New Builds
6 min read
Author: Andrew Nicol
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Reviewed by: Ed McKnight
Our Resident Economist, with a GradDipEcon and over five years at Opes Partners, is a trusted contributor to NZ Property Investor, Informed Investor, Stuff, Business Desk, and OneRoof.
People have often asked us what our strategy is here at Opes Partners.
In the past, I’d give them the short version: Find a good New Build investment property and wait for it to go up in value. (Usually 10+ years).
It’s the traditional Buy-and-Hold strategy … but with a new twist: You buy New Builds.
But there’s a bit more to it than that. That’s why I’ve finally given it a name. I call it the Build and Hold strategy.
Why come up with a new name for this strategy?
Over the last 10 years the government has introduced a heap of new rules that favour New Builds. This means investing in New Builds is becoming a more mainstream property investment strategy.
But when you buy a New Build, there are a few more things to consider; you have to deal with the developer and think about build times.
Because there’s more to it, I think it deserves it’s own name: The Build and Hold strategy.
So what’s the difference between Buy and Hold and Build and Hold?
The Buy and Hold is where you can buy any property, from a modern apartment to a 100-year-old standalone house.
The Build and Hold is where you specifically buy a New Build property.
It’s a lower risk, hands-off strategy that’s effectively incentivised by the government. For instance, you don’t need as much money to get started and you can often grow your portfolio faster.
When I talk about New Builds, I’m usually referring to off-the-plans turnkey property. That’s what we deal with at Opes Partners.
But that’s not the only option.
This is where you sign a contract with a developer to buy a finished property at a fixed price.
It’s an all-in-one package, but you don’t get as much say on the final property. You’re effectively buying it off the shelf.
If you buy a property from a developer, you’re more likely to buy a turnkey.
This is where you buy a piece of land and then hire someone to build you a house on it.
You have greater choice over the design and type of property. You just have to pay more when you make changes.
Sometimes developers will advertise “House and Land” packages. That’s where you buy the land off them, then hire the same builder to construct the house.
A completed New Build is as it sounds. It’s already finished.
This means instead of signing a contract for a property that could finish in 12 months + ... the property is ready to be moved in to today.
New Builds are great for people who are “time-poor”.
This usually means working professionals, sometimes with young children. These people don’t have the time to wield paintbrushes on the weekend, or renovate existing properties.
Because a New Build property is, well, new, it tends to attract a better quality tenant. This means fewer headaches from your tenants, and fewer maintenance costs to worry you.
It’s great for people who want exposure to property investment, are keen for property to improve their life, but don’t want property to become their life.
Build and Hold is only a good idea if you’re going to hold it for at least 7 years, but I recommend 15+.
Di and her husband Steve wanted the “ultimate lazy investment”.
And after a serious health scare, the desire to provide for their 5-year-old son’s future became even more pressing.
Property had always been on Di’s radar, and residential property seemed a low-key risk, and obtainable.
Di and Steve did not want to be hands-on; a weekend spent renovating property was not their idea of fun.
What she wanted was to buy something, and then never think about it again, although initially she didn’t think that was possible.
The couple have since bought 2 investments and are looking to buy a third.
Di’s health scare is over, but the investments they have made will have a positive impact on all their futures.
The Build and Hold strategy isn’t right for everyone. Here’s who it’s not the right fit for.
Property is more risky if you buy and sell quickly. It’s less risky if you are in it for the long run. That’s because property values tend to go up over the long term but fluctuate over the short term.
If you’re someone who plans to buy a property and sell it 2 years later, this strategy isn’t going to be a good fit for you. There’s a good chance property prices could go down over 2 years.
Similarly, if you buy off-the-plans and want to sell it as soon as it’s built, this isn’t the right strategy for you.
If you buy a property and only hold it for a few years, you have a larger chance of losing money.
New Builds are ... new. So, you don’t need to renovate or be on the other end of a paintbrush every second weekend.
If you spend time renovating a New Build you are likely to over-capitalise. This means spending money, but not getting a return.
If you are a super keen, renovations-focused investor, then the Build and Hold strategy isn’t the right fit for you.
The Build and Hold is best suited to a passive, hands-off investment strategy.
Now let’s go through the pros and cons of the Build and Hold strategy.
When you use the Build and Hold strategy you’ll buy a New Build.
You can buy a New Build with a lower deposit than existing properties. Investors need a 20% deposit for New Builds, and 30% for existing ones.
They also dodge the new debt-to-income ratios (DTI). That’s the rule that caps the amount you can borrow at 7x income for investors.
That means you need less money for the deposit, and can borrow more from the bank when you buy New Builds, which lets many investors grow their portfolios faster than if they used a standard Buy and Hold strategy.
Because they are new, you don’t have as many long-term maintenance concerns. You won’t have to replace the roof or the hot water cylinder for a while. And you don’t have to find a budget to renovate them.
That said, one of the cons is that you can’t renovate them to add value. Some investors prefer that method.
On top of this, there aren’t as many New Builds to choose from compared with existing properties. You’ve also got other expenses like body corporates and residents’ association fees, which you can’t opt out of.
And you’ve also got to hold onto the property for 15 years(ish), for this strategy to work.
The truth is that the Build and Hold strategy will be right for some investors, but won’t be the right fit for others.
If you want a passive strategy, investing over a long time, then Build and Hold is likely to be a good fit.
But if you want to renovate, or have more choice about the type of property you buy ... it probably won’t fit the bill.
If you're ready to use the Build and Hold strategy, book a free session here with the team and take your first steps towards growing your wealth.
Managing Director, 20+ Years' Experience Investing In Property, Author & Host
Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.
