Property investors buy new house and land packages because they want to invest in real estate and like the tax benefits of new property.
Higher rentals
New properties set the benchmark for the highest rentals in the suburb because they are new and good tenants prefer to live in a new home. These tenants are also often couples or families so they will look after the property and cause less damage.
Land appreciates in value
Land almost always go up in value because it is a scarce resource. Every block is unique and once it is sold it is no longer available.
In the Newcastle, Lake Macquarie and Hunter Region new housing estates are opening up regularly but blocks are selling quickly to owner occupiers as well as investors. The value of the blocks in these new estates directly affect the value of existing blocks and developers are very experienced in making sure these blocks go up in value.
New housing estates
Some popular housing estates in the Newcastle region are:
- Billy’s Lookout (Teralba)
- Weemala (Boolaroo)
- Crangan Bay
- Huntlee (Branxton)
- Hereford Hill & Lochinvar Ridge (Lochinvar)
- Waterford (Chisholm)
A common practice with housing estate developers is to only release land in stages. There are several reasons for this and one is to ensure that they get their money back for the civil works they need to do.
The benefit to buyers is that it is common for these developers to increase the cost in later stages and reduce the lot sizes – the value of your new block will go up because it is built into the developers business model!
House depreciation
A house is like any asset in that it has a limited life and slowly loses value as it gets older. Age causes wear and tear and even the best tenants will break things or damage them. As a result the value of your house will reduce over time and this process is called depreciation.
Houses depreciate in value a lot slower than a vehicle and the benefit for investors who have an income from their property is that this reduction in value can be claimed against their tax.
High income earners benefit the most because they are in a higher tax bracket where more of the extra money they earn goes to the ATO in the form of income tax. Depreciation of the building helps to reduce the amount of tax they pay.
One strange aspect about owning house and land is that although the building depreciates in value the cost of building a new one is going up with inflation. So even though your building is doing down in value the cost to replace it is increasing and this makes it more valuable!
Cost of building a new home
Building a new home is a combination of many factors including:
- Design and size
- Location and position on the block
- Cost of materials
- Cost of trades labour to build it
- Project management
When the cost of building products increase so to does the cost of building a new home. Combine that with the cost of labour and you can see why new home builds are getting more expensive every year.
High income, positive cashflow investment properties
Some high income earning investors don’t mind if the rental income they earn is low in the beginning because it adds to their total tax deductions. When the rental income you earn is less than the interest you pay on your loan you are “negative gearing”.
Negative gearing means your expenses are more than your income and this is another bonus for high income earners because it reduces the income tax they have to pay.
These investors understand that as the value of their property increases over time so too the rental income will increase in the future. After 5-7 years their property will be cashflow positive.
Having said that more and more investors want their investment property to be cashflow positive so that it pays for itself and there are a couple ways to achieve this.
Invest in a granny flat development
Commonly known as a granny flat, a secondary dwelling (usually at the rear of the property) is a great way to increase the rental income from an investment property.
Learn more about secondary dwellings and granny flats
Buy a dual key property
A dual-key property is similar to a Duplex or semi-detached house in that it’s one house with a central wall which divides two dwellings.
It enables you to have two incomes for what is essentially just one building and they’re commonly configured with a larger residence on one side and smaller one on the other.