New Build Investments
New properties are becoming more and more accepted by investors as a high quality, low hassle, cost-efficient alternative to buying an existing property and "doing it up".
What are the benefits of building new?
When you add up the financial impact of lower maintenance, higher rents, better tenants and strong potential capital growth, not to mention your own "hassle free" existence over the lifetime of your investment, buying new is appealing.
Pay for your property tomorrow, in today's prices
...and enjoy capital growth in the meantime. Since most new builds are not fully paid for until the house is finished, you receive all capital growth on the value of your asset throughout the construction period.
Low maintenance costs = cashflow
Maintenance and upkeep are the hidden cashflow killers. New kitchens, carpets, electrical rewiring, cladding, roof issues, plumbing, insulation etc. With a new property, almost everything comes with an initial guarantee or warranty and realistically you should expect next to no upkeep costs for years.
As an investor, you experience bad tenants and great tenants and the difference, is not hundreds of dollars but thousands. A quality home built to modern standards in a good and growing area will be in high demand from tenants who will pay top dollar to rent your property.
...is real and combined with low maintenance costs goes a long way to balancing the cashflow impact from paying for a premium new home.
How do you buy "off the plans"?
Buying off the plans means you enter into a contract with a developer or builder to buy a house based on a specification, which is then built. There are two types of contracts for new build properties, "turnkey" and "land and build".
The investor pays a deposit (typically 10%) at unconditional and the rest upon settlement. This is common with larger developments, where the developer has purchased the land and is building several townhouses or apartment units on it. There is one Sale & Purchase Agreement which describes the whole development, your unit and the build specification.
Land & Build
The investor buys the land first and then enters into a contract with a builder to build the house. This is common in housing subdivisions and normal for one-off "spot" builds. There are two contracts; a Sale & Purchase Agreement for the land and a separate build contract. Often the two contracts are linked together and one is conditional on the other. Payment is usually a) regular settlement on the land and b) progress payments on the build.
New Build vs Existing Properties?
Not better or worse, just different. Here are some things to think about when you decide how you want to invest.
Factor in realistic maintenance costs - 5% of rent is realistic for a stand-alone house because even if you do not spend that each year, big-ticket renovation items like kitchens and roofs will come up. With a new build, you should expect a lower maintenance budget for the first 10 - 15 years.
Look at the net yield, not gross - a new property will attract higher rent and cost less to maintain. When comparing the two property types look at your net yield to calculate true gains.
Think about capital growth potential 10 or 20 years from now - cashflow will pay your bills while capital gain will make you wealthy. When buying new you usually buy "in the path of growth", so your property in a nice new subdivision today will be a modern home in a desirable suburb in a few short years.
A New Build as part of a Balanced Portfolio
A client of ours bought a new townhouse in Auckland, an apartment in Ponsonby and... a block of high cashflow units in Whakatane. This is a great approach to setting up a portfolio that covers it's costs while you enjoy the capital growth from owning a premium property.
iFindProperty can help you plan and acquire a portfolio that strikes a balance between cashflow and growth.
New Build Properties with iFindProperty
We work closely with a number of developers to offer investors early access to central city apartments, townhouses and land and build projects in growth centres throughout New Zealand.
To learn more about how a new build investment works and get a preview of upcoming properties please send your contact details via the below form.