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How new builds stack up for property investors

Looking to invest in property? Here’s why you should consider a new build.

Australians love investing in property, and for good reason. It can provide savvy savers with the trifecta of rental income and tax savings -, alongside potential capital gains over the long term. And chances are, if you’re looking to add an investment property to your portfolio, the idea of purchasing a new build has made its way onto your radar. Property investment of any sort is a big step, so it pays to be informed about the pros and cons of the options available and, most importantly, understand how the numbers stack up. 

In this page we cover everything you need to consider when it comes to investing in new builds:

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Finding your perfect investment property match

Whether you’re looking at townhouses, duplexes, apartments or family homes, there are plenty of choices when it comes to the types of new properties available to invest in. The kind of home you choose as an investment will come largely down to your available budget and long-term goals, but let’s look at how new builds compare to existing properties from an investment point of view.

The benefits of new builds:

Stamp duty savings are a benefit of choosing the house and land package route. Since the home doesn’t exist yet, you’ll only pay stamp duty on the land. With stamp duty averaging 3-6% of the purchase price, this can save you tens of thousands on your investment property.

In comparison choosing to purchase off the plan has the added benefit of not settling on the property until it is complete. This will allow more time to save funds and there is less time between mortgage payments starting and being able to lease out the home.

  • Save on maintenance –as everything is brand new and covered by warranty, it's highly 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.
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Spotlight on communities

Choosing the right location for your new build investment property will set you up for a successful addition to your portfolio. Here are the 2 main types of communities to consider:

Urban Renewal Communities

These are smaller developments in the heart of existing neighbourhoods. You’re less likely to find house and land packages in these projects as land availability is at a premium, making them more suitable for apartments and townhomes.


Residential Land Communities

Also known as greenfield residential communities, these are purpose-built neighbourhoods created from scratch typically on the outskirts of urban areas where land is more accessible and affordable. Here you’ll find the Cedar Woods communities offering a variety of house and land packages for different budgets.

Spotlight on investing in apartments

The dream of a quarter-acre block has shifted as Australians become more accustomed and primed to the benefits of apartment living. In fact, according to the Australian Bureau of Statistics, over the past 25 years, the number of occupied apartments in Australia has increased by 78%. As a result of this shift, apartments have become a popular addition to existing property portfolios and for first-time investors.

Here’s why:

  • They’re often more affordable – you’ll secure a rental property for a lower cost than a stand-alone home which is great for established and first-time investors.

  • Little to no maintenance – body corporates take care of property maintenance which is a major benefit compared to maintaining a stand-alone property yourself or the cost of employing a property manager to do it for you.
  • Fewer security woes – with less accessible (and controlled) entry points, security cameras, fire protection and more people around, apartments generally have fewer security issues.
  • Rental demand – typically located in established suburbs, tenants will benefit from having amenities and infrastructure on their doorstep.
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Getting a handle on your deposit

Funding an investment property is different to buying a home you’re going to live in, particularly if it’s an addition to an existing portfolio – where it’s unlikely you’ll have a 20% deposit in savings. So how else can you pull together a deposit?

  1. Use equity in lieu of cash – if you already own a home or another investment property, check with your lender about accessing this equity for use as a deposit.
  2. Take out a low deposit loan – while 20% is the golden number for deposits, many lenders will accept far less. It’s possible to borrow up to 95% of a property’s value, but you’ll most likely need to pay Lenders Mortgage Insurance (LMI), which places a premium on your loan.
  3. Find a guarantor – a guarantor is someone who agrees to be back up for another person’s debt. Your guarantor will need sufficient home equity or capital to cover the loan, and no cash will need to change hands.

A note on deposits for a new build purchased off plan - in some instances, the deposit you need to pay a developer for purchasing a new build off the plan may be less than what’s required for an established dwelling – which may give you additional time to secure funds during the construction phase. This is naturally a plus when it comes to financing your investment. However, be sure to check with your lender what they require as loan deposits can range between 5 - 20%.

Making sure the numbers stack up

When considering purchasing an investment property, it’s essential to understand how the numbers stack up – there’s a lot more to it than just securing a property at a great price. You need to look at all the costs involved (beyond the obvious purchase price) and how these compare to the income you will make from rent (rental yield), capital gain or a combination of the two. We recommend getting advice from your account or financial advisor on the number crunching.

Here’s what costs you may need to factor into the equation:

Upfront costs

  • Stamp duty –this varies between states and territories but can be as high as 6%. Remember, if you’re investing in a house and land package, you’ll only pay stamp duty on the land.
  • Legal and conveyancing – preparing contracts, mortgage, and other legal documents.
  • Lenders Mortgage Insurance (LMI) –applicable if you are taking out a low deposit loan.

Ongoing costs

  • Property management fees
  • Insurance
  • Rates
  • Body corporate fees (depending on property type)
  • Maintenance
  • Accountant fees
  • Loan repayments
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A closer look at rental yield

Rental yield is the annual revenue generated by your investment property. This is usually looked at as a net yield figure – the amount of take-home revenue after all costs of owning the property have been accounted for.

Doing yield calculations and being familiar with these numbers is a vital part of your investment strategy. Often you’ll have to weigh up yield over capital gain, and the costs associated with that. Both are legitimate investment strategies, but often don’t necessarily go hand in hand. This is where it’s important to talk to your financial advisor or a property broker to ensure you have the right strategy to meet your property investment goals.

 

Partnering with a trusted developer

Whether you’re creating a nest egg for the future or striving for financial freedom, by partnering with a trusted developer, you’ll have all the assurances that come along with over 30 years of experience. Cedar Woods properties offer investors access to desirable locations and options across a range of budgets, yields and build timeframes. With a proven track record of creating flourishing, desirable communities, Cedar Woods takes the guesswork out of your new build investment property.

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