Existing builds are now known as the poor cousin to new builds in the current tax environment. The reason for this is that investors can deduct interest before tax on new builds, whereas this is being phased out for existing builds.

Additionally, Healthy Homes Standards mean higher capital expenditures has been faced by every investor. It’s a double whammy on the bottom line for existing build landlords.

Long gone are the days of buying any investment property, giving it a lick of paint and hoping it’ll be a good investment. Renovating to offset the operational costs is tricky and wrought with complication if not executed well.

So why is it that investors such as Ilse Wolfe are still so passionate about acquiring them?

Existing Builds Success

Existing builds offer many opportunities for value-add strategies to achieve rent stretch, such as the BRRRR strategy (buy, renovate, rent, refinance, repeat) that Wolfe has built her $17 million portfolio exclusively using. It requires the investor to be both calculated and accurate when scoping a renovation which is why Wolfe designed her Cashflow Hack principles as a paint-by-numbers approach to focus on rent uplift through renovations.

Gross Yield And Passive Income

Investors approach us to achieve either a passive income or gross yield target. Gross yield, for definition sake here will be the annualised rent divided by the purchase price. Passive income is hard to control as it is at the mercy of interest rate and regulatory changes such as tax treatment. Gross yield is more reasonable to gauge relative performance across potential deals.

Investors need focus on maximising the yield during due diligence so that the property may up better against lending criteria at the refinance stage.

“At Opes Accelerate we coach our clients to manufacture 8 per cent plus gross yield from a stand-alone property or 11 per cent plus from dual-income Cashflow Hacks. The first step begins with setting very clear criteria to ensure that the eventuating rental satisfies the client’s objective,” Wolfe says.

he same property, without being Cashflow Hacked would likely return a ~ 4 per cent gross yield, largely relying on personal income servicing to secure the next deal, only to then slow long-term progress.

“Assuming rent growth is the same, If a property could return 8 per cent (cashflow hacked) or 4 per cent (buy and hope), which strategy do you think will build a portfolio faster?’

Land-Bank Opportunity

The other often forgotten benefit of existing builds is land-bank opportunity. Put simply, this is future development value that sits in the back or front yard.

New builds are generally optimised for design by the developer; by contrast, older suburbs of existing builds often offer a future bite of the cherry through subdivision or dwelling intensification. This isn’t to suggest every investor should become a developer, but the future value becomes baked in over time as its surroundings develop. The value additionally serves as a means to sell the backyard and freehold the original rental, boosting passive income.

How can you bank this value? Learning the zoning and housing intensification of the local district plan enables one to take advantage of this when negotiating the deal. Perhaps meeting a vendor at a higher price will seem less costly knowing that the site can convert to multiple titles in future. A client recently banked an additional land parcel from what was already a triple subdivisible site. A new district plan created a smaller minimum site size for land larger than 1ha: and three sites became four.

Future land value can balance the equation of a potential deal. While 8 per cent gross yield will drive earlier passive income, it is the land potential that will add wealth-boosting effects to a portfolio. Weighing the value of the land-bank opportunity alongside the rent performance of a potential purchase helps an investor decide whether it meets their goals or not.