Is this a good time to build?

[JABlog]

Seems with Building consents significantly down now is perhaps its never being a better time to build but what happens next- with the market going sideways you will have a property that is brand new , yes you could tenant it but with depreciation now gone will it still be worthwhile.

This leads me to another question. Why is the government is not seeing PI provide a service to the state housing which without it people on state dependent welfare housing will have nowhere to live.

I am in second thought to build even though my section is debt free but see no alternative but to hold on rather than build and rent out to a system that seems to penalise investors for providing a much needed housing especially in Auckland.

[Orkibi]

There are few points to consider which I think could help with making the call if to build or not.

Building consents significantly down now is perhaps its never being a better time to build

Yes If you can get a good builder to do the job at a very comparative price then this may be good timing.
Where are you in NZ?? If you are in CHCH so building costs etc may go up any time soon.

What are your planes? To Build and Hold OR Build and sell??

If Build and Hold there is no point Building anything in AKL with yield on all up costs bellow 9% IMHO.

If Build and sell then you need to do your number very carefully and make sure you have reasonable margin there, so your buyer get good Deal.

[JABlog]

I'm in Auckland- Takanini to be exact, bought a section in 2006 (quite reasonable at the time 200K, have drawn up a plan, 3bdrm total cost (holding costs not incl) 360k.
sales for existing houses are within this range however have to factor in Interest rates will be approx 7.5 per by the time its finished, I could rent it out but new house with no deprecation and the types of tenants (low socio-economics) not a good return.
However, as its paid off (section) I am getting 0 % return but selling off and renting will at least bring in some income. Interested in hearing from someone who is in this predictment.

HAVE A GREAT DAY.

[Orkibi]

So you Paid off the section and calculated 160k for total build and services cost - sound Cheap/ maybe too cheap.

How big is the section??

Sounds like if you build and sell you will not make much money on it.
(Not sure why you purchase the section from the first pace.)

I see 3 option which would be worth seriously considering.

1. Building and Lease optioning the house to a Tenant buyer who would pay high then Market rent etc (Rent To Own Program)

2. Bilding and reciving reasonable yield on your new Build Outlay, Over all if build at 160k and rent for 350pw = over 10% veiled. (although your all up cost would be around 5%)

3. Do nothing just seat on it for few years until the marker recovers.


MOST ATTRACTIVE I would say Option 1.

[JABlog]

Thanks makes it a sound advise.
***Not sure why you purchase the section from the first pace**
Ahh $69 mill question, well to cut a long story short , it started with where else you get a 500 m2 section in Akl, well then the market turned to custard..

[Orkibi]

***Not sure why you purchase the section from the first pace**
Ahh $69 mill question, well to cut a long story short , it started with where else you get a 500 m2 section in Akl, well then the market turned to custard..

This type of things happens in a down turn..

If you choose to go with option 1, feel free to contact me and I could put you on to RTO/LO Specialist who could help you to put the program together.

All the best.

[JABlog]

Great thanks, please leave me your details

[Davo36]

JABlog, I understand your predicament very well.

In my thread here, I detail how I've just built 3 apartments, refurbished an office and retail space etc. Same council area as you, PDC, now merged into ACC.

In your opening post, you say

This leads me to another question. Why is the government is not seeing PI provide a service to the state housing which without it people on state dependent welfare housing will have nowhere to live.

Well this is the $64 million dollar question isn't it? Why would anyone build a house right now? You might if you wanted to live there but as an investment? The government has decided us property investors are bad bad people and have ruined the economy so we have to pay more tax to help out - because up to now we've been rapacious money grubbing types leaching off of society apparently. Which comes as new to most PIs who thought they had worked very hard and managed to scrape together some money to invest.

So, the answer to your question from the government's perspective is "No". They want you to keep your money in the bank, or buy shares or what have you as they see this as being safer. They call this "rebalancing the economy".

But from an investors point of view is the answer also "No"? Or is it "Yes"? Or does it depend on individual circumstances? I think it's probably the latter.


I decided to build because:

1) I was also debt free and some cash in the bank after I had bought my property. I don't reckon the bank is ever a good place for cash, but especially not with the US and the UK printing money!
2) I couldn't leave it as is, as it was costing around $10k pa in rates etc. to hold.
3) No one would buy it empty for the price I wanted. In hind sight I should have just sold for a small profit.
4) I couldn't see building costs coming down anytime soon. And they haven't, and won't I reckon.
5) I assumed the council would be glad for me to upgrade this old run down building. How naive and wrong could I have been!
6) I also assumed the whole process would be quicker, cheaper and easier. It was long and hard.
7) I believed we may be heading for a housing shortage. I still think this. It's so hard to build residential housing these days. It's very expensive and lots of people are just giving up. So rents must have to go up at some point, but perhaps this is a few years away yet.
I was able to lease the commercial bits off of the plans. In fact I had more than one retail tenant wanting it, so this tells me something.
9) I wanted an income.



So ask yourself these questions:

1) Do you know anything about council processes. Have you built a house in the last 5 years? If not you are in for a very steep learning curve.
2) Do you have a good trustworthy builder you know or that someone has recommended to you? This is very important.
3) How have you arrived at your building costs? Are they accurate? You will need at least a 5% contingency amount - which you will spend.
4) Have you factored in things like development contributions, reserve contributions? And possibly other council fees?
5) You know you can't claim the GST back right? So everything you buy needs to be priced at the GST inclusive price right?
6) Are you prepared for this to take a long time? You may need resource consent to build and then you will need building consent. This could take a year to get. Sounds crazily long, but it will.
7) What sort of tenants will you get and what will they pay? You might well be able to just go and buy something at the sort of yield you will end up with, saving yourself all the hassle of building.


