When it comes to purchasing an investment property, there are two options. You can buy an existing house and simply let it out to a tenant. Or you can build a new house specifically designed for tenant occupancy.
In weighing up these two options, there are some very important considerations to be aware of. There are ones that will both save you money and make you money.
If you are an overseas investor, the first option of buying an existing property is not available to you. Foreign buyers can only purchase brand-new property in Australia. If you are an Australian investor, the option of buying an existing property may seem, at first glance, the easiest option. However, there are some important things you need to factor into your decision.
An existing property will always be priced at a point that is comparable with neighboring similar properties. You are paying the ‘retail’ price no matter where it is located or how old it is.
Secondly, an existing property will often not be covered by any warranty, and the structural integrity and build quality will often be completely unknown. This can lead to considerable costs later on if defects occur and need to be repaired. Worse still, an old or poorly built structure with no warranty can lead to your property to become unlivable by tenants, costing you money in repair and lost rental income.
Your second option is to purchase a brand-new property, or better still, to purchase off-the-plan. Not only does this make practical sense if you are a foreign investor, it also gives you important advantages. It can also greatly increase your capital gain and your income security.
Buying a new property off-the-plan means you are buying at the lowest possible price. Off-the-plan, brand-new properties are almost always in newly developed housing estates. This is where the purchase price is at its lowest, and well below ‘retail’ prices of surrounding, established properties.
Off-the-plan purchases may take longer to become tenant-ready, but you have the advantage of paying less than half the government stamp duty. You are paying tax on the land only, not a completed dwelling.
In addition, buying a brand-new property off-the-plan gives you time to fully get to know your builder. Before you sign your contract, you have ample opportunity to carry out your due diligence and satisfy yourself with the credentials and track record of the builder who will construct your new house.
With a brand-new house, you automatically have the protection of the compulsory 6 years, 7 months of structural guarantee mandated by most of the State’s Building Authority. If your builder is providing a structural guarantee greater than the statutory minimum, then you can be satisfied that they take quality seriously.
You can ensure that they will be designing and building your house to a standard that exceeds the average. This will not only save you money in unanticipated repairs later on, but will underpin a higher resale value when the time comes for you to sell.
Lastly, buying a brand new, off-the-plan property allows you to specify features in your house that will make it more appealing to a tenant. Tenants prefer new, contemporary homes and features like an extra bedroom rather than an alfresco space. Separate living areas for families and high-quality kitchen appliances go a long way to attracting the best tenants. With your property in high demand, your rental income is assured and your cash flow maximized.
Taking the time to design your property for tenancy. Selecting your builder carefully and choosing the right point along the development path to make your purchase. This will ensure your investment in a rental property will give you the greatest return in cash flow and capital gain in the long term.
So, do you think an old or new property would suit your investment needs more? It will depend on whether you are a local Australian or a foreign investor, and how you make your decision after factoring the above in your consideration.
This article is written by Angela Chen.
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