This new house won in the $1 million – $2 million bracket at the Auckland House of the Year awards.

A million dollars is a Lotto-size sum of money for most people.

But in 36 Auckland suburbs, it will only buy you an average house.

With the rate of house price inflation cooling and potential rental returns of less than 3 per cent, that might not feel such a good use of money.

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We asked the experts where would-be investors could get a better return.

Commercial property

Property commentator Olly Newland said $1m to spend would give investors a lot of options in commercial property.  

A Dunedin commercial property listed for sale for $950,000 and rented for $75,000 a year.

“You could get a factory, small shops, and 5 per cent to 8 per cent return straight away.”

Commercial investment would give better returns than residential, he said, tenants would sign longer leases and pay most of the building’s outgoings.

“Residential is a bit more liquid,” Newland said. “But the returns are lousy.”

He said people who bought commercial properties were usually buying the tenant. Provided it was a solid business, it would not matter so much which part of the country the property was in.

“If you buy Pizza Hut on a 20-year lease, you can buy it in Stewart Island. The whole purpose is to buy a secure income from a solid tenant. I have clients who have bought outside Auckland with solid tenancies and they are laughing all the way to the bank.”

A 345 sq m building that currently houses a Dunedin bar and restaurant is listed for sale for $950,000 and rented for $75,000 a year – a return of 7.89 per cent.

Another option is a  retail property on Great North Rd in Henderson, Auckland, listed for $1.12m, offering income of $95,520 a year, a yield of 8.53 per cent.

A business

A million dollars will give you the chance to be your own boss and get a good return on investment.

Business broker Brett Clarkson, of Divest, said someone who bought a well-run business could expect to achieve at least a 20 per cent return on investment after they paid themselves a salary.

A million dollars will give you the chance to be your own boss and get a good return on investment.

“You couldn’t say a coffee bar will  [return] x amount and a drycleaner x. It depends how it is managed. It isn’t like property, it is always variable.”

There are more businesses for sale under $500,000 than in the $1m-plus bracket, he said.

A North Shore franchise cafe is listed for sale in what is described as a “growing shopping area” for $1.1m. It claims to offer its owner a surplus of $325,000 every year.

Another option is a Bay of Plenty childcare operation, for sale for just over $1.2m, including its buildings, with returns of $300,000.

A Whakatane supermarket will set you back $1m, or for $1.05m, you could buy the 39-room Auckland City franchise of Quest serviced apartments.

Property outside Auckland

Infometrics economist Gareth Kiernan said he would consider buying properties in the regions around Auckland. “Waikato and Bay of Plenty are experiencing very strong demand and we expect that to run a bit further yet, given the population growth and the trends we are seeing of more people moving out of Auckland.”

He said prices in those regions had increased significantly – up about 11 per cent year on year – but there was more scope for further increases in those regions than there was in Auckland over the next two to three years. Rental returns are also generally better than you would get in Auckland.

A Raglan property listed for sale for just under $1 million.

Bonds

Economist Shamubeel Eaqub said most Auckland property purchasers were banking on capital gains continuing, because houses were not attractive investments on a rental income basis. “Gross rental yields are extraordinarily low and the net return is even lower.”

But he said there was no way to be sure price growth would continue.  “Auckland property looks pretty overvalued so the likely return is lower than elsewhere.”

Investors could get a better income return from something such as BNZ’s recently-announced subordinated notes offer, he said. The interest rate will be set later this month but is expected to be mid-5 per cent, a full 2 per cent per year more than an Auckland investment property would return in rent.

Shares

Kiernan said there was an opportunity in diversified international shares, particularly from the United States.

Clayton Coplestone, of Heathcote Investment Partners, agreed.

“There’s plenty of opportunity there, there are companies making money all day every day.”

John Berry, of Pathfinder Asset Management, said someone who invested in his firm’s World Equity Fund three years ago would have experienced 16.2 per cent growth over that time.

A lifestyle and income

If you’ve always fancied owning a bach, you might be able to make it pay off as an investment.

A million dollars will give you a waterfront property at Raglan that will be sought-after in the summer months, or a prime spot at Matarangi. Similar properties rent near $500 a night in peak season.

If you are willing to give up the most-coveted nights and spend a bit of time and money on marketing a desirable property, the returns can be good – up to $70,000 a year in some cases, a yield of 7 per cent on investment of $1m. 

Another option is a bed-and-breakfast style arrangement. A boutique lodge at Hihi, in the Far North, is advertised for sale for $995,000.  A property such as this could give you the option of renting rooms per night during summer and taking it easy through winter. 

 – Stuff

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