New builds are not right for everyone. In fact, most renovations-focused investors should not buy new builds at all. But, for some Kiwis, because new builds have lower maintenance, deposits and taxes, they can be the right fit.

But, with so many new builds on the market how do you figure out whether one is a good investment or not? That’s what you’ll learn in this new magazine section every month.

This month’s case study looks at a townhouse in Cross Street, Christchurch. The unit has two bedrooms, one bathroom and off-street car parking.

But don’t spend too much time looking at the pictures and floor plans. They won’t tell you whether it’s a good investment or not. Instead, you need to look at the following three factors.

THE PRICE

The most crucial factor when looking for new builds is price; it needs to be a good deal compared with other properties on the market.

This unit costs $559,000, while similar properties are priced between $569,000 and $650,000. That’s up to $90,000 more expensive.

The price is also significantly lower than what the developer would have received at the market’s peak. Fifteen months ago it would have cost at least $625,000. That’s about $66,000 more than what you could buy it for today.

To see the properties used for this comparison, use the link at the end of this article.

‘The most crucial factor when looking for new builds is price’

CASH FLOW

The primary way you make money through a new build is by holding the property over the long term. The value goes up as the market appreciates. But you can’t get those gains unless you can afford to hold on to the property.

And like most properties bought in 2023, the rent doesn’t cover all expenses. That is common for most properties at today’s interest rates.

By my forecasts, the investor will need to top up the property by $375 a week in the first year, although this will come down as interest rates gradually decline and rents continue to rise.

The projected cash flow is also about $67 a week, better than some of the other comparable properties mentioned. You can check my numbers by downloading my financial modelling at opespartners.co.nz/roi.

RETURN ON INVESTMENT

Everybody wants a high return on investment property, but very few people run the calculations.

Here is a 15-year return on investment projection for this Cross Street property compared to the other two properties mentioned.

The projections show that Cross Street is likely to deliver a higher return than the comparables.

But be careful with any projections you read (from me or anyone). You must dig into the assumptions, as these can sway the expected returns.

There’s not enough space here to go through all the assumptions, so you can download all my financial modelling at opespartners.co.nz/roi.

HOW DO I BUY A NEW BUILD?

If you’re looking to invest in a new build property like this, there are two ways to get one:

No.1 – You can use the information to find a property yourself through a developer.

No.2 – You can work with a property investment company. These businesses build you a financial plan and then find new build properties that fit that plan.

Opes Partners is one example of a property investment company, although there are others. Property investment companies often don’t charge you a fee. Instead, they get paid by the developer. It’s a bit like mortgage brokers, who usually get paid by the bank.

For my complete analysis on this property, go to opespartners.co.nz/cross-street