Can I Profit From a New Build?
As someone who has advised on hundreds of properties through our network, it frustrates me when ill-informed commentators generalise that new builds are a below-par investment.
Some mistakenly believe new constructions are generic – where every home in the estate is identical to its neighbours. They can’t seem to grasp the concept of ‘uniqueness’ among house-and-land packages. These observers dismiss new-builds because they erroneously say each home offers tenants and buyers the same thing, which to them suggests a low chance of value increases.
This is patently untrue in my experience. If you take the time to study markets properly, you’ll discover not every new home or townhouse within an estate offers the same potential.
Assuming sameness is a critical error that can see a purchaser miss out on thousands of dollars in capital gains, or overpaying for an inferior investment.
Here are my four tips for discovering the best investments in the new-build space?
1. Complete a Demographic Analysis
The end user of your new-build investment will be a tenant and meeting their needs is key to maximising rent and minimising vacancies.
So, before deciding on a particular construction, think about who your tenant will be.
If you’re buying in a new community development with schools and shopping facilities that will attract families, perhaps a four-bedroom, two-bathroom, double-garage detached home is the go.
Are you purchasing in an area dominated by young commuters travelling via public transport to work each day? In that case a three-bed townhouse with courtyard might be the answer.
Don’t just stop at the build either. Ensure the land component will meet their needs too. Yards for families are great, while couples might prefer low-maintenance spaces.
2. Shoot for Quality Finishes
Fitting out a new investment with cheap fittings is a false saving.
One of the great advantages with new builds for landlords is that by selecting quality fittings, fixtures and finishes, you can keep ongoing maintenance costs at a minimum.
The other benefit is tenants, like most humans, like to live in beautifully finished homes with a functional, high-quality fitout. They will pay a premium rent to enjoy these, and be less inclined to move when the lease ends.
One simple things test is to ensure benchtops are stone, not laminate. If you see laminate, walk away – it has no appeal for tenants, looks cheap and is easily damaged. It might also indicate your builder is looking to cut corners on quality.
Another component will be around heating and cooling the home. A recognisable brand name air conditioner with a track record of reliability is absolutely the go.
The same goes for kitchen appliances and other fittings, such as tapware. Nobody wants their oven to breakdown in the middle of preparing dinner, after all.
Use quality hardware in your specifications and it’ll pay off over the long term.
3. Check the Builder’s Track Record
One of the best ways to vet for a great investment is to use an excellent builder, although finding them takes work.
There are plenty of ways to confirm a builder’s record of excellence. Check references from past clients thoroughly. Door knock others in the estate who have the same home and ask plenty of questions.
Do a search of relevant building advisory bodies and ensure the builder has a history of delivering on their promises.
Another question worth asking is how many homes they complete each year. Too few and they’re having trouble landing clients. Too many and they might be mass producing and outsourcing to contractors too often.
It isn’t easy – we’ve spent years building a list of reliable builders – however, the results can save you a lot of heartache.
4. Understand the Contract
For inexperienced investors, building contracts can be a minefield.
Everything from warranties to liquidated damages, variations to delays. The building contract is a comprehensive ‘rule book’ about the construction project and is a legally binding agreement between you and the builder.
If you don’t have the skills to understand the implications of your contract conditions, ask someone else to analyse it on your behalf. They should be able to highlight where responsibilities lay, and the outcomes for failing to meet them.
Just like established housing, every new home has its own unique elements – and these varying components can mark the difference between a lousy investment and diamond find. Our national network of independent Property Investment Advisories can work closely with you to access your strategy and analyse all elements of an investment property to achieve the results you are looking to achieve.
Article by Richard Crabb – MD ASPIRE Property Advisor Network | PIPA Board Member