The most obvious approach for property wealth management in Newcastle for many new investors is to buy an existing property on the rental market and lease it out, earning income from the tenants until it is time to sell up. This is the easy, quick option for many, but it may actually be more beneficial, from a financial point of view at least, to buy a block of land, build a property (think dual occupancy) and then rent that out. Lets look at the advantages of building an investment property over buying an existing property.
Why would this be the case, surely this is a longer, more expensive process with greater risk involved?
A newly built property will depreciate over the years in terms of the cost of the construction and fixtures. The potential here is greater on a new build than a pre-existing property because you are able to claim the maximum for everything. You are the one that put it all there, completely brand new, so you are the one to make the biggest capital gains. With time this can transform the home into a positively geared property and potentially save on tax. Many that claim all expenses and depreciation find they have a positive cash-flow outcome. Add this to the income of the renters and this is a positive approach for financial gains. Stamp duty is greatly reduced when buying from scratch depending on which state you are building in.
Of course the financial implications go beyond the returns on overall value and tax savings.
You also have to think about the occupants and tenants providing the new income via the rent. This is an important consideration for all those looking for a turnkey investment package. Here there is more to consider with the finishing of the home and the final package; how will you target the rental market and ensure there is a tenant ready to move in. Get it right and you’ll have no problem renting your investment property out as soon as building is completed.
For example, if you purchase a pre-existing apartment in a purpose built block on the Newcastle waterfront, you have a very strict idea of your prospective tenant. One single occupant or couple will be providing one source of rent. If you build a property of your own, you aren’t limited to that small space and single purpose. Building a dual occupancy home will allow you to increase the return from multiple tenants.
Isn’t this all a little risky?
Yes, it is true that there are risks involved in this approach. There could be unforeseen costs in the build that aren’t in the initial budget, or problems with the site and contractors. There are also those that are wary of this approach because of the limitations on location, the effort that goes into the build and the high cost spending with no initial return. There is a gamble here, but it is one that can pay off in a big way. Those that are smart and build with the right markets in mind, in the right locations, can make gains on their investment, lower taxes and create great opportunities for those in the rental market. Purchasing an existing property may sound like the easier option, rather than building an investment property, but easy isn’t always the best approach.