Today’s article is going to address new build properties versus existing properties, and the pros and cons of each investment strategy.
As you are aware it can be difficult to know exactly which option is going to suit you best when you first begin your property investment journey.
New Build Properties
- Design The Property You Want
The first positive with a brand new property, is having the flexibility to design the property you want. You have the freedom to be creative, and you can choose a property based on your own style.
This isn’t as important if you are buying the property as an investment. But if you are planning on living in the house, you want to live in something that you love and you have designed yourself.
- Depreciation Benefits
This option can be particularly appealing for investors who earn a high income. When it comes to a brand new property you are eligible for significant benefits through depreciation and tax refunds. Investors can use these tax benefits to turn a negatively geared property into a positively geared property in the short term.
- Appeal to the Market
When designing your own home, you can research and appeal to the market in the local area. You can build the house based on the market you plan on re-selling to, or the market that holds the largest demographic in the area.
For example if you know your building in an area with an ageing population, you may consider building a property with less stairs and larger doorways and hallways. If your targeting younger families and couples, you may cater to this demographic by including more rooms and larger outdoor living areas, etc.
Understanding your local market is key.
- Instant Equity
If you do your research and buy your land at the right price, you should be able to generate instant equity from that property on the completion of construction.
The problem with brand new build properties is they are often sold to you by property marketers. This means that by the time you pay for the land, pay for the building costs, and the marketers fees, you may be paying well above the median house price in the area.
If you can find the land yourself and organise a builder or developer on your own, you will generally be better off than if you buy these too good to be true “house and land packages”.
- No Income During Construction
Another negative of building a new property, is that you are having to fork out money from your own pocket during the course of the build. From the time you purchase your land, to the date your construction is complete, can be anywhere from 3 months to well over a year.
- Stunted Capital Growth
The majority of land in Australia is sold in green field estates.
This can become a problem when you want to re-value you property, or find tenants as there can be a temporary over supply of property in the market.
- Cost Blow Outs
The risk of a cost blow out on a brand new property is high. To get around this make sure you negotiate a fixed price building contract.
- Buy at or Below Market Value
It’s much easier when you are buying an existing property to buy below market value.
These properties don’t just pop up, but if you do the right research you will find that you can get some great deals.
- Predictable Income / Cash Flow
Once you identify a property or a suburb where you are interested in buying, it is much easier to estimate the predicted cash flow and costs associated with holding the property.
You can get a rental appraisal on an existing property and estimate the stamp duty, mortgage repayment, rates, etc. This helps you know exactly how much money this property will cost to hold, or how much income you can potentially make from that property.
- Create Growth
There can be a number of opportunities to manufacture growth into an existing property.
You can renovate, add an extra bathroom or bedroom, buy on land large enough to add a secondary dwelling in the future. You may even decide to raise the house and enclose the space to create extra living space.
These are ways that you can create growth in an existing property, on top of the natural growth predicted in that area over time.
When you buy existing property, it’s usually in an established suburb. This means the threat of being built out, or the risk of too much stock being available is much lower.
When you choose to build a new property, the likelihood of it being in a new suburb where large numbers of new land is being released can affect the value of your home.
- Higher Maintenance Expenses
One of the negatives associated with buying an existing property is that there can be a lot of unforeseen maintenance costs.
It is imperative to conduct a building and pest before settling on an existing property, so you are aware of what costs may come into the equation over time, and what existing issues there are.
- Less Choice
You can only work with the stock that is available when you are buying an existing property.
You may find yourself sacrificing style or design, as long as you buy the property is at the right price.
- Hidden Problems
You may find hidden problems when purchasing an older property.
In many cases the owner may have made a few changes here or there to get the property market ready while masking bigger problems.
As mentioned above, it is always important to conduct a building and pest on a property, and to make it a condition of sale prior to settlement.
You don’t want to purchase an existing property and find out months down the track that you need to fork out thousands of dollars on an issue you were unaware of.
Termite damage, cracked stumps, drainage issues and obvious land movement will all be red flags on a B&P report. Often if a house is priced considerably below market value, it can be an indication of hidden problems.
Always make sure you do your due diligence to find out as much about an existing property as possible before you purchase it.
When it comes to new builds versus existing properties, it is obvious that there are positives and negatives for both.
It is a matter of you deciding what sort of investor you want to be, and aligning your property needs with those goals.
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