With the recent Reserve Bank changes to investment lending there now is a distinct separation between what you can borrow for an investment property as a new build versus buying an existing house as a rental. Some of the benefits of a new build, may include:

• Renter appeal – For a renter a new build should represent a brand new house with good insulation and heating that is unlikely to present them with any issues.
• Tax – While tax deductions have reduced somewhat on houses, a new build is still more likely to have tax deductions than an existing house. It is potentially worth your time to discuss this with a accountant or tax advisor to properly understand the financial benefits.
• Lack of maintenance costs – A new building should have reduced maintenance costs compared to an existing home, assisting with cash flow and helping minimize expenses of the property.
• Borrowing – Potentially the most significant difference. Under the new rules borrowing is limited to 60% on an existing house as a rental, while borrowing is allowed up to 80% on a new build.*
• Higher rent – With greater rental appeal this may translate into a higher rental yield when compared to an existing house, though other factors such as location and number of rooms may have a greater bearing.
• Delayed settlement –  Some purchases through housing companies may involve buying land prior to title being issued then waiting for the build. So from agreeing on the sale and purchase there could be a 1-2 year period before the property is built. This could allow 1-2 years of capital gains with a minimal or no deposit required until the house is built.

The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.

*subject to normal lending criteria