland, because of the demand for property, most homes are likely to increase in value. Having said that, before you buy, make sure you do due diligence on the property, street and suburb. Ideally you want to catch a suburb before it turns, so you’re buying low and hopefully selling high.


These strategies make me think of another great saying ‘you make money when you buy property, not when you sell’.

Together, these two strategies are the most effective at increasing capital gains.

So, how do you pick a suburb that’s perfectly suited for strong capital gain? We asked real estate agent Antonia Baker, from The Property Market and she said:

  • Schooling and school zones – don’t just go by decile, talk to local parents you know about how the schools in a particular area are regarded.
  • Proximity to the CBD – as Auckland expands, areas that were once considered the outer suburbs (eg. Mt Wellington, Otahuhu, Te Atatu) are now well and truly ‘city fringe’.
  • Good links for transport – both public transport and motorway access.
  • Good access to employment – whether it’s the CBD or a major nearby commercial/industrial estate.
  • Future investment by local or central Government – if there’s a plan to spruce up the local shops, improve community services like the library, invest in transport infrastructure or upgrade the local schools, you’re probably onto a good thing.


For those of us with a much longer horizon there are less obvious examples of places that stand to generate a nice gain. Right at the northern end of the supercity is a little place called Kaipara Flats, near Warkworth. Yes, it’s the back of beyond to some. But, think back to humble Hobsonville a few years back, or Silverdale for that matter – both areas of bare farmland and a few tired houses. Now they’re bustling mini-metropolises jam-packed with new-build homes, parks, shops and brand new transport links as the city has expanded to meet them.

To me Kaipara Flats looks so alluring because the new northern motorway link will eventually pop out nearby – meaning it will have sweet access to Auckland. It’s flat so building a house should be a bit easier, it’s close to beaches like Omaha, Tawharanui and the wine region of Matakana and will eventually be a 25 minute burn to the North Shore. Importantly, the council have earmarked the Warkworth region for intensification. All signs point to the place growing. From a capital gain perspective Kaipara Flats is a 10 year plan rather than a 2 year plan but I put it to you as a place that is starting to show the signs of a little area that might just go places.

There is of course, capital loss too. Yes, this does exist… though in Auckland, with current house price trends, it’s pretty easy to forget! And if you’re a newcomer who has been in the market for <5 years then you won’t have seen it for yourself.

A recent example was a development up in Mangawhai (north of Auckland) in 2007. The farmland was carved up and sold up to hundreds of investors… just before the GFC. And guess what happened? The recession hit, values plummeted and those would-be investors were left with sections that had literally halved in value. It was a case of an oversupply of sections into an area where there was nothing other than a beach to keep people interested.

And bear in mind that, for some of us property is not a vehicle to make our fortune. We’re content to simply buy the home we fall in love with, pay it off over time and live in it happily ever after. If this is you, that’s great – don’t feel like you have to use your home as an investment. Though, if you build up enough equity (often through capital gain) you could use it to fund another property in future – something a bit flasher or a rental maybe.

Want to chat about the hot spots for capital gains or just get some solid mortgage advice? Give us a bell.

If you’re a first home buyer, check out our free e-book ‘The Bank Said Yes’. You can download it here.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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