Many people believe that investing in property is one of the safest ways to secure a long-term, reliable income for your family. This has been proven in many ways, most notably the fact that property prices never seem to go down. The market may have peaks and troughs along the way, but over the long haul, house values usually increase over time.
So, that brings us to the idea of investment properties. Plenty of people like the idea of earning passive income from a rental property, especially as they get closer to retirement. But how do you ensure the long-term viability of owning an investment property? This is extremely important, because owning an investment property is more a marathon than a sprint.
This is one of the main reasons many people choose to build an investment property, rather than buying an existing one. As the owner, you’re responsible for repairs, maintenance and other issues. So, there’s a risk of inheriting a lot of expenses when buying an existing property when versus building a brand-new home.
Here’s 5 of the top things to consider when building an investment property.
Capital Growth and Future Earnings
Naturally, when most people start out, they borrow money to build. This means you might not be raking in the dollars straight away, with most of your rental income going towards the mortgage. That’s why the long-term prospects of an investment property are so important. You want a high-quality home in a good area, to ensure you can really reap the rewards once you’ve paid the property off.
Firstly, there is the quality of the home to consider. People can sometimes make the mistake of trying to build an investment property as quickly and cheaply as possible. They’re not living there, so it doesn’t matter as much, right? This couldn’t be further from the truth. The better quality the home, the more it can appreciate in value, the more interest you’ll be able to maintain in the rental market, and theoretically you’ll have less maintenance and repair costs.
The other vital aspects are the area you’re building in. Check the current rental prices in the area, and even recent sale prices. Obviously, you need to know the financial basics such as what your mortgage payments will be versus your expected rental income.
You can also look for predicted growth in the area. Are there plans for new shopping centres or more sub-divisions? If the area is desirable and has good future prospects, you can feel much safer about your investment.
Investment Property Location
As we mentioned above, the location is extremely important from a capital growth point of view. However, it goes a little further than that. Looking into the future is one thing, but you also need to consider if the location is desirable right now.
You can look at whether a lot of new homes are being built in the area – this gives you an indication that people want to live there. If it isn’t a new development area and you’re considering building on an existing parcel of land, what are rental prices like in the area currently? These things all need to be considered.
You also want to look at the facilities in the local area. Are there a lot of shops? Is there a good public transport system? Are there schools close by? People need a certain level of convenience, and obviously having a large range of amenities makes the area more appealing to renters.
If you have some local knowledge, you can also determine whether an area has a good reputation. We all know there are suburbs that people want to live in, and suburbs people would rather avoid.
Will the Home Design Be Appealing to Tenants?
To attract tenants now and into the future, you need to consider a practical home design. Building investment properties isn’t really the time to go too flashy with unique architectural ideas. You want something that’s aesthetically appealing and suitable for family living.
A good layout is essential, because renters need to walk through the home and imagine themselves living there. Here at Stonewood, we have a huge range of home designs to choose from, however investors love our Metro range. The visually appealing design mixed with a practical layout suitable for any family size makes it a favourite.
Basically, you just need to consider your market. If the area is popular for young families, your home design should reflect that. If you’re targeting more of a single, professional market, make sure your home appeals to that type of audience.
Features of the Investment Property
Once you’ve decided on the right kind of layout and home design, you need to consider the features of the home. Again, this may depend on the type of renters you’re looking to attract. However, you should always consider a few things that make the home appealing to all types of people. Things like having a garage and/or shed space appeals to the majority of people. Level access is another important feature because it will suit retirees as well as young families.
Anything that adds a little extra value to your home is likely to be a hit with renters, so consider what you can do to give it an edge over other properties in the area. It might be a small outdoor entertaining area or a second bathroom. It’s the small features that often stand out the most.
Choose the Right Builder
Finally, choosing the right builder is essential. From a purely financial standpoint, banks are more likely to lend you money if you’re working with a reputable third-party builder. Owner-builders present more of a risk to banks because they need to rely on you to complete the work in certain timeframes and to a certain standard. This risk is removed when hiring an experienced building company.
Also, you want to make sure your builders are able to work with you to build the investment property you really want. Check their references, their testimonials, evidence of previous projects. Even better, ask if they have showhomes you can take a walkthrough. There’s nothing better than experiencing an actual home rather than just checking out some pictures. If they’re experienced in working with investors like we are here at Stonewood Homes, then you’ll be on the right track.
If you’re looking to build an investment property in New Zealand, we’d love to hear from you. With a huge amount of home designs to choose from, we can build the home that sets you up for the future. Contact us today, and our friendly team will arrange a time to discuss your needs.