The Pros and Cons Of Building An Investment Property (Ep153)
Articles,  Blog

The Pros and Cons Of Building An Investment Property (Ep153)


There can be advantages and disadvantages
to building an investment property. So today I want to go through the pros and cons of
building your own investment property, rather than purchasing an established investment
property. Hi, I am Ryan McLane from On Property.com.au,
your daily dose of property education and inspiration. Every single day I released a
new video article and podcast over at the website at onproperty.com.
And today we are talking about the pros and the cons of building an investment property.
I am talking about either purchasing a piece of land and getting your own builder or getting
someone like Mosin Homes or Carol Homes to come and build it or this also could applied
to a house and land package as well. So let’s start by looking at the good stuff, by looking
at the pros of building an investment property Pro #1 is the great depreciation you get with
new properties. When a property is newly built you get to depreciate the cost of the construction
of that building over a number of years, for you also get to depreciate the internal fixtures
and fittings, and because everything is brand new, because you have just built the property,
that means you’re able to claim maximum depreciations for those items, but this great appreciation
can mean that if you’re negatively give it could actually turn it into a positively give
property or if you are positively give it saves the minor tax that you have to pay.
Just a disclaimer, anything to do with tax, go and see a professional accountant, this
is for educational purposes only. Pro #2 is that you get to build your property
for the market. So you’re building an investment property from scratch. You can do research
and you can talk to real estate agents and you can understand exactly what the market
wants and what the market is willing to pay a premium for. This means you can build the
exact right property to ensure that your property is always rented and that you get the rental
yield that you are after. Pro #3 is that it could actually be cheaper
than buying an established investment property, if you can get a good deal on the land and
you can get a good deal on the build. A lot of people aren’t willing to go to that effort
and go through the construction, and therefore they will pay more for an established property,
but if you build the right property for the right price, it can actually be cheaper than
buying a similar property that is already being built. Pro #4 is the potential for instant equity.
This means that you’re purchasing the land; you are building the property and then when
it’s done you can actually go back to your lender and get that property re-valued. If
you’ve done yet the job correctly, buy at a great price, pay a great price for the right
property, then you could actually add value to that property straight away and get instant
equity. That equity can then be used to potentially leverage into more properties or for many
other purpose. Pro #5 is that you may be able t build for
dual occupancy or you could do it in such a way that the property could be subdivided
in the future or the house could be perfectly positioned that you could go ahead and build
a granny flat as well. When purchasing an established property it’s much harder to move
the entire property, so you can fit in other property on the lawn, but if you’ve got a
blank sleigh, well then you can build that house almost wherever you want and you can
set it up to give you the best future potential opportunities, but is not all sunshine and
rainbows So let’s go and have a look at the cons of
building your own investment property rather than purchasing an established property. Con#1 which I think is a pretty massive deal
is that you are limited in location. Chances are you’re going to want to buy a block of
land rather than a block away and with the house on it, because you’re going to have
to pay more for that. So because you want vacant land you actually going to be limited
in the locations that you have your property because there’s a limited amount of vacant
land available. If you’re purchasing in Sydney, then you’re going to be extremely limited
in way you can purchase vacant land and even in all the areas like the Gold Coast there
are going to be certain spots where there’s new land releases, but apart from that, it
is going to be very difficult to find a vacant block. Con #2 is that other developments in the area
may actually hinder the growth of your property. If you’re purchasing in a new land release
area that has potential for future land releases further out, that could actually hinder the
growth of your property, because all the time there’s new properties springing up. Property
does work on a demand and supply model to some extent and the more demand there is and
the less supply, then prices tend to go up, but if there’s constant supply being added
to the market with new land releases and new properties, well that’s going to make your
property harder to grow in value and also, it means in 5 or 10 years time your property
which is now 5 to 10 years old will be competing against brand new built properties, so that
could affect the potential capital growth of your property. Con#3 is that you’re going to have no income
until the properties is finished, which means you are going to be paying your own home mortgage
or rent, depending on what your situation is and you are going to be paying for this
new investment property as you buy the land, and then as the construction cost begin to
add up, as each part of the project is finished. It’s only once the project is completely
finished, signed off and ready to move in, then you can get tenants and start earning
income. So you need to prepare for that period of maybe 6 to 12 months or maybe even more
where you’re going to have the expenses of an investment property but none of the income
of the investment property. Con #4 is the potential issues that could
occur with the build. It’s very rare that a builder is going to go 100% to plan and
issues generally cost you extra money, so work with your builder you can get fixed contract
so that it’s a fixed amount of money that you are going to pay for the build, so that
if these things happen you’re somewhat protected but obviously there’s always going to be things
outside our control and even if it doesn’t cost you any extra for the build, added time
and you’ve got added interests repayments when you not getting any rental income in
and so it’s costing you extra anyway. So there you have some pros and cons of building
an investment property. Obviously one is not better than the other, it depends on what
your circumstances, what you want to get out of it and what the property is, because some
new build properties are great deals, whereas other new build properties are really just
completely ripping you off and you are never going to make that money back for the next
10 years or more, so you really need to assess it on a deal by deal basis and assess it based
on your situation. well I hope that this episode gives you some
food for thought to decide whether you want to go for a new build property or whether
you want to try and look for an existing property, maybe one that you could add value to so you
can still get that instant equity and great rental yield. If you want to see existing positive cash
flow properties that I have scaled the way for and listed just for you, then head over
to www.onproperty.com.au/plus. On Property Plus is my premium membership site where I
teach you how to find positive cash flow properties, but I also find them and list them for you
and even give you the tools to do your own assessments, so much easier. Currently, the
price is just $20 per month or $200 per year, but with new add-ons and tools and resources
being added every single week, that price is bound to go up in the near future
So if it is something you’re interested in, I do suggest that you go ahead and check it
out at www.onproperty.com.au/plus. So until tomorrow, remember that your long-term
success is only achieved one day at a time. Alright guys I’ll see you tomorrow.

3 Comments

  • Alex G

    Thanks for the tips, i have 1 acre home that i bought and the house was built all the way on the back of the land. We wanted to build an investment property on the other side of the land. Is it better to build a home from scratch or buy a premade home , which one is better for longterm renting.

Leave a Reply

Your email address will not be published. Required fields are marked *