Building new homes as rental properties - worth it?

[webhostienz]

how about looking for properties where you can build a minor dwelling? This is always a good stratergy if you want to consider yields.

[sazu]

Yep, MDU is my second strategy. But finding a right property and performing a due diligence seems to be challenging for such projects.

[Damap]

Rockets comments are quite incorrect. Buy anything brick in Auckland from the 50's on they are all sound as. Auckland doesn't have subsidence issues etc and are far better built in the 50 to the 80's than anything you can build for similar money. I am not anti building I think new houses are a great idea but they make no financial sense. I had 52 homes in Auckland built between the 50's and late 90's. The newer they were the more headache they were. And it's even worse now IMHO. Simple fact is you can buy for say $2500 to $3000 a square foot in Auckland house and land. You can't buy sections and build for anything like that, unless you build complete rubbish that will cause you problems down the road anyway.

[ivanp]

Why are companies like A1Homes so cheap?

http://www.a1homes.co.nz/plans/6/BH136 - That comes to about 1500/sqm just for the house build.

Some parts of their spec are quite funny, like these:

* 180 litre HWC for 4-bedroom house - what a joke

* they fill double-glazed windows with Argon gas, but use basic frame, without thermal break. Argon is the last thing I would spend money in windows cause it adds the least benefit and will leak in few years anyway.

[rocket]

5-5.5%
Otahuhu

[sazu]

That's really reassuring, rocket. Not sure if I can emulate anything like your deal. Good luck.

[sazu]

I totally agree with Damap. However, I am thinking what I can leverage by building new. e.g. economy of scale (i.e. building 2 homes might save some building cost while providing better capital gain).

[Damap]

You might create some equity but only if you can compete with all the real devs buying all the sites in Auckland.

[rocket]

What are you planning Sazu? What yield etc.

[sazu]

Planning for 800+m2, subdivide, 2 new builds, Henderson or blockhouse bay. With all assumptions, 3.8% yields looks possible.

[Damap]

So why on earth would you bother for such low returns?

[sazu]

The hope that CG might compensate the yield at least partly in a 10-year horizon. May be I am misreading or reading too much into the market?

[Damap]

But you will get MORE growth arguably out of second hand stock and you can buy at better yields. I just don't see any benefit in building as an investor. It just costs too much, hence the bad returns.

[ivanp]

Building new makes sense only if you are a builder yourself, cause you can build at good price - from my neighbour who is a builder in Whangaparaoa I see that can build quality homes around $1600-1700 per sqm including all expenses, incl. plans/consents, but before his margin/profit. That gives you a nice 120-130sqm 3-bedroom single-garage home (on flat site) for $190K.

[Crookie]

Building new makes sense only if you are a builder yourself, cause you can build at good price - from my neighbour who is a builder in Whangaparaoa I see that can build quality homes around $1600-1700 per sqm including all expenses, incl. plans/consents, but before his margin/profit. That gives you a nice 120-130sqm 3-bedroom single-garage home (on flat site) for $190K.

whose your neighbour? sounds like I need to talk to him!
Just had prices back to build a home and income in arkles bay, scary!