New Builds are in fact a good investment for first home buyers especially with the real estate market in New Zealand booming. We have seen an increase in the number of first home buyers that are buying new builds as an investment.
First home buyers will think that a new build will be too expensive. People may advise them to start with a house that needs work. While it makes sense to ensure that you are buying a home that fits within your budget, you also don’t want to purchase a house that requires more work as you may not be capable of doing it, or you may not be able afford it. You should have a look at what is available before you exclude a new build.
New Builds Don’t Have To Be Expensive
There is a perception that a new home will cost more, and in fact, some new builds will.
Many building companies are building lower cost homes, designed specifically for first home buyers. There are still many benefits that come with purchasing these lower cost homes, even though the cost and price may be lower, these homes still look as good as the expensive homes. These homes are sold with a fixed design, and fixed cost.
The agreements are known as “turn key”.
Once you have purchased your new build, you pay a deposit. upon completion, you will then pay the balance, take possession, and get given the keys – you turn the key and walk into your completed new home.
Turn key contracts are popular especially for first home buyers.
Understanding The Cost Of New Builds
You may ask yourself why house prices vary. Some suburbs are deemed more desirable and therefore the cost will be more expensive. Some houses appear similar, yet the prices differ. Sometimes it is hard to see why.
The reality is, house prices are set by supply and demand. It could be that there are more buyers than available properties and that forces the price to go up. The opposite can happen at times too when there are a few buyers and more properties listed.
The cost of a new home can be split up to the cost of the land and the cost of the build.
The Land – The cost of the land can make up a significant part of the overall cost and especially in larger cities when land is in short supply. What we are seeing in many of the new suburbs are several smaller sections designed to help keep the total cost lower. While some people want larger sections, this is something that you may need to accept when you need to keep within a budget.
The Build – There are many ways that building companies can keep costs down and it doesn’t mean that the quality is poor. When you are building your dream home you may want to use top quality and rather expensive materials, but you can also select materials that sit within a budget. You can use standard joinery, pine decking, reasonably affordable appliances, and floor coverings etc. Yes, you may want a top-of-the-line Miele oven which costs over $10,000 but you can also get some good ovens for about $1,000.
Considering buying your first home? You should shop around and see what you can get within a budget.
Other Reasons That First Home Buyers Choose New Builds
If you are a first home buyer, you already know that purchasing a house is a major step.
There are several reasons why first home buyers are looking at new builds:
Let’s consider these three other reasons new builds can be a good option;
1. Set Prices – Many properties are sold at auctions and are often snapped up quickly. This makes it hard for first home buyers and especially when the property market is booming.
2. Incentives To Go New – The Governments of the past few years have understood the lack of new homes being built, it has caused significant price increases. To get more homes built they have incentivised first home buyers by doubling the First Home Grant that is available. This
means a couple could get up to $20,000 if they are buying a new home.
3. More Time – Many new builds are sold off the plans and so your new home may be a few months before it is ready. While you may want to move straight in, the extra time can be a real bonus as it means you can buy at today’s prices but have time to save a bigger deposit and
hopefully watch the value increase too.
There are some things that you need to be aware of too.
Consider Your Mortgage Structure Too
While it’s easy to look at the low home loan interest rates, you should consider your mortgage structure carefully.
The structure will depend on the type of purchase agreement you have. When buying new builds there are two main types of agreements;
Turn Key – this is where you pay a deposit and then pay the balance on settlement. With these agreements you can structure the finance as the completed home and while you cannot confirm the loan until the build is near completion, you can decide on the strategy that will set the loan structure.
Standard Construction Loans – are where you purchase the land and then progressively draw down the funds for the build as required. You can lock in a fixed rate for the money borrowed for the land, but the finance for the build is on a floating rate until completed. Then you can set up the loan structure that you want.
As a mortgage adviser, I often help people purchasing new builds. They are so excited that they forget to spend the time learning and deciding on a suitable loan structure.
At the time, it may not seem important but it can actually make a huge difference over time. You should take some time to get the loan structure right, it can save you a lot of money and also help you get debt free faster.
It is vital that you take the time to think through the loan structure especially important for first home buyers who may have lower deposits and therefore be paying low equity margins which means higher interest rates. You want to be able to take advantage of house prices increasing which means your equity can increase and the saving of getting rid of the low equity margin.
A good loan structure can also give you options and financial protection in the future.
It’s one of the benefits of buying new builds and using a mortgage adviser that knows about the finance required.
