When do I pay the money when I buy a New Build property?

One of the questions investors always ask is, “OK, Kathy, I want to buy a New Build. But how much does it cost, and when do I pay the money?”

This is such a good question and an important one too. Because you don’t want to buy a property and then get unexpected bills.

So you might be saying, “Can anyone just help me understand how much money I need (and when I pay)?”

That’s what you’ll get in this article.

You’re going to learn:

• how much money you need
• the costs you’ll face (and which you can skip)
• when you need to pay the money

By the end, you’ll have a great sense of the costs involved with buying a New Build property.

Disclaimer: This timeline is what generally happens with a New Build property. But, of course, there are going to be slight changes depending on your situation.

Here are the costs you’ll usually pay to buy a property:

The three stages of payment

There are usually three stages of payments when you buy a turnkey New Build property.

They are:

• Due Diligence – before you commit to buying the property
• Pre-Settlement – before you pay for the property (while the property is being built)
• Settlement – when you pay for the property and officially own it.

Cost #1: Due Diligence

Due diligence happens before you commit to buying the property. You sign a contract, talk to your lawyer and see if you can get the money to buy it.

If you end up going ahead, this phase usually costs $800 - $2,500. Most investors pay this out of their own pocket.

You’ll also need to pay a 10% deposit on the house. This usually costs $55,000 - $100,000. It depends how expensive the house is. Most investors borrow this from the bank.

Here’s where that money goes:

Valuation

Cost: $800 to $1200

When you apply for a mortgage, the bank will often require you to get a registered valuation. That often happens even if the property isn’t built yet.

Your mortgage adviser will send you a link from the bank. You click on the link, and pay this using any debit or credit card.

Travel

Cost: $700 - $1000 per trip for a couple

This cost won’t apply to all investors.

Let’s say you live in Auckland and plan to invest in Christchurch. You may want to visit the site before you go unconditional, so you’ll pay for flights and potentially accommodation.

This is not compulsory. And you won’t pay this if you invest in your home city.

You’ll pay Air New Zealand (or Jetstar) and your hotel directly, so you can pay this using any debit or credit card.

Lawyer (partial cost)

Cost: $300

If you’re buying a New Build you often won’t pay your lawyer until settlement. That’s if you decide to go ahead and buy the property.

But some lawyers request a partial payment at due diligence.

The amount is different for each investor. However, some investors have been charged $300 in the past.

Most lawyers will send you an invoice, so you will pay this through a bank transfer.

If you decide not to buy the property, lawyers will send you a larger bill for the work they have done.

House deposit

Cost: 10% of the purchase price

If you decide to buy the property, you’ll need to pay a deposit to the developer’s lawyer.

This is typically 10% of the purchase price. So if the property is worth $600,000, you’ll pay a $60,000 deposit.

After 10 days due diligence and the investor goes unconditional, the 10% deposit is payable.

Most investors borrow this from the bank. If so, then interest will be payable on that.

But if the investor is paying cash, then interest costs don’t apply.

Cost #2: Pre-settlement

Settlement day is when you pay for the property, you get the keys and it is officially yours. In the lead-up to this, you’ll have other costs.

This phase usually costs around $3,250, but it can range from $1,800 - $7,000+.

Some investors pay this out of their own pocket. Some will borrow this money from the bank. Talk to your mortgage adviser about how you want to set it up.

Property management

Cost: $210 - $2,850

To legally rent out your property, you’ll need to get a few certificates sorted. You need a Healthy Homes inspection and your smoke alarms tested. You may even want a meth test.

You also need extra sets of keys for your property. If you have normal keys, this is usually around $10. But, if your property has smart locks and key fobs, this can cost up to $150.

If you buy in Auckland, you need to pay for new rubbish and recycling bins. This can cost around $250. But if you’re in Christchurch City or Selwyn District this doesn’t cost anything.

Then there’s whiteware like fridges and a washing machine. If your laundry and kitchen are on the second floor (like in a townhouse), it’s a good idea to buy these appliances. That way your tenant doesn’t have to lug them up the stairs.

You can charge more rent and it protects your property.

If it takes a while to rent your property, you will often get a gardener in. That’s to tidy up the outside before your tenants move in.

There are a lot of moving parts in this one. It can cost as little as $210, although it can get up to $2,850.

You’ll pay many of these costs via bank transfer. But, things like fridges and dryers, can be bought with a debit or credit card.

Chattel valuation

Cost: $500 (estimate)

Chattels (e.g. washing machines, curtains, appliances) wear out and need replacing. This decrease in value is called depreciation. This depreciation helps you save in tax over time.

You get a chattel valuation so you can save on as much tax as possible.

Chattel valuations usually cost around $500.

The company will send you an invoice and you pay via bank transfer.

Setting up a trust or look-through company

Cost: $0 - $2300

If you need to set up a trust or look-through company, this has costs too.

Opes Accounting currently charges $875 + GST ($1,006) to set up a look-through company.

It’s best to get a lawyer to set up a trust for you. This can cost around $2,000 + GST ($2,300).

But if you don’t need to set up a new entity, there may not be any costs.

Your lawyer or accountant will send you an invoice and you pay via bank transfer.

Completion certificate

Cost: $400

If you got your New Build valued before it was built, you’ll need the valuer to do a completion certificate. This typically costs $400.

Your mortgage adviser will send you a link from the bank. You’ll then pay via any debit or credit card.

Building inspector

Cost: $700 - $1,000

Even though you’re buying a New Build you should still get a building inspection. This is to pick up on any human errors and tell the developer what they need to fix.

Your building inspector will send you an invoice and you pay via bank transfer.

Cost #3: Settlement

Finally, your property is finished and ready to be lived in. Your final costs will be:

Lawyer

Cost: $2000 - $2500

Settlement is when you pay the rest of your lawyer’s bill.

This is for all the conveyancing they do, which is the legal transfer of the property into your name.

Often, investors will use a cashback from the bank to pay for these costs. But, you don’t get the cashback until you pay for the property.

So you do need this money in advance.

For both your lawyer (and the next cost), your lawyer will send you a settlement statement. You then pay through a bank transfer.

Rates and Residents’ Association

When you pay for the property, the developer will have paid some of the council rates in advance. You need to reimburse the developer for the part they’ve already paid. 

If you’re buying a townhouse, you’ll also pay for your portion of the residents’ association fees upfront.

One investor I worked with paid $1,800 at settlement for the rates and residents’ association.

These costs were already factored into the cashflow of the property. But, you need to pay these costs upfront.

Property

Cost: 90% of the property’s cost

And, of course, you have to pay for your property in full. You’ll transfer the remaining deposit. Then, the bank will transfer the mortgage to the lawyer.

After that, the property is yours.