Why a prefab rental property is a good investment
Owning a rental property in addition to your primary residence can be an excellent way for you to build personal wealth, attract a passive income and set yourself up for retirement. If you start investing as early as possible then you stand the chance of realising bigger returns from your savvy decision-making. Because real estate can go up in value over time it can pay to buy early and own property for as long as possible to see the most growth from your investment.
Home equity: Growth equity vs Labour equity
This type of wealth growth in property is called equity growth. It's when property prices rise over time because of market conditions, you can see how house prices have risen, or dropped, in your area by using websites like QV's house price index. You can also create equity in your property by paying off your mortgage. The bit between the remaining mortgage amount and the value of the property is called equity.
Depending on your experience in DIY you can also increase your capital gain by taking on an investment project that needs work done to it and improving its desirability to buyers. You could call this labour equity, where the increase in value has been unlocked through hard work and improvements.
If you're looking to buy a second property then it can be made easier if you have equity in your primary property. You generally need a larger deposit for a second home but the equity in your existing house can be used as part of the deposit. If you are looking at a way for an investment property to gain equity quickly you might want to also consider building new.
Building a new home can sometimes result in instant equity. That's because the total cost of building (which is what the mortgage covers) might be lower than the realised value of the completed home. This means that once the house has been built on your land you can go back to your lender and get the property re-valued. This can occur because you've managed to trim build costs by getting great quotes or because properties of the type you've built are highly desirable in your region, which increases the value on the market. That equity can then be used to reinvest into more properties.
Increasing wealth with rental properties
The other way an investment property can help you increase wealth is if you can tenant it once it's acquired. This means someone else is paying the mortgage on your behalf and each of their payments increases the equity in the property, so long as values don't decrease! If you're able to charge more in rent than your monthly outgoings for the property then that surplus goes into your pocket as income. Monthly outgoings include things like mortgage repayments, rates, insurance, maintenance and any other fees from renting a property.
So why would a newly built prefab home make a good rental?
Prefab homes are not only faster to build than traditional homes, but they are also often cheaper to build. This is because a prefab home is built in a factory, meaning no delays or materials are being weathered or damaged during the build process. Generally it takes one to four months longer to build a traditional home than to construct a prefab. This time difference alone means you're losing potentially months of rent while you wait for the house to be ready! Prefab homes have very controlled costs, and even though you can heavily customise them to your desired design they are still often much cheaper to build than an equivalent kitset or new build home.
Building a new prefab home also means you can build for the market. Depending on your location it could be worth speaking to a real estate or property management company locally. They will be able to let you know what the market wants and what the market is willing to pay a premium for. If you build the right property, it ensures that it would always be rented.
There is also the potential to build your investment for more than one occupant. Some designs can offer two separate self-contained units under one roof, bringing in more weekly rental income. Check out some of our home and income options to see what we mean.
If your primary residence has a decent section then it might be worth investigating whether a prefab home could be added to the existing title.
Building a new home vs Buying an existing property
As mentioned earlier, buying an older home can become costly later on down the track. According to the tenancy.govt.co.nz website, "nearly 600,000 households rent in New Zealand, and New Zealand based research tells us that our rental stock is poorer quality than owner-occupied homes. Research shows a link between cold, damp and mouldy homes and negative health outcomes, particularly for illnesses such as asthma and cardiovascular conditions." This is having a huge impact on the health of our country as well as an impact on our wallets.
In 2019 the government announced the Healthy Homes Standards. This introduced specific and minimum standards for heating, insulation, ventilation, moisture and drainage, and draught stopping in rental properties. Older homes in New Zealand are taking a hit with this new announcement and many landlords are now needing to front up to make sure their rental properties comply with the new regulations.
In some cases building a new house can be a healthy and more affordable option. New build standards exceed the Healthy Homes requirements so you can build knowing that no additional work will need to be done to comply.
Here at Genius Homes we have a range of prefab homes perfect as an investment. With plans that enable you to live in the main house and rent out the annexe or designs perfect to add to an existing section - we have solutions perfect for your needs. Why not download our brochure and check out our range.