Leveraging equity
If you already own a property and have a decent amount of equity tied up in it (either through capital gains or by paying down your mortgage), it might be possible to use this as a deposit when purchasing an investment property (rather than using savings in the bank or other investments). Speak to your lender about how you can access any current equity.
{Equity = current value of property – amount you owe on it}
For seasoned property investors, this equation naturally gets more complex depending on the number of properties already owned and what economic, regulatory and political factors are at play. However, it’s safe to say that new builds are an attractive option for property investors for the following reasons.
- Save on maintenance –as everything is brand new and covered by warranties, it's unlikely that you’ll have to budget for costly repairs on your investment property.
- Appealing to tenants – depending on location, you may be able to set higher rental fees for a new home, particularly compared to well worn rentals in neighbouring areas.
- It’s rental-ready – new builds are constructed to current building code requirements, meaning things like insulation and ventilation standards are adhered to. Make sure you’re aware of the minimum rental standards that apply in your state.
- Tax benefits – the ability to claim depreciation on the cost of a new build (and any fittings) has great appeal for investors. It’s best to speak to a property accountant about the intricacies of depreciation against new builds.
Off the plan specific benefits:
- Once the deposit is paid, there are no further payments until the property is complete and settlement has gone through
- If you are purchasing in a rising market your property can be worth more by settlement day
House and land specific benefits:
- As the home doesn’t exist yet, stamp duty is only paid on the land component. Given stamp duty ranges between 3-6% of the purchase price, this can be a large saving.