Investing in house and land packages VS pre-existing properties
This seems to be just about the biggest debate for new investors. Do you buy brand-spanking new, such as house and land packages ? Do you buy old? Or do you buy haunted? Okay, not haunted, but something that needs a lot of work before it is even livable. Below is a list of the most important PROS and CONS of buying new vs. old but there are a few things to do first.
Do your maths. Look at your budget and then look at the area you are buying in. What are the local market trends? Find out how much renovated homes in the area resell for and what the average rent is for new and renovated homes.
What is your goal? Decide whether you are going to live in your investment or rent it out. Do you want to make a smaller return more quickly or is this a long term investment?
New properties including house and land packages
The biggest draw card of new investments, be they apartments or house & land packages, is the savings. Without looking at the cost of the property, which varies with location, size and the land it sits on, there are some real economic advantages to buying new:
- Less effort! This includes little to no upfront work on the building.
- Less spent on services before buying (such as pest inspectors or builders).
- A high rental yield (especially closer to town).
- You can claim on its depreciation more than an established house. This includes fixtures and fittings.
- No need for costly renovations.
- Reliable access to the rental market.
- Even if you own an apartment, you still have access to the worth of the land, especially with inner-city apartments.
There are some significant cons when buying new.
- For house and land packages in newly developed areas there is often little to no historical market data. This is a big issue because an investor must have a strong knowledge of the local area and its market trends to make an informed purchase.
- New properties, especially house and land packages, tend to feel the force of market downturns a little more than established properties.
- A higher upfront cost. This can include a developer’s marketing costs, which you end up paying for in the cost of your property.
- The risks of buying off the plan.
- It is hard to increase immediate value and rental yields via refurbishments.
- Cheaper cost price, especially for those with considerable need for renovations.
- Room to drastically improve capital gains through refurbishing and renovating.
- Access to historical market data.
- Greater chance of finding a bargain.
- Established properties tend to ride out the storm of market downturns better than new developments.
- There is less competition for houses that need work.
- Hidden costs. Always get a builder and pest inspector to look at a house if it needs a lot of work. It is harder to manage your budget and time compared to buying new.
- It takes a lot of time and often a fair amount of stress to achieve strong results when renovating a very old or dilapidated house.
- With continued price growth, access to established properties close to town becomes impossible for many first time investors. Properties often exceed the one million mark. This has already allowed for a booming inner-city apartment market.
- It can be hard to find financing from major lenders for properties that need lots of work. Consider going to private lenders.
- If a renter has a choice between a new property and an older property, both with similar rental costs, they will usually go new.
So what’s the decision?
This depends entirely on your situation. You may be thinking about investing with other family members of friends and if this is the case you can share the financial and emotional load of renovating. Many professionals who say you should only go with older properties tend to be investors who have had little experience with buying new. They are two separate ways of entering the property market and both have their advantages. If you can invest in a property that is considerably cheaper than new properties in the same local area than there is room to increase your capital growth quickly following your renovations. If an established property is only marginally cheaper than a new property than you have to evaluate and measure the financial scope of any renovations, you may want to do.