Is it better to buy something new, or something established?
There are good reasons to invest in both new and existing properties. Deciding which is right for your investment strategy means understanding what makes each option unique.
Buying a new property could benefit investors. There may be depreciation advantages, which you may be able to claim as a tax deduction and often the building itself can be depreciated.
A new property may also come with lower maintenance costs. Tenants may also be more attracted to a new property and be prepared to pay higher rent.
It’s worth weighing up the different ways to get into the market if investing in a new place appeals to you.
House and land packages could be a hassle-free way to build a new property. Select a block of land in a new development and choose your preferred home design from a range of builders.
House and land packages are sometimes found in new estates located in developing suburbs. Be sure to check the location includes facilities such as schools, shops and transport links that might appeal to tenants.
Buying land and building later offers the freedom to choose your location and design the residence to your specs. It may also provide financial rewards.
Some states only charge stamp duty on the value of vacant land. So you don’t pay stamp duty on the value of the dwelling you build down the track. Check your state or territory’s rules around this.
It’s important to factor in all the costs. For instance, a sloping block example may be more expensive to build on, as it might need a custom-built residence that works with the land’s gradient.
Buying off the plan involves committing to a property, like an apartment, which is not yet built.
This could mean stamp duty savings. Developers may also offer discounts and other incentives to early buyers in a competitive market.
But there are also risks. The property market may fluctuate during the construction period and it could mean your property is worth less than you expected on completion.
Building a new dwelling may involve slightly different funding requirements than an established property. You may need two loans – one for the land and another to build the residence. Some lenders can bundle these together. Or speak to an Aussie Broker about the loan options that work for you.
It’s also important to speak to a tax professional. You may not receive rental income while building is underway1. This could impact your cash flow. Knowing how to manage this is an important step towards successful investing.
There’s a lot to be said for investing in an established property. There’s no guesswork and stress of building a new place. The property may potentially be tenanted as soon as you buy it. It may even be sold with a tenant. This ability to earn a rent return from day one could be a plus for your cash flow.
There are lots of different property types. So think through which type of residence is right for your needs.
Apartments are sometimes more affordable than houses. They may also produce higher rental yields than houses. That’s good news if you have a tight buying budget.
Units have other pluses. They may have lower council rates and maintenance requirements. But you may need to pay body corporate fees and strata levies. These costs go towards maintaining common areas.
The title or type of ownership differs between apartments and houses. Torrens titles typically apply to standalone properties like houses. This means you own the whole property including the house and land.
Strata title applies where there are common or shared areas. This is usually the case with apartments. Buyers own the interior of their unit. But common areas tend to be collectively owned and managed through an owners’ corporation.
A duplex is a single dwelling made up of two homes that share a common wall. Both homes in a duplex may be on the one title. A semi-detached house sits on a separate block of land. Unless each home has its own title, they cannot usually be sold individually. This is something to consider as it could make the property hard to sell.
Property sold as part of a deceased estate could be an opportunity to pick up a bargain. But be aware of any potential downsides if you buy a deceased estate property or inherit property.
The property’s title is critical. In some states, property can’t usually be sold if the deceased’s name appears on the title deeds. It may be time consuming to change the name to the surviving spouse or estate’s executor. It’s a good idea to check this with your legal rep at an early stage.
A deceased estate property may also need repairs or an extensive makeover before it can be tenanted. Be sure you have the funds available to do work to bring the dwelling to safe and modern standards.