When deciding to invest in property, a brand new house and land package may sound appealing at first. However, it is necessary to weigh up the pros and cons to arm yourself with adequate information to make the right decision. There are many advantages to purchasing a new house and land package; however, do these advantages outweigh the disadvantages? Let’s outline the pros and cons to facilitate your decision-making process.
Tenants Are Attracted To New Properties
Tenants are generally attracted to shiny new homes. Properties that have never been lived in appeal to those who are looking for contemporary, fresh accommodation. Searching for a tenant should be straightforward and easy, and return on investment is often steady with new properties.
Maintaining The Property
There is usually less maintenance associated with a new property as opposed to an older property. Therefore, less money spent in the first few years.
When you purchase a house and land package, you will only pay stamp duty for the land, not the actual property.
Brand new properties typically get larger depreciation deductions; this is often due to the high value of a new home. This means that the cost of holding the property over time will be lower.
There is more fluidity and flexibility when you build your own home; you can customize it to your exact specifications.
Consider the overall cost, when you buy a new property, the developer’s profit is often included in the total price of the property. The costs associated with marketing and promotion of the property can often be passed down to the buyer. These obscure costs could be comparable to several years of capital growth. Therefore it is essential that you think carefully about what you are willing to compromise to purchase a house and land package.
Most house and land packages are situated further away from the city. On the plus side, The land is plentiful, on the downside, the economy is often weaker in these locations, and they are often underdeveloped in comparison to inner city locations.
The uncertain nature of purchasing property off plan is something to consider. Will the end result meet your needs? You have no control over the outcome of the property. Therefore, this could cause issues with the final bank valuation. It is also difficult to compare rental prices for similar properties in the area.
Logically speaking, when purchasing a property for investment purposes, it is wise to search for a property with a significant proportion of land value for capital growth purposes. However, when you purchase a new property, the majority of the value is in the building itself, not the actual land. This will have a negative impact on capital growth when the building depreciates.
Old properties in the suburbs will certainly not be as attractive as a brand new property; however, the investment potential is far higher in the long run.
Paying and Not Earning
When you opt for a house and land package, you will not earn anything while the property is being built. However, if you borrow money for the purchase, you will be paying interest during the planning and building phase of the project.
Building a house is not predictable, you cannot predict construction problems and timelines, unfortunate incidents often occur causing construction delays and other issues. In addition to this, be prepared to spend more money than you initially expected to pay as unexpected expenses emerge.
Savvy investors are aware that adding value to an investment property through refurbishment is a crucial part of building wealth with property investment. There is often less flexibility for renovations with new build properties.
In conclusion, at first, glance, investing in a house and land package might seem like the most attractive option. However, if you are looking for long term investment benefits, a new build is not the most viable choice. Weaker capital growth, inability to add value and the high costs associated with building a new property should be taken into consideration when opting for a house and land package as opposed to an older property.