In this blog we discuss new builds and young investors with low deposits.
No one knows exactly what will happen to the property market and there are many opposing views as to whether investing in the current market is a good idea. Everyone is an ‘expert’ when it comes to discussing what is going to happen next, with some saying the market will crash, and others saying it will continue to rise.
It’s true that the number of listings that are currently on the market are low compared to this time last year. However, instead of taking the ‘sit back and watch’ approach, many investors are responding to this market in a new way, and taking a different approach when it comes to investing in property.
They’re getting proactive – investors are studying the market and reading the news as well as the latest market statistics available. They are particularly taking notice of listings that have been on the market for a while and, most importantly, they’re getting creative when it comes to their investment strategy.
In this new style market, becoming part of the investor community or looking for the next rental to add to your portfolio is all about thinking smarter and not working harder.
New builds
The latest trend series released from Statistics NZ shows that building consents for new dwellings are climbing in Wellington and indeed the rest of the North Island.
As a result of recent changes to the Loan to Value Ratio rules (LVR), investors now need to have a 40% deposit to purchase a residential property. However, for new builds (completed within the previous six months), 80% of lending is still possible, making new builds more achievable for some.
Investors should therefore keep their eye out for subdivisions coming to their area, especially those that consist of house and land packages (also known as turnkey projects). Typically these are purchased at today’s price with only a deposit to be paid, with the balance being paid several months later on completion. By the time you have to pay for the property in full the value has more than likely increased. New builds or buying off the plan also represent attractive investment opportunities as investors can enjoy tax depreciation, lending, security and other benefits.
Mortgage broker Andrew MacKenzie says that home owners can utilise the equity in their current home to purchase new builds with a 20% deposit with the view to renting it out. In two years’ time when the development is complete investors can then sell the property with capital growth, or keep it and continue to have high occupancy and attract good tenants that are drawn by the appeal of a brand new finished development. Owning a new build also means that everything in the property is new and there will be little to no maintenance costs for the first few years, helping the investor budget more accurately.
A young investor with low deposit
Many young people are finding that buying their first home can seem next to impossible in this market, even for those earning a reasonable income. This is prompting many first home buyers to consider purchasing a property with friends. According to Mortgage Broker Andrew MacKenzie, you don’t need to earn a large income to purchase property. “There’s great opportunity for savvy likeminded investors to combine their incomes to meet the tightening bank criteria and get themselves on the investment ladder.”
Buying rentals when you are younger can be easier as you are usually more flexible, you can take risks if you don’t have responsibilities, and you have more time. Take for example 25-year-old Elliot Jones who completed his degree and then became a full-time property developer by purchasing a joint investment property with an angel investor, his boss. At the time Jones had no money, but he had the strategy. His boss helped him to work out where he wanted to go and how the business would work.
Jones and his partner invested time in seminars and learned how to renovate to add value, what to look for in neighbourhoods, and how to operate in an ever-changing property market. In just a few short years he has completed over 50 property deals and more than 20 renovations in Wellington, Hamilton and Auckland.
