It’s been a challenging time in the construction sphere for both builders and property owners.
Government stimulus throughout 2020 and 2021 looked like a godsend. It boosted a building sector that was at risk of decimation under COVID-led shutdowns and economic inaction.
But the incentives did their job a bit too well. While demand for contractors and materials skyrocketed, supply couldn’t keep up. Builders signed up clients on fixed-price contracts based on their usual margins and quotes. However, the price of the items needed to complete a home build rose substantially in short shrift.
And builders copped it in the hip pocket with their margins quickly eroded.
The results were inevitable with many builders in 2021 and 2022 going broke and shutting their doors.
Despite all this, I still believe new construction is a superlative property investment opportunity in Australia… but you must choose your builder and location wisely.
Here are my tips for getting the best outcome from your new-build investment.
Listen to your advisor
Smart investors rely on guidance from experienced advisors when devising a strategy, selecting a location and managing their ongoing journey.
But advisors who specialise in new-build investment have insider knowledge about most of the builders in their hotspots.
So, check-in with your advisor on which builder to use. They will know contractors with a track record of excellent service. The advisor’s recommended builder will offer the best quality build, and it will meet your investment expectations. Given your advisor’s presence in this market, quality builders will want to forge and maintain a strong relationship with them. This will include delivering top-notch attention to the advisors when it comes time to build.
Shoot for quality in the build
Repeat after me – it’s not all about the lowest price.
Time and again I see investors try and keep their construction costs as low as possible, but this usually comes at the expense of quality… and that’s a false economy when investing.
Quality construction will cost a little more at first, but the benefits over the life of the investment are well and truly worth it.
For starters, tenants will pay a rental premium for a quality build. It’s a great way to maximise your returns.
In addition, quality builds require far less ongoing maintenance. When better quality fittings and fixtures are used, and they’ve been installed by skilled tradesman, the chances of replacement or repair are greatly diminished.
Teamwork makes the dream work
There’s another key element for success when it comes to building your investment property.
Remember that the end goal of the process is to have a great investment in an excellent location where you can enjoy good tenancy, sustainable rents and high capital growth.
To achieve this outcome you must work with your builder, not in competition with them.
Good builders spend significant time forecasting and planning to get the pricing right when quoting for your job – but there have been plenty of excellent experienced builders caught out by recent price hikes in materials and labour.
In most contracts, there will now be a price escalation clause. While some investors will baulk at this, they shouldn’t.
If material prices rise and it triggers the clause, your good quality builder will open a discussion about how to adjust the contract. Don’t let your first reaction be to say, “That’s not my problem mate.”
Why? Because if you don’t find a suitable solution, your builder can’t finish the job as they’re now working just to make a financial loss. As a result, you won’t get your investment completed on time. Worse still, if you go to a new contractor and get them to quote on completing the half-built property, I guarantee their costs will be higher.
In my experience, it is better to work with a good builder you have to find a beneficial answer to the problem.
You might even see some other changes in building contracts now, such as alterations to the drawdown schedule or even owners paying deposits on materials to lock in prices.
Under the right circumstances and with your advisor’s guidance, these moves can be legitimate ways to ensure a suitable outcome.
Yes, building can be challenging, but that shouldn’t derail your investment plans. By relying on your advisor and selecting a builder with a reputation for delivering excellent homes at a fair price, you can advance your strategy and reach your goals of financial security sooner.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933