It’s widely accepted that house and land is one of the best and most cost-effective ways for first homebuyers to get a foot on the property ladder. But a house and land package can also be a sound option for investors.
Some of the big draw cards for prospective investors include financial savings, such as stamp duty concessions, depreciation and tax benefits; and the fact that new estates are often located in fledgling areas, which can mean greater opportunity for capital growth if you get in early enough.
Here are some reasons why a house and land package is worth exploring over an established home if you’re in the market as an investor.
1. Save on initial costs
There are plenty of savings to be made by buying a fixed price turn-key house and land proposition, not to mention the fact that having a set price will take the stress out of buying an investment property, particularly if it’s your first.
In addition to not having any unwanted surprises, there is a substantial stamp duty saving when you buy house and land.
“One of the biggest potential advantages of buying a house and land package is the stamp duty saving,” said Emily Wood, Frasers Property Australia’s Brand and Customer General Manager.
“Purchasing an established home means having to pay stamp duty on both the house and the land, but buying a house and land package means you are only paying stamp duty on the value of the land component, as the home has yet to be built. This can possibly save buyers thousands of dollars.”
2. Usually in growth areas
Getting in early and buying land in a new estate, particularly if it’s a multi-stage project, means you could be ahead of the pack and potentially in line for greater capital growth in the long run.
It’s a good idea to give careful consideration to the infrastructure planned for the area before diving in and making a purchase, but by buying land in an initial stage of a land estate can be more cost-effective than later stages of the same development.
Domenic Nesci, co-founder of property investment brokerage, Wealthi, said there was money to be made in house and land development areas if buyers made purchases early.
“House and land packages are considered low density,” Mr Nesci said. “This means there is a limit to the height and number of lots that can be released in a location, meaning limiting the amount of supply to be built.
“In the long term, this can push prices higher (for properties bought earlier).”
Ms Wood said Frasers Property took a holistic approach in their estates with master-planned community developments that created a sense of belonging by delivering lifestyle amenity and conveniences.
“House and land packages in new, well-located communities which provide a range of amenities and infrastructure are typically a more appealing option than many pre-existing rental offers,” she said.
“We approach our developments through the lens of community creation and master-planning, which can include a wide variety of amenity such as parks, walking tracks, playgrounds, indoor and outdoor gyms, childcare centres, schools, shopping centres, neighbourhood groups and so on.”
3. Lower entry costs compared with established areas
Opting for a house and land package can be a considerable saving over an established home depending on where you are looking to buy.
For example, in Baldivis on the southern outskirts of the Perth metropolitan area, Frasers Property has house and land packages starting from $370,990 at Baldivis Grove or townhouses at Baldivis Parks from $343,000.
Compare this with PropTrack data shows an established four bedroom house in the suburb has a median sales price of $440,000 and draws a weekly rent of $440, and building from scratch seems like an attractive proposition.
4. Tenants prefer new homes over existing
Who doesn’t love the allure of something shiny and new?
Tenants are just like the rest of us. Having something brand new will almost certainly trump a rental that is a bit tired and rundown or needs maintenance work.
5. House and land packages can have good rental yield
One of the most important factors to consider when investing in property is rental demand.
“As a landlord, you want to attract high-quality tenants who will stay long-term,” Ms Wood said.
“Demand for house and land packages is on the rise, as COVID-19 has highlighted some realities of high density living which are not for everyone. As a result, many people want to live in a larger brand new home with a lifestyle focus.”
Mr Nesci said house and land is a sound investment option because historically, house prices grow faster than apartments.
“The capital gain over the past 25 years equates to an annual growth rate of 6.8% for houses and 5.9% for units. So, if you