Expert Advice: by Lindy Lear
Many investors ask me what types of property I buy as an investment. Over the last few years I have bought apartments, townhouses and houses and it surprises people that I have built 2 brand new houses along the way. Why would I go to the trouble if there are so many established houses for sale? So I thought I would explain the process of building your own brand new investment property from scratch. It is a lot easier than you think and may give you many benefits along the way. You become a mini developer working with your builder, however you can be “hands off” along the way.
Many investors shy away from building a brand new house because they think the process will be too hard. Let me introduce you to the concept of “turnkey house & land packages” as part of a smart investment strategy. Turnkey means that the house is finished ready for a tenant to just turn the key and move in at completion. The house build contract includes the carpets, tiles, window dressings, flyscreens, paths, driveway, fencing, lawn, landscaping and including the letterbox and TV aerial! The house designs, colours, facades and finishes are all done by experienced design teams to suit the demographic and lifestyle demands of the area / location. So for a busy investor wanting to grow their portfolio with a brand new house it provides a perfect stress free solution.
You buy a package of land with a house already designed for that Lot, to be built by the builder for you at a fixed price contract over a period of 4 -6 months. This can be as painless and easy process. It is not a home you are going to live in so you do not need to be emotionally involved. The builder looks after the construction process and the bank pays the builder at each stage. Council approves the plans and building certifiers , building inspectors and bank valuers make sure the house is built to specifications. Builders normally send you progress photos at each stage which is very exciting. This opens up being able to invest in markets interstate, away from where you reside, where there may be stronger drivers for growth and better rental yields than in your own backyard. Smart investors know that diversity in location is the key to a good investment portfolio.
Finding a Tenant
If you build it they will come! That is what I have found. Tenants can be very demanding and a brand new home is very attractive to them. They are willing to pay a premium rent to have all the modern features that come with a new house – stone benchtops, ensuites, alfresco outdoor areas, family rooms and media rooms, minimum gardens to maintain and all appliances new and shiny , no plastic gloves and cleaning needed before moving in! A smart investor does their cash flow and with the higher rental yield, they realise they can be in positive cashflow territory without even trying.
Savings on Stamp Duty
One of my motivations for building my own investment house was the significant stamp duty savings. As the house is not yet built, stamp duty is only required on the land component of the purchase price. For example, a 4 Bed House & Land package has a purchase price of $370,000. The land component is $135,000 and the Build component is $235,000. The stamp duty payable at settlement is approximately $3450. If the property had been purchased completed the stamp duty would have been closer to $12,200. So a smart investor has already made savings of about $8700. Although there are interest payments to be made during construction, the interest paid is all tax deductible so at 37% tax rate you could save another $1330 as well.
Maximising Tax Benefits & Minimising Maintenance
Building a new investment property where I can maximise the tax benefits gives me peace of mind as I can anticipate my holding costs. No nasty surprises as there will be no maintenance costs as everything is under warranty. As it is a new property I can claim all expenses AND depreciation on the building and contents approx. $13000 in year one. This will give me a cashflow positive outcome. That’s right no money from my pocket. With the property above (modelled on the house I built), I receive $420 a week rent and the cash flow is $88 a week cash flow positive. The tenant and taxman pay for my property. Smart investors love this strategy.
If you would like to read more on this strategy for growing your portfolio may I invite you to read Ian Hosking Richards NEW book “ROCKET FUEL” just released. Please go to www.rocketpropertygroup.com.au to buy the book or register for the First 2 chapters for free.
Lindy Lear is a successful property investor who had a late start into investing, yet has grown her portfolio to eight properties in three years. She is a qualified property advisor and general manager of Rocket Property Group, and she won the Reader’s Choice Award in 2009 for Property Investment Advisor of the Year. Lindy is passionate about helping others realise their goals through investing in property, and can be contacted at 02 8012 9669 or visit www.rocketpropertygroup.com.au
To read more Expert Advice articles by Lindy, click here
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.
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