Whether you’re tossing up between purchasing an apartment, townhouse, established home or new build for your next investment, each type of property comes with its respective pros and cons. If you’re considering the prospect of building your next investment by purchasing a house and land package, there are a few things you should consider before jumping in head first.
Let’s take a look at some of the things you should consider before you decide if it’s the right fit for your portfolio.
Affordability
One of the most appealing factors of house and land packages is the value for money they offer. Basically, you get a whole lot of house for a comparatively affordable price.
Depending on the local market conditions in the city you’re purchasing in, you can generally purchase a brand new three or four-bedroom house on a large block of land for a good price. For example, four-bedroom house and land packages in Melbourne sell for around the same price as two-bedroom townhouses closer to the city.
The downside is usually the location—most builders only offer house and land packages on the outskirts of major cities where the land is more affordable. That usually means the value of the property is unlikely to increase at the same pace as their inner-city counterparts, however that may not be an issue if you’re viewing the property as a long-term investment. If you’re wanting a negatively geared property, you may be better off buying something closer to the city that’s likely to yield higher capital growth.
Tax benefits
Depending on where you’re buying, building a new house often also comes with a range of tax benefits—starting with stamp duty savings.
When you purchase an established property, you’ll need to pay tax on the value of both the house and the land. However, when you decide to build, because the house hasn’t yet been built at the time of purchase you’ll only need to pay tax on the value of the land. This can amount to savings in the tens of thousands of dollars.
Then there are the depreciation benefits. While the rules will vary based on where you purchase the property, you can generally claim depreciation on the value of the house including any fixtures, fittings and appliances. When you build a brand-new home, the depreciation value is generally much higher meaning you can claim a lot more at tax time.
Finding tenants
You also need to consider how easy or difficult it will be to find and keep good tenants.
Most tenants usually find properties in brand-new condition highly appealing, so you’ll be winning on that front. You will however need to consider the other competition in the area.
You’ll most likely be competing against other properties built around the same time and in a similar condition, so you’ll need to work out how to make your property stand out from the rest if you want to charge a decent price while still attracting the best tenants. Your best bet is to speak to some of the local real estate agents before you choose your package to find out what tenants in the area look for.
Maintenance
Building a new house also comes with the added perk of less maintenance.
As a landlord, you’re responsible for the general maintenance of the home, meaning you’ll be the one responsible for footing the bill if the hot water system stops working, if there’s a blocked toilet, an electrical fault, flooding or long list of other possible issues.
When you opt to build, the entire home is brand new, significantly decreasing the likelihood of needing any significant maintenance in the short-term. In addition, the home may also be covered by a builders’ warranty which covers you in the case something does need repair or replacement.
Ultimately, there will be a range of benefits and downsides to each type of property investment, so it’s important you do your research to properly understand the market you’re buying into as well as the financial implications before you commit yourself to something that proves to be less than profitable.
