Now investing is again becoming more popular as interest rates fall to there lowest rates ever, so making a safe bet using other people;s money might seem the safe way to go. Also, the share market remains in the doldrums and returns from cash deposits head towards zero.
One of the first questions any real estate investors must ask themselves is whether they plan to buy an established home or build a new one. Property experts say there are positives and negatives with both approaches. But most our selling new homes, so any advised is biased.
It is important for investors to do research and understand exactly what they want.
Is it peace of mind? Is it instant income? Is it bigger tax deductions? Is it long-term growth?
To me negative gearing has always seemed a losing proposition, and more so now as taxes our lower than when these schemes become popular.
The type of investment property - residential or commercial - also is a factor.
According to real estate author, investor and university lecturer Peter Koulizos says there is no right or wrong answer in the debate over whether it is better to build or buy an established investment property."If you are looking for hassle-free investment in property, you are probably better off building or buying new because you have very low maintenance on the property and you tend to get a better-quality tenant," he said."However, buying established gives you the opportunity to value-add whether through renovations or subdividing."Investors, however, should expect to be paying more for repairs to an older house."Because interest rates are so low and builders are very keen to get work, I think it's a fantastic time to be buying new," Mr Koulizos said."
There are not many times in the property cycle where there is a situation such as we have now where it's worth building from scratch and keeping it to rent."A big potential downside with building an investment property is that investors do not receive any income while it is under construction. Including planning approvals, that can take more than a year."One of the issues you have to address with your bank or lender is are you paying interest while it is being built, or are you going to let that accumulate?" Mr Koulizos said.
Another downside is limited choices on where to build.Vacant blocks are scarce in most established suburbs.Brock Harcourts chief executive Greg Moulton said that was a factor investors must weigh up against the benefits of building, such as tax and stamp duty savings. "The opportunities to build in some of the high-growth areas just aren't there," he said."If you want a better return and bang for your buck in the short term, maybe look at building, but if you are looking at a long-term investment opportunity you will be going where the capital gains are - and nine out of 10 times that is in established areas. "High capital growth areas traditionally were close to the city, near the beach or in the eastern suburbs, Mr Moulton said. "One of the advantages with buying in established areas is convenience with schools. A lot of people want to invest close to decent shopping centres and decent schools," he said."In developments out further, some of the schools haven't been established long and they don't have a reputation."Real Estate Institute of SA president Robin Turner said while most property investors bought established homes, there was a good argument for building."As with everything, they need to do their paperwork thoroughly and be very clear about what's included in the price, so there's no nasty surprises," he said."It can be exciting and rewarding for most people to see a new home rise out of the ground, plus there's a significant saving in stamp duty as it is only charged on the land component.
The Positives and negatives of buying used or building new for investment are:
- Most tenants prefer newer properties, so rental returns may be higher.
- New homes are usually more energy-efficient.• Repair bills are generally lower for new homes.
- Modern floorplans and designs can be popular.
- There a limited choices where you can build an investment property.
- Building a home can have construction delays and hidden costs.
- Established homes deliver investment income from the day of settlement.
- The best capital growth traditionally comes from established areas where vacant land is rare and expensive.
- When buying established, you know what the surrounding facilities and other homes are like.
- Value can be added to established homes by renovating or subdividing.
- When you buy established you get quicker returns because you have a finished product.
- When building there are so many decisions to make.
- Interest costs and holding costs will hurt you till the home is completed. This could take 12 months.
- What happens if the builder developer goes broke?
As you can see when investing in real estate, either commercial or residential, both have their pluses and minuses.
