New Construction vs Existing Properties: The Rental Investment Breakdown

Building to rent versus buying existing stock - which strategy makes more sense for property investors? We dive deep into the compelling reasons why new builds are increasingly becoming the preferred choice for savvy rental property investors across New Zealand.

The numbers tell a powerful story. New rental properties in regions like Kapiti Coast command premium weekly rents of $650-700+, creating strong cash flow potential from day one. But the advantages extend far beyond just higher rental income. We share real examples of maintenance headaches from older properties, including a recent $2,000 repair bill across several rentals in just one month - costs you simply won't face with new construction.

Financial institutions have recognized the reduced risk profile of new builds, requiring just 15% deposits compared to the standard 20-30% for existing properties. This significantly lowers the barrier to entry for investors. However, we uncover a critical technicality that catches many investors by surprise: to qualify for these favorable lending conditions, you must purchase directly from the developer or builder, not from another investor who never occupied the property.

The 10-year builder warranties, reduced maintenance requirements, and ability to attract higher-quality tenants make new builds particularly attractive. As we discuss in the episode, successful property investing requires removing emotion from the equation and focusing purely on the numbers - and for many investors, the calculations strongly favor building new.

Ready to transform your investment strategy? Consider whether building new might be the key to unlocking greater returns while providing quality housing in your community. Subscribe to our podcast for more insider tips on maximizing your property investment success!

Transcript

Speaker 1 0:10

Hello and welcome back to the episode of James Shears. Hey James.

Speaker 2 0:14

Hey, how's it going.

Speaker 1 0:16

Where's the different language? Greeting.

Speaker 2 0:18

I can't think. I only know bonjour and aloha.

Building to Rent Out

Speaker 1 0:21

For an out of greeting. Awesome James. What are we talking about today?

Speaker 2 0:25

Today we're talking about why building is a good idea.

Speaker 1 0:28

Aha Building to live in or building to rent out.

Speaker 2 0:32

Ooh building to rent out. I think we should start with.

Speaker 1 0:35

Ooh, that's an interesting one. Okay, so why would you build a property to rent out? What do you think makes that a good idea?

Speaker 2 0:43

Well, if anybody's been listening to our previous podcast, it's all about making money from the investment side of the cash flow quadrant. So if you've built a new property, there's a lot of favorable things that you can get. For example you can get a very good rent on a new property. I'd be guesstimating here about what would you say $1,500 a month or something like that in a basic place in the Kapiti Coast. No way more than that. Would it Way more than that.

Speaker 1 1:15

Way more than that. I think our rents at the moment are sitting between $650 to $700 and above per week.

Property Maintenance Costs

Speaker 2 1:21

Well, that's even better.

Speaker 1 1:23

Per week.

Speaker 2 1:23

Per week.

Speaker 1 1:26

A new build will definitely attract more, but from the investment point of view some investors may get a little bit touchy-feely and go. I don't want them to ruin a new build. What do you reckon about that?

Speaker 2 1:40

That's a really good question. Well, I guess you'd have property managers, wouldn't you, to run it for you.

Speaker 1 1:45

Hopefully, and if people listen to some of our property manager podcasts that we've done. Having a property manager is definitely a good idea.

Speaker 2 1:52

Having the right property manager, the right one that's the key you're going to do what they're supposed to be doing.

Speaker 1 2:00

Otherwise, you may as well do it yourself. Yeah, absolutely okay. And then um, in terms of um, repairs, what do you think?

Speaker 2 2:05

well, it's going to be much lower maintenance, isn't it? You're not going to have the same costs, uh, as you would on an older building yeah you know, did you know?

Speaker 1 2:13

just this month I spent about two thousand dollars on repairs across some few of my rental properties. One was um licking sink, the other one was um broken window ledges, yeah, and the other one was something else. So, um, and again, it's down to due to the age of age of the properties. Yeah, so if there were new builds, I probably wouldn't have the same issue exactly, and I mean, that takes the fun out of it, doesn't it?

