The advantages of purchasing a new build as an investor

Property management

The debate between buying an older property or a new build as an investor is a heated one. Some argue that older properties give you a better investment and others argue that new builds are a better investment opportunity. Who is right?

Before you jump into buying an older home, consider the advantages of purchasing a new build as an investor. It may be a wiser investment for many reasons. These are some things to think about before you invest in an older property.

New versus old: some things to think about

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When you compare properties, an older home or apartment will usually be less expensive than a new build. Does that make it a better investment? What you may not notice about an older building is the amount of renovations it may need. Older homes can:

  • Have termite damage
  • Need new wiring
  • Need kitchen and bathroom renovations
  • Require structural work
  • Need painting inside and out
  • Have plumbing issues

Add up the cost of renovations and an older building may end up costing more than a new build, but that’s not the only reason to consider buying a new build. While you can spend money and renovate an older home, it may not attract tenants who are willing to pay more rent. A new build will attract tenants who are looking for peace of mind in a home, as well as the inclusions many new builds include.

Today, new builds can have many advantages over older homes and apartments. They are more energy efficient, have lower maintenance costs and are likely to attract longer term tenants who will look after the property.

Where to buy a new build?

New builds aren’t all alike. Finding the right one may take time and some are of better quality than others. Should you look in the inner city or further afield? The answer may come as a surprise.

Most inner city properties are expensive and rental yields are lower in places like Sydney and Melbourne because of those high prices. In Sydney, rental yields in the eastern suburbs are around 3.1 percent and are under 2.0 percent in some suburbs. In Melbourne, St. Kilda was the top performer at 4.0 percent.

The Central Coast of New South Wales is only an hour’s drive from Sydney and trains can whisk workers to the city centre in about an hour and a half. Mannering Park topped rental yields on the Central Coast at 5.2 percent, but other suburbs weren’t far behind, with San Remo and Blue Haven yielding a 5.1 percent return.

Real estate has been booming on the Central Coast and many new or near new homes and apartments are available. They cost less than homes and apartments in Sydney and when you include the rental yield, they can be great investment opportunities.

Carlton is located in the heart of Melbourne, but enjoys the highest rental yield in Australia at 7.2 percent for units. It’s not in the top 10 for houses, though. St. Kilda was the top performer in Melbourne for houses, but the rental yield was 4.0 percent.

The moral of the story is that you have to do your homework to find a great place to invest in property. Look for suburbs that have:

  • Strong economic growth but are still reasonably priced
  • Nearby amenities, schools, hospitals and shopping centres
  • Good transportation systems
  • Local employment or are within a short distance of a major city

Combine lower prices with higher rental yields and look for properties that show great growth potential. If a shopping centre is being built in an area or a new freeway is being built, it’s a good bet the suburb will increase in value over time. Prices may be low now, but will rise as the area develops.
What about house and land packages?

House and land packages come in two forms. You can buy an already built house and be able to view it or you can buy an off-the-plan house and take a chance on the quality of the home. It may sound more reasonable to choose an already built home, but off-the-plan homes also have advantages.

iBuildNew outlines several reasons for buying off-the-plan:

  1. House and land packages are available from $400,000 in Melbourne and Brisbane
  2. House and land packages generally have a 30% lower cost than median house prices
  3. House and land packages can have up to a 6% rental yield compared to much lower rental yields for established houses
  4. Stamp duty charges are high on existing houses. You only pay stamp duty on the land with an off-the-plan house
  5. Depreciation rates are much higher for house and land packages. New legislation tops depreciation on fixtures and fittings in existing houses at 2.5%. On a house and land package, the rate is still 25% to 30%, enabling you to claim much higher deductions

It’s also worth noting that houses outperform units in capital growth over time.

The myth of buying older homes

When looking to purchase a new build, just be sure you buy from the right source and know what you’re getting into. Read the fine print and know you’re buying a new build from a quality builder and are getting quality inclusions. Many new builds allow you to upgrade the inclusions, so consider doing so because you may be happier with better inclusions and a more customised home.

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