Is now the time to build

Well the renovation market is certainly buoyant, with many investors taking stock and ensuring their properties are the best presented and rented easily with minimum vacancies.

We have had our busiest period in the last three years with investors adding value to their properties and increasing rents on many occasions.

So, with our business booming in a recession,   I went in search of other companies working in property investment and also making a real fist of these tough times.

I sat with Stuart Shutt, Managing Director of “Investor Homes” and talked to him about what is really happening at ground level with the new builds.

I asked Stuart to take me through the process of building a new home or investment property and to share with me his hints and tips on how to make it a successful project on time and on budget.

Inception
Whether you have your own plans or if you want a standard plan that maximises space, if you are wanting to create the most equity or rental yield, or even if you are simply building a family home, the process always starts with the initial meeting.

This meeting covers your intentions for the property; is it to be geared for cash flow, resale or as a family home?  It also covers timeframes, guarantees, council and completion process.

It is a good idea to get your builder involved before you actually purchase your section, as there are many potential pitfalls.  Your section’s soil type, slope, location of services, access and overland flow paths are just a few concepts to think through.

The “C” Word
Council costs have come under review in many parts of the country.  For example, the North Shore City Council has new guidelines on charges relating to building and concents but don’t expect them to be necessarily cheaper.

Stuart comments on one client who, after the new guidelines came into play, incurred extra costs of $4,000 to build an identical 60 square meter minor dwelling.

However, due to the downturn in building nationally, council lead times are generally quicker than over the past seven years.

Through Stuart does warn that should information be omitted or the council requires further material, the clock starts ticking from scratch again.  This can be increasingly frustrating for investors who will be sitting on bare land with no income.

Nationally, Stuart reckons the councils are all very different to deal with and struggles with the triviality of some issues.

Lead times
Once the building consent is issued how long can you expect the average build time to take from a turn key solution building company?

A three bedroom brick and tile, single-storey home can be completed in 16 weeks.  This jumps to around 20 to 22 weeks for a standard two-storey home.  Usually the project will start within two weeks of the permit being issued and once paper work and contracts have been signed.

Guarantees
With New Zealand riddled with leaky homes, I was curious to find out if my money was safe throughout the project and if the new build had any guarantees.

Stuart tells me he prefers to build with proven products such as brick and tile and weatherboard and stays away from plaster systems.  As a registered Master Builder his clients get a seven year Master Builder’s guarantee and a Master Builder’s fixed price contract is used on all projects.

Payments are staged and clients pay each stage on completion, guaranteeing they are never exposed to the builder if something untoward should happen.

Stuart recommends different products in different situations, but prefers to stick to tried and true products with long warranties.  For instance, on a sloping site, a light-weight product like palliside with a 15-year warranty, no painting and a cost effective price, is perfect.  Brick on a flat site can’t be beaten for a long-term hold.

He only uses granite work surfaces, as he says these can be purchased for the same price as laminate and are much harder wearing.  He also double glazes all properties when building, uses H3 bottom plates and treated flooring under all wet areas.

Completion
Stuart believes this to be the most important part of the building process, as it is the finished product he is handing over to the client.  Although a Master Builder’s warranty is for seven years, Investor Homes by law guarantee the home for 10 years.  He personally checks over all his homes, as does the council and Master Builders.

When all is completed and signed off, the keys are handed over with a full Code of Compliance to the client.

Costs
Stuart tells me that the cost to build has come down considerably over the last year.  He says this varies throughout the county and that building multiple dwellings can really save investors money due to economies of scale being brought into practice.

Building suppliers are working hard and prices are being driven by the downturn so Stuart is able to keep his costs low and in turn passes these on to his clients.  Stuart also notes many more people are getting several quotes which he believes is a must when building any project, particularly in the current market.

Common mistakes when building
The biggest mistake that a client makes, Stuart says, is not taking the time to understand the process.

Building is a culmination of thousands of intricate pieces in a puzzle, not something thrown together.   People underestimate the amount of time and money it costs to build a house themselves – especially investors.

They can engage builders who are not qualified and don’t provide solid contractors and it all goes down-hill from there.  New changes to the licensing of buildings in 2011 will mean more accountability, so if you are the project manager you will be held responsible.

Stuart suggests should you wish to build your dream home then get very involved.  If you’re building and investment property then leave it to the experts and run the project by the numbers.

He also says consumers need to be product aware and use proven products and not become quinea pigs of the next leaky product.

Ignorance is not bliss if you are left with a rotting house.  Use sites such as www.branz.co.nz if you are a DIY type and do your research thoroughly.

All in all, Stuart tells me that for a very long while there has not been a better time build in New Zealand.  The cost of building will never be this cheap again; land is cheap, the availability of contractors is at a premium, the timeframes are the shortest it has ever seen and a housing shortage is looming.

Example of building smart
Here is an example of one of Stuart’s recent builds that he has undertaken for himself confirming that if you buy well and add value, you can still make money in this challenging market.

Bought
An existing four-bedroom home with a 660 square metre section on Parma Place in Henderson.
Price: $242,000, rented for $380.00 per week

Added Value
He then spent $15,000 doing it up and another $150,000 building a three-bedroom minor dwelling on the back (including all council costs, driveways, landscaping etc).

End Results
The process took six months and has resulted in $400 per week rent for the existing house, plus $340 rent per week for the new minor dwelling.

Finished Value 
The two houses are valued at a total of $505,000

Although one of the smaller homes that Stuart built was for himself, he considers them very lucrative and safe.

Instant equity and a positive cash flow ensure that you can sell for a profit or hold for ongoing cash flow.

The current market has brought the initial purchase price of the home and section down, resulting in a strategy that works.

So if I’m reading what the expert is telling me correctly, now is great time to be building investment properties or that new home or minor dwelling.

Tips
Make sure you understand the building process – ignorance is not bliss

 

Mark Trafford Director “Maintain To Profit”