Is it better to build or buy an investment property?

Investing in property is a great way to create wealth and contribute towards a secure financial future. But the question is, do I buy an existing home, or do I build a new property? We’ll take a look at the advantages and disadvantages of each option so that you can make the best decision for your own situation.

Pros to building a new house

1. You can customise the design of the property to match the market

Building a new home means you have the freedom to customise the size and style to suit the needs of potential tenants. By talking with local architects and real estate agents you can gain an understanding of the most in-demand rentals in your area.

For example, building a set of 3 bedroom duplexes in Shortland is going to be more appealing to the suburb’s high student demographic, rather than building a set of duplexes in Cameron Park which is more saturated with families, who would prefer to live in a freestanding house.

2. Newer homes have a greater appeal to potential tenants

Other than location, tenants prioritise newer homes with modern amenities when looking for a rental. Not only will you reduce the risk of having an empty rental but you may also be able to get a higher rental return.

3. Receive More Depreciation Benefits

As an investor, you’re also able to claim a higher amount of depreciation on a newer home.
The depreciation of plant and equipment assets, such as air conditioners, dishwashers, carpet, or solar panels, can all be claimed, whereas this is not available for established properties.

For current information about your potential tax benefits, visit the Australian Taxation Office (ATO) website.

Cons to building a new house

1. There’ll be no rental income until the property is completed

Houses can take a long time to be built, usually between 6 months to a year. During this time you’ll still be paying mortgage repayments without earning a rental income. This means you need to consider if you can cover these expenses over this period, and longer to cover potential delays.

2. There’s a lot more work involved

The process of building a new home is a lot more involved than buying an existing property. Not only do you need to coordinate with real estate agents, mortgage brokers, and financial advisors, you will also need to choose the best builder and organise demolition (knockdown rebuild).

Pros to buying an established property

1. You’ll receive an automatic return on your investment

Unlike building a home, you can list the property for rent as soon as the property has been transferred, after this you may easily find a suitable tenant within a week.

If the property is already being leased, you can collect rent from day one, with no lease fees to find a new tenant.

2. You can see a property’s historical data

Older homes come with a proven resale value, so you can judge how well the property has increased in value over the years. If this property has recently been, or is currently, in the rental market, knowing the rental return can help you make an informed decision.

Cons to buying an established property

1. Older properties are less appealing to tenants

Older homes may be charming, but there can be less demand for rentals that have older appliances and fixtures. This can reduce the number of suitable and reliable tenants interested in your property.

2. Older properties have a lower rental return

Following on from this, due to dated fixtures or the size of the property (taking into account that many older homes have smaller or fewer bedrooms), the rental return for older properties is typically lower than that of newer homes.

3. Higher ongoing maintenance costs

Older homes tend to need more maintenance, and these bills can quickly stack up without warning. Not only may you need to replace dated appliances and fixtures, but if an unforeseen renovation needs to take place, with the need for tenants to vacate, this could mean you’re at a loss of rental income.

Are you looking for an investment property builder?

Future Built is a leading investment property builder in Newcastle. Specialising in duplexes, townhouses, and single dwellings, we can help build the best property to suit your location and maximise your rental return.

All of our projects are turnkey to ensure your tenants can move in faster and you can see returns sooner.

Get in touch with the Future Built team today to discuss your goals.

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Want to collaborate on an upcoming project?

Leave your details and Matthew will get back to you.