Benefits of Building an Investment Property
Building an investment property is one of the most popular investment assets in modern Australian society. If you're considering joining the 20% of Aussies that own an investment property, you'll have to make some decisions on a few critical details to make your money work its hardest for you.
Which is better; building an investment property or buying an investment property? And should it be In the inner city or regional? As an apartment or a family house?
In property, rules of thumb make decisions a lot easier. While you may get lucky and find an existing property that meets the market needs and is offered at the right price, building an investment property opens up the options to suit exact market needs. Building is usually a safer and more profitable avenue to help you meet the other market needs. We'll explore exactly why through the benefits below.
Why is property investment so popular?
At its bones, property investment is simple. You build or buy a property you don't intend to live in, rent it to tenants, use the rental income towards the mortgage and pay off the house without much of your own funding. Then, most likely, you'll own a house that's much more than it was when you bought it. While the latter is an assumption involving risk, it's a much safer and less risky assumption than other long-term investments.
Why is it safer?
This comes down to the history of the property market and its reduced impact from societal and financial changes. The market has a history of steady growth, and investors know the property they build or buy now will be worth more in the future. Even when social and political events influence the market, these typically have a foreseeable and slower impact than other investments.
The question isn't whether they'll make money from it, but how much they will make. And answering this question summons an exploration into the benefits of building an investment property.
Customise your property for the market
Building Investment property isn't for your enjoyment but for your wealth. When building a property for yourself, you're restricted by your needs, both in location and the design of the house, and your emotionally led decisions can hinder the house's market value. From the get-go, you can ignore your preferences and build a house that best suits the market.
Unburdened by your desires, you can choose to best serve the investment and maximise your property. Those who buy an existing investment property are restrained by what's available. It's rare to find an existing property optimised to what buyers currently want, and if you do, it's reflected by a higher cost. One benefit that makes building an investment property a better choice is that you can build it according to market needs.
With some research or speaking with a property market expert, you might find, for example, that young families are desperate for a property with extra rooms to support their growing numbers in a particular location. You can then hit the nail on the head and claim a high rental income, have a positively geared property and be in a strong position for the house's value growth.
Deprecation claims
We'll stick to general knowledge when discussing tax here, as you should always seek professional financial advice regarding tax guidance.
Building an investment property usually has better tax advantages than buying an existing house due to depreciation claims.
When you build a property, you can claim maximum depreciation on many materials, including fixtures and fittings. So, when you file your tax return, your asset value is lower once the depreciation allowance is considered and could reduce your tax.
Instant equity on completion
If you've seen The Block or Australian renovation shows, you're probably familiar with this one. Building an attractive and market-customised house on a block of land transforms the asset from a pile of dirt into a liveable, loveable abode for a lucky family.
As long as you use affordable and trusted builders and align the build to market needs, you can immediately make instant equity of a new-build investment property by increasing the value. Once your builders have checked the final specs and the home is finished, you can re-evaluate the property and inspect whether you want to cash in at this stage or play the long game and use rental income to help pay it off before selling the home.
While it might not always make sense to sell straight away, you have more options for wealth generation by building an investment property. If you opt to claim the instant equity, you can use these funds to repeat the process with a higher-value property and leverage bigger returns.
BUILDING AN INVESTMENT PROPERTY CAN EVEN BE CHEAPER THAN BUYING AN OLDER PROPERTY
It seems odd. Building a new, customised home that no one has lived in before can wind up being cheaper than a lived-in, already-existing property. You also have tenants hungry to live in a new home and more negotiating power, as well as a house with brand-new features and materials, lower maintenance costs and a much longer lifespan.
While it's not always the case, modern construction and builders dedicated to remaining affordable can make it happen. The key is selecting builders who are looking out for your best interest and are experts at managing a smooth and cost-effective sequence of work. You'll also want to get a good deal on the land and construction or go for a package to keep costs slim while delivering an attractive finish that appeals to renters.
The First-Place for optimising your investment
The key to successful property investment is building for the right place for the right price – as building opens the doors to different floor plans, more tenants and future buyers.
Our First-Place build zones are designed for the market, and our home designs and packages can cater to young couples, growing families and even downsizers. As Victoria's affordable builder, we can help you build a desirable investment property. Get in touch to find out how.
Ready to build your home?
Check out our first home buyer guide for everything you need to know about buying your first home, including finances, grants, buying land, buying a house and contract basics.
Price your home today with our home configurator, otherwise, give us a call on 1800 134 778 or enquire, and our sales team will get in touch.
Disclaimer
This advice in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs. It is recommended you seek professional advice from a financial adviser before making any important decisions.
First Place is not a financial adviser. You should consider seeking independent legal, financial or other advice to check how the website information relates to your unique circumstances.
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