Investment Property 101
New Builds vs Existing
When it comes to buying an investment property there are some compelling reasons to buy a new build vs an existing property, and it’s not just the gorgeous new home to promote to tenants. We detail the three top reasons to buy new in the first article of our Property 101 series.
Reason #1: You need less deposit for a new build
Let’s start by explaining ‘Loan to Value’ ratios or LVRs. A loan to value ratio simply measures the amount of debt you have against a property compared to its worth. For example if a property is worth $500,000 and your mortgage is $250,000 then it’s LVR is 50%. In New Zealand the Reserve Bank puts rules in place for commercial banks to restrict lending above certain LVRs.
One of these rules is that when buying an existing home as a property investment you require at least a 35% deposit. This ensures that your LVR is 65% or less. However when buying a new build you will only require a 20% deposit or an LVR of 80%. A much easier goal to save towards or borrow as equity from your owner occupied home.
Reason #2: You pay less tax for a new build
In 2023 the New Zealand Government passed new interest deductibility laws. In simple terms this law means that existing investment property owners pay tax on their property earnings, such as rent, but can’t deduct their mortgage payments as part of that tax equation. This makes these investment properties seem more profitable than they are, therefore increasing tax bills.
But, it is not all doom and gloom for property investment. New builds, defined as any build with a Code Compliance Certificate (CCC) dated after March 27, 2020 are one of the exemptions to this rule. This includes new builds bought off the plans from Safari Group, and the exemption lasts for 20 years. This means that when buying new you can deduct your mortgage payments from your profit, meaning a much smaller tax bill.
Reason #3: Less Maintenance
With ever increasing building code standards and rigorous checks in place for all new construction, you can rest assured that your new build investment will be built to last. New build properties come complete with the heat pumps, insulation and extraction required by landlords for healthy home compliance. With existing properties the risk that you may be lumped with a large maintenance bill increases. Lump sum expenses like new roofs, wiring or plumbing problems are more likely with an older property.