What’s best for an investment property - new-build or existing property?

When you’re looking for a property to start or add to an investment property portfolio, the pros and cons for existing vs new-build are a bit different. It’s all about practicality and getting the numbers to work. It’s important to remember that the 10-year bright line test applies to both new-builds and existing homes. Also, from 1 October 2021 you can no longer claim interest on loans used for residential rental properties.

‍

‍

Pros and cons of an existing house as an investment property

For

• The price you arrive at by auction or negotiation won’t change, which makes yield calculations more accurate.
• Homes are usually within communities that have transport, schools, shops and essential services. This makes them desirable to tenants.
• Landscaping (gardens, trees and outdoor living areas) may already exist, adding to property appeal.
• The repairs and maintenance you may need to do can be claimed as an expense.
• The property may have a sub-dividable site.

‍

‍

Against

• Homes can cost more, because they are often in more established parts of a town or city.
• You need at least a 40% deposit.
• Existing properties with large amounts of land attract higher rates.
• Depending on the age of the property, you may need to renovate to meet Healthy Homes standards, however some expenses may be tax deductible.
• You can’t claim for renovations that substantially improve the value of the property.

‍

‍

Pros and cons of a new-build as an investment property

For

• You only need a 20% deposit.
• The home is likely to be low-maintenance. And because it’s new, repairs for wear and tear will be few.
• It will meet the new Healthy Homes standards for insulation and ventilation.
• You might be able to attract better tenants who will take good care of the property.
• Rent could be higher than for an equivalent existing house.
• A new-build could be cheaper than an existing property, because it’s in a new subdivision further out of town.
• If you have a turnkey construction contract, you can tailor the cost of building to fit your yield calculations.

‍

‍

Against

• If you don’t have a fixed price contract with your builder, costs can spiral upwards and have a negative impact on your yield calculations.
• The location of your new-build might not be a desirable part of town, because it’s further out and the neighbourhood lacks amenities.
• The section is likely to be bare; it will take a while to establish trees and a garden that make the home look attractive.

‍

‍

Keep an open mind and do your homework

Whether you’re looking for a home to live in or an investment property to rent out, considering both strategies – existing property or new build – can help you to understand the local property market from every angle. Talk to group builders who are active in your area, keep a close eye on online property listings, monitor sale prices and discuss potential home loan requirements with a lender. Whatever you eventually decide, you’ll feel better about your choice because you fully-explored all the opportunities.

‍

Get in touch with us on enquiry@key2.co.nz to find out more.

‍