Building new homes as rental properties - worth it?

[sazu]

Hello all.

I am fairly new to property investing. Thinking of buying a 800m2+ section in Auckland (e.g. Henderson), subdivide and build two rental homes.

The aim is to get at at least 15% equity on the handover date and 5% yield (happy to leave the capital gain to the market to decide)

Can experienced investors share their thoughts on advantages, disadvantages (including potential pitfalls)?

Many thanks

[webhostienz]

not with the current criminally high cost of building. 2800 -3200/m2.. you will never make 5 % on a new build in henderson if you account for the cost of subdivision + build costs.

[Damap]

Your main problem is buying your 800sqm section and subdividing. You will pay far too much for that right now to make your idea work I think. Need to be doing that early boom or during a slump to be safe.

[Damap]

What MIGHT work is to find a section you can build a home and income on. Less costs and better final yields. Still hard to find the site without paying too much.

[sazu]

Thank you Webhostienz and Damap. Is there any positives at all with the new builds (other than it will be new)?

Should the cost of new builds same for rental and owner properties? is there a strategy to minimize the new build cost for rentals (without affecting the capital gain)?

If the prospects of new builds for the rentals are that bleak, what does that mean to real estate investing in Auckland in the long-term?

[webhostienz]

my views are based only on my recent experience with building new.

The flip side to this is that because new builds are so expensive and the return of investment is so bleak, developers will continue to just hold onto land which will lead to demand outstripping supply. Council costs (9k water 5k elec + development contributions) together with building costs of roughly 3k/m2 will always result in cost being too significant.

You can get a low spec build for about 2300-2500/m2

[Damap]

When we had depreciation new builds were more viable. Second hand is cheaper I can't think of any reason to build new these days.

[evilc79]

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.

Is it an Auckland vs RestOfNewZealand thing?

[Damap]

I have built 1 of their homes. Spent more getting it fixed than having it built. Was a few years ago they may better now. But for $1500 it has to be garbage quality.

[evilc79]

Thank Damap. Won't their 10 yr master builders guarantee take care of any shoddy workmanship?

[sazu]

Thanks for the insightful comments Damap. Do you recommend any builders as we are looking for some? please PM me your e-mail address if you don't mind.

[Damap]

Sentinel Homes, Stuart Shutt's company are the best I know. Have used them many times.

[sazu]

Thank you Damap I will contact one or both

[rocket]

Well!!... investment rental houses under 600k are crap quality any how in akl. You can't buy a good quality brick and tile fully insulated free hold house as a cash flow neutral investment in akl. All you can buy for 600k or under is a 1970's fiber cement given a cosmetic make over.
In my opinion a new house is at least build with current building code even if it's been built by a cheap builder. You will have less hassles & will have 10 yrs warranty.

But yes a new build means lot of running around. , waiting time & stress.
I am doing it at the moment ..

[sazu]

Hi rocket, I too might head towards new build. What is the yield you are expecting? which suburb if I may ask?