How much cash flow should an Auckland growth thesis have to carry?

avery.reese

Property investor
I’m comparing an Auckland mixed-use building with higher-yield options in cheaper markets. The Auckland property has only a modest current yield, but stronger employment and transport fundamentals; the alternatives produce more cash now but appear less liquid.

I’m considering requiring a minimum cash return after vacancy, management, maintenance reserves, insurance, property tax and financing before assigning any value to appreciation. Is that a sensible guardrail, or too blunt? Completed Auckland examples showing initial assumptions versus actual results would help more than headlines.
 
Give cash flow priority because it is observable; treat appreciation as upside rather than the number that rescues the deal. I’d run the Auckland building at current income with a vacancy allowance, realistic tenant-turnover costs and a maintenance reserve, then raise the financing cost in a second scenario. If it cannot remain comfortably cash-positive under that version, stronger location fundamentals do not solve the reserve problem.
 
What is the tenant and lease mix? A single headline yield can conceal very different vacancy and management risks across the uses. I also wouldn’t make one fixed minimum cash return decide everything: a cheaper-market building may clear it only because its assumed vacancy or eventual sale period is too optimistic. Compare the same holding period and disposal assumptions.
 
Following Lena’s stress-test idea, I’d separate the decision into three numbers: cash flow today, cash flow after a financing shock, and reserves needed for one meaningful tenant turnover. Then write the appreciation case separately using employment, transport and likely buyer demand, without feeding that growth back into the cash figures. That makes the trade-off visible rather than pretending Auckland’s fundamentals are guaranteed to arrive on schedule.
 
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