Because we advocate buying new build properties, most of the houses we recommend to clients will be bought off the plans, and they’ll either be classified as a turnkey or land and build package.
The main difference between the two is how they’re financed – and therefore the impact they’ll have on your short-term cash flow.
As the name suggests, the process for a turnkey property should be as simple as inserting a key and turning the lock – and it’s the simplest method of purchasing a new build property ‘off the plan.”
After due diligence and the initial 10% deposit to secure the property, you don’t have to make any further payments until the property is complete and it’s time to settle. This means there’s less pressure on your immediate cash flow and gives you more time to strengthen your financial position for when you do settle.
Apartments and townhouses will always be turnkey as the entire block or building will need to be completed as one.
Turnkeys do tend to be a bit more expensive than Land & Build packages as the vendor has factored their funding costs into the total purchase price.
With a land and build property, the funding process is a little more involved.
As with a turnkey you’ll pay the 10% deposit to secure the property after signing the S&P agreement and completing your due diligence. But that’s where the similarities stop.
You’ll settle on the land a few months later, at which point the bank will issue the ‘land loan’ portion of your mortgage.
When constructions begin, you will start to draw down from a ‘construction loan’ to make progress payments for the build. This loan will be on a floating interest rate until settlement.
Once the house is completed, you will pay the last instalment of the construction loan and settle on the property. At this stage, you will be able to fix the construction loan alongside the land loan.
Standalone, duplex and dual income properties can either be a turnkey or land and build property depending on the developer.
While property investment may seem simple from the outside, there’s a lot that goes into buying the right property and making sure you can hold it through the fluctuations of a property cycle. In this guide, you’ll find everything that you need to know about what makes property such a powerful investment option, and how to make sure you buy the right investment property to meet your financial goals.
Click here to download the New Zealand Property Investor Handbook by Momentum Realty.