Invest in property
Invest in a new build, or existing property?Invest in property
You’ve already been around the block when it comes to purchasing your first home but now you’re thinking about investing in further property. What type of property should you buy? Does a new build benefit more than an established property? Let’s explore your options and review important considerations that occur when investing in property.
Tax deductibility
New builds
Recent changes in the interest deductibility rules mean that you can no longer claim a tax deduction for interest against your rental income. This means that at the end of the financial year, your tax payable will be higher than it would have been in previous years. An exception to this rule is on newly built properties. As an owner of a new build property, you can deduct interest off your rental income for up to 20 years from the time that the property has been issued its code of compliance certificate. To be exempt from the interest deductibility changes, a new build must also have received its code compliance certificate on or after 27 March 2021.
Existing properties
If you bought your investment property on or after the 27th of March 2021, the interest expenses cannot be claimed as an expense.
The Bright Line Rule
When you buy, then sell new builds:
New builds have a bright-line rule of 5 years. If selling the property after 5 years of owing it, a capital gains tax won't be applicable.
When you buy then sell an existing property:
For properties bought after the 26th of March 2021, the period for the bright-line rule is 10 years.
Healthy Home compliance
New builds
As an owner of an investment property, it is your responsibility to ensure that your property meets the standard of having a healthy home. There are specific compliance requirements in place for this in New Zealand.
For a new build, every compliance aspect will be covered for you but take care to understand what is required and keep your certificate of compliance and any other compliance documents for reference.
Existing properties
For existing properties, you may need to spend time and money to ensure all is up to standard. Have a look at the relevant standards. We’ve linked the Tenancy Services health homes page in our useful links section below.
Deposit requirements
New builds
The benefit of purchasing a new build investment property is that most banks generally allow you to borrow up to 90% of the value of the property (ie only have a 10% deposit).
Existing properties
If purchasing an existing property as an investment, most banks and lenders will require you to have a 40% deposit.
Maintenance
New build
Buying a new build means that everything, by definition, is new, so you won’t need to spend money up front getting things up to scratch before a tenant moves in. You would expect the ongoing maintenance cost to be lower as well compared with anticipated maintenance costs of something older. For these reasons, you may also be paying a premium when buying a new build.
Existing properties
You may find buying an existing property more affordable than buying a new build. As with all investment properties, regardless of if it’s a new or existing property, there are certain expenses you would need to cover if an issue ever arose with them. Think broken ovens and other appliances, electrical wiring in the house, plumbing etc. The newer the product, or more recent the installation, the longer it will be before an issue is expected to arise from it.
Rental income potential
New builds
Just like buying new, it can be expected that with newer items, you’d attract a higher rental range to market your new build property. New appliances and comfort provided by the fact the home will be insulated better than an older house of the same size, are key points renters will see as benefits, thus making the property more attractive and ability to rent at a higher price.
Existing properties
If your established property requires a lot of maintenance, chances are that you will be spending more of the rental income earned on maintenance, thus reducing your profit from your investment.
It’s all in the Location!
New builds
Buying a new build will likely see you purchasing outside of an established suburb (sometimes venturing far from the city where most renters will work in and not be as comfortable travelling from, given the cost of fuel these days). If there are a number of new builds being developed with sections still for sale, this can also have an effect on immediate marketability for renters (having to listen to construction noise whilst working from home could be off putting for most). The alternative is if you manage to find some infill housing, where a property is being built on an existing residential site.
Existing properties
An existing property will generally be in an established suburb that does not have a lot of building or developments in works. This can be more attractive as closer to public transport and local restaurants and attractions.
Purchase price negotiations
New Builds
There is generally little to no price negotiating on a new build. New build properties prices are set by the property developers. You do however get to have a breakdown of the cost of the build in the construction contract, meaning you will see the value of what you are paying for.
Existing properties
There may be a bit more wiggle room for negotiation with existing properties. The vendor may have varying reasons why they may be flexible on price; maybe they’ve already bought another property and has a sale timeframe in mind, or there is an ongoing maintenance cost that the vender or willing to lower the price for. Regardless, with existing properties there are more chances that the vendor is on tighter sale timeframe so may be more willing to negotiate on price.
Property Management
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