Building an Investment Property

Our recent Derry Street build is a great example of space saving housing, this is actually a duplex with identical homes upstairs and down, offering owners a holiday retreat to enjoy in Central Otago, PLUS a rental income for holiday and long term rentals. Did you know that you can currently build an investment property new with only 20% deposit, whereas buying from existing stock requires a 40% deposit, this means creating an investment property like this could provide you with a cash positive return within the first rental period. 

Here are the facts: 
  • You only need a 20% deposit to build an investment property. Instead of choosing from existing housing stock and needing a 40% deposit. 
  • This has been established to stimulate the building industry, increase supply of housing, and reduce the median house price in NZ, which is an important part of reducing current pressures arising from supply shortages particularly in Auckland. 
  • Being able to use a lower 20% deposit on an investment property means you could spread your deposit across two properties rather than having a 40% deposit on just one.
  • ROI Example: Section and land in Cromwell for around $800,000, annual mortgage payments around $33k each year, average rent on a new 3 bedroom home in Cromwell is around $650, which gives you a cash positive return on the investment at almost 5.2% - far better than the banks can offer for your savings, and not taking into consideration the capital growth. 
  • New builds in Cromwell are going for above $800,000 and stock is extremely low, so there is a strong likelihood of generating immediate equity in your investment unlike the alternative of buying existing (and having to catch up with healthy home standards). 
  • The healthy homes standards became law on 1 July 2019 which introduced specific and minimum standards for heating, insulation, ventilation, moisture ingress and drainage, and draught stopping in rental properties, meaning properties built before this time often need upgrades to comply with new legislation. 
  • Landlords are responsible for maintaining and improving the quality of their rental properties. 

Here are some helpful links on this too:
https://mortgagelab.co.nz/can-i-buy-an-investment-property/
https://www.rbnz.govt.nz/education/at-a-glance-series/lvr-restrictions-at-a-glance
https://mortgagerates.co.nz/news/deposits-how-much-you-need-to-secure-a-home-loan

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