Speaker 2 2:36

You've got these rental properties that are supposed to be making you all this money, but it's costing you just as much to maintain them.

Speaker 1 2:42

Yeah, no, absolutely. I mean I had a rental property as a new build. That was actually one of the first properties I built for us to live in and then, when we built the next house, we moved out and we left our new build as a rental and definitely had far less issues with it versus the current properties I have that are slightly older properties that you know, 30, 50 years old and what do you think about the?

Investment Benefits of New Builds

Speaker 2 3:07

you know the owners of these new properties. How do you think they would feel about renting their new buildings out?

Speaker 1 3:17

as opposed to living in them.

Speaker 2 3:18

Do you know what I mean? Like, is there a concern that, oh, there's such a beautiful building, I don't want it wrecked by a tenant?

Speaker 1 3:26

Yeah, exactly, and I guess this is where it comes down. The investment is an investment you don't put your heart into it in a way, you treat it as an investment.

Speaker 1 3:34

You look at the numbers. Will the new build provide you with greater return? Are there tax benefits? If there are any, on the resale, are you going to still make money if you have to resell down the track in two, five years' time? And also when you build a new one, as we just talked about, there's a 10-year must-build warranty. Usually Depends who the builder is, especially if you're buying it off the builder or you're doing like a turnkey build. So there are lots of different benefits to building versus buying an existing stock, I would assume If you remove the motion out of the investment. I think that's the key.

Speaker 2 4:14

You don't need as big a deposit either, do you? No, that's a really 20% or 30%.

Speaker 1 4:19

Yeah, yeah, you can actually get away With 15 Wow.

Speaker 2 4:22

One five. On a new build.

Speaker 1 4:24

On a new build. Yeah, so we've got a young lad. At the moment, you know he's looking to build a property as well as an investment one, and I think it's fantastic because he's in the industry, he knows the builders, he knows the developers, he knows whatever he'll build will be of good quality and, at the end of the day, you also want to provide people with somewhere nice to live. You don't want to be slam lord in a way, you know you don't want to provide something that will be substandard.

Speaker 2 4:52

Well, and you're going to attract better tenants.

Speaker 1 4:54

Yeah.

Speaker 2 4:54

You like people that are going to look after the place? Hopefully.

Speaker 1 4:57

Yeah, exactly, and there are so many new builds across the country at the moment. I mean, christchurch was absolutely saturated with them. Yeah, you know, at some point they built way too much in Christchurch, so looking in the regions like Kaipui and you know a few other places could be a good idea. But yeah, I would really recommend to people jumping on TradeMe and having a look, or homesconz, et cetera.

Speaker 2 5:19

Yeah.

Speaker 1 5:20

And seeing because, yeah, a new build as an investment property could be a good idea.

Speaker 2 5:27

And let's say, if I build one of these new properties and then in a couple of years I want to flick it off, at what point do I have to pay tax on it?

Speaker 1 5:33

Sorry, james cannot give you this advice. You'll have to see your accountant for some tax advice there. But yeah, there's definitely slightly different rules applied to new builds versus older stock. Yeah, yeah, and remember for the bank, in order for it to be considered a new build and be exempt, you have to buy it either from the developer or from the builder. But if you're buying it from Bob, who already bought it from the developer, and Bob is on selling it to you, that's not considered to be new build.

Speaker 1 6:05

It's considered to be secondhand. Even though Bob never lived in it and even though it's just finishing off to be built, the bank will view it. You're buying it off secondhand.

Speaker 2 6:14

Yeah, so you don't get all those same benefits.

Speaker 1 6:16

Correct. So something to look out for for those that are listening to this, because this is where we found some of our clients getting caught out is buying it off the builder versus buying off Bob, who bought it off the builder.

Episode Closing

Speaker 2 6:30

Yeah, hopefully it makes sense Absolutely.

Speaker 1 6:34

Awesome. So thank you, James. This was a very, very important topic to cover off and see you next time.

Speaker 2 6:39

Absolutely, see, ya.

Speaker 1 6:40

Bye.