Basically investing and developing are 2 different things. You can make money in both. But I have found investing much less stressful and more profitable so I'm going back to that.


All the best with whatever you decided to do. Keep up the good fight.

[JABlog]

Thanks DAvo, I know exactly where you are coming from with respect to Policy makers.
Answers to your these questions in RED:

1) Do you know anything about council processes. Have you built a house in the last 5 years? If not you are in for a very steep learning curve.
yes have built 2 personal houses before.

2) Do you have a good trustworthy builder you know or that someone has recommended to you? This is very important. yes
3) How have you arrived at your building costs? Are they accurate? You will need at least a 5% contingency amount - which you will spend. have got a quote from a builder he is building the same one next door
4) Have you factored in things like development contributions, reserve contributions? And possibly other council fees? yes around $10- 12K
5) You know you can't claim the GST back right? So everything you buy needs to be priced at the GST inclusive price right? unfortunately Not- not a trader
6) Are you prepared for this to take a long time? You may need resource consent to build and then you will need building consent. This could take a year to get. Sounds crazily long, but it will. previous plans one took 3 month worst case scenario
7) What sort of tenants will you get and what will they pay? You might well be able to just go and buy something at the sort of yield you will end up with, saving yourself all the hassle of building. Low socio - hence my fear of renting it out

Section wont sell as there 20 more with 20 percent discounted price thats my predictment. So either build/sell or rent or hold and keep losing money ...

[Davo36]

right, well it sounds like you know what you're doing building-wise JABlog. So if you want to sell this property, then this may be the quickest way to do it.

Of course if you could hold it for a number of years, you'd be able to sell both houses for a lot more than you can now.

Just one thing though. Point 4 above. Have you already paid your reserve contributions? I would expect the development contributions to be $13k alone.

[Learning Landlord]

Building has been good - so far.

Just on the matter of low building consents and being a good time to build - I looked at that stat, did all the build figures and went ahead. So far so good. Have built a med-higher spec place.

Builder did a good deal on the project, bank was ok with it all, and so far the numbers have stacked up fine. Blow outs in some parts of the budget, savings in others (and of course the greedy materials supplier adding a 10% "price increase" half way through the project. Love those estimates, not quotes, from the big suppliers...).

Depending on where you are and what the purpose of the build is, will make a difference to decide on building or not. I buy/build and hold, but thats just me.

Personally I never want to renovate again after this new build experience...

[Davo36]

Learning Landlord, you say everything went OK but then that you would never do it again.

Why is this? Are you just sick of the whole building thing?

[Learning Landlord]

Learning Landlord, you say everything went OK but then that you would never do it again.

Why is this? Are you just sick of the whole building thing?

No the opposite in fact. I said I would never renovate again. Doing up old houses, of which Ive done several, is hard slog, and a longer more brutal process than building new IMO.

Depends on the type of reno of course, but I would rather build new (and am planning another at this minute), than do up an old boiler

The biggest pain Ive had with a new build is the 'estimates' suppliers give (building suppliers actually), who then put there estimates up. What are they, floating interest rate bankers!?

[LKSteve]

Cheap Property

Property in New Zealand will fall in value over the coming year. There is barely any economic growth. Cash will be king in 2011. Instead of taking the knife to a bloated public sector the government will be taxing by stealth every possible revenue generating activity & this includes property development. The economy of New Zealand is headed for very stormy waters. Why would you want to build?

[Learning Landlord]

Property in New Zealand will fall in value over the coming year. There is barely any economic growth. Cash will be king in 2011. Instead of taking the knife to a bloated public sector the government will be taxing by stealth every possible revenue generating activity & this includes property development. The economy of New Zealand is headed for very stormy waters. Why would you want to build?

Hi there. I agree with you on several points. The recent MPs payrise is a great illustration of how Govt doen't give a sh*t about the people of NZ. Along with the coastal/seabed fiasco, and as you say, the tax by stealth, we are in for a rough ride...

As far as building goes, I think that every individual situation is different. That is why I havent posted a huge amount on these forums - each persons situation, and the place they are in is so different.

I decided to build new (and cut an old rental property from my portfolio), as it suited my circumstances. May not for others. I have the following options re the new build:

1. Rent to a long term tenant.

2. Rent as holiday accommodation - short or longer term (it is a beach house and I know the market very well in this area).

3. Sell. I havent thought about this in any way as yet, but if pushed I could look at that option.

4. Live in it myself. I'd like to live by the sea in a nice new shiny modern house. Would beat the crappy old single glassed box I live in now.

5. Rent it to Housing Corp. Ok ok, that was a joke...

6. Trade it. Don't laugh. There are many different ways to do business.

7. Any finally, rent it a s a business premises eg child care centre. Another place similar to this new build has done just that. There is a shortage in this area of childcare facilities.

Anyway, I personally strive to come up with imaginative and 'non sheep following' ideas and projects ie outside the " ." I know I may fall flat on my face. But whats the worst that happens - I lose my deposit.

Your points are taken though, and valid at that...