Building a new home might seem like something that is outside your financial capacity. But you might be surprised.
New Zealand is in the midst of a housing shortage. This has helped to drive up prices, and with the COVID-initiated boost to the supply of money, property prices have sky-rocketed. Now we face a continuing housing shortage, high inflation, restrictions on borrowing and increased interest rates. It’s enough to make you wonder if it’s all become too hard. However, if you are wanting to get into your first home, or wanting to invest in a rental, there are plenty of reasons why building a new home is the way to go.
New Builds as a Rental
Renting property is a tried-and-true form of investment that Kiwis love. Your rental property is appreciating in value over time and adding capital to your portfolio, and your tenants are paying the mortgage. Remember, there is no shortage of prospective tenants out there. If you’ve got time up your sleeve, then building might be the best way to get an investment property.
The first thing to consider when buying a rental property, is the return on investment. You need to consider a whole range of factors, including:
- Rental yield
- Rentability (i.e. is the property in a popular part of town or near amenities such as schools)
- Maintenance and repair costs
- Legalities, such as meeting rental healthy homes requirements
A lot of these issues can be checked off the list if you build new. You can start off your career as landlord the right way, providing a warm, insulated home. Double glazing, heating options, and great ventilation are part of any new build; there’s no mucking around retrofitting and renovating. You are also supplying a local family with a house that’s healthy, dry, and warm.
Secondly, with a new build, it will be many years until you need to start repairs or repainting work. In the first few years of a new build rental, there are no (or very low) maintenance costs.
Another factor is that you can decide where to build. If you choose to subdivide a section or demolish an old home, you can pick a location that’s close to schools, bus routes, or whatever is important to your target market. This means it will be easy to find tenants; not only are you in a sought-after area, but the house is secure and healthy.
Finally, it makes good sense for your finances. New builds qualify for lower deposits. Once the house is built, you can get the house valued, and then possibly use the added value to refinance and build again. Also, the government has kept the bright-line test at five years for new builds. (It’s been extended to 10 years for existing property). So although you likely aren’t intending to sell it, if something happens and you need to sell, after five years you don’t have to pay tax on the gain in value.
New Builds for First Home Buyers
For first home buyers, the market looks pretty grim. There’s huge demand, and with a growing population, that’s not going to go away any time soon. Interest rates are rising and the bar to entry into the market is getting higher and higher.
But it might be that a new build is the solution. While many people start their home ownership journey with a doer-upper and some around you feel like you have to ‘do your time’ in a cheap, leaky home, you absolutely do not have to do that.
There are benefits to building new for your first property. The bank requires less of a deposit. You can refinance once the house is built to make the mortgage more palatable. (Construction loans are normally at floating interest rates). You can use your KiwiSaver as part of your deposit. And, you get a warm, clean, dry, purpose-built home that you get to call your own.
We Want More From Our Homes
If you have decided to build new, consider the events that took place during the pandemic. Suddenly, people were working from home. Kids were taking classes at the kitchen table. People were living on top of each other, taking work calls while teachers droned in the background, making Zoom calls with the washing machine as the backdrop.
Most homes aren’t built for an entire family to be inside all the time, working and learning. And there are clear signs that the world we knew pre-Covid isn’t coming back. Working from home, if only for a couple of days a week, is fast becoming the new normal. With a new build, you can consider designing spaces to help make life easier in the hybrid work scenario.
A Zoom Nook
Consider having a small space, away from the main area, set up for video calls. All it needs is a small shelf for a laptop, and an office chair. A plain background or built-in bookshelf provides the perfect neutral and professional backdrop.
While two offices to accommodate two adults working from home might be a luxury, having at least one office set aside is likely to be an important selling point. For a start, having an office helps to create work boundaries. At the end of the working day, you can leave the office and shut the door. No going back for One Last Email or to quickly Finish That Report.
It will also help you to be more productive during the day, being able to shut the door and keep the kids, dog, cat, and spouse out (although the cat and dog should be allowed in).
If everyone is at home, it can quickly become a zoo. Loud, people annoying everyone else, and no privacy. If you’re building new, maybe incorporating some quiet, private areas could help with this. Or if space is tight, clever design can makes spaces multi-purpose. If you’ve ever had to move the car out of the garage to do a workout, or do lunges in the hallway, you know just how important adaptable space is. The pandemic meant people’s gyms were at home too. How could there be a flexible space that’s good for workouts? A covered outdoor area? An extra-large garage? Building new opens up a whole new world of opportunities.
Is a New Build Right for You?
Building new is more involved than buying existing, but with the right support it’s definitely doable, even for building newbies. (And remember, everyone starts out as newbies). Contact Sam Kodi to discuss if a new build might be the way for you get into the property market. We can take a look at your finances, chat about what you want, and help you make some great choices that set up your future financial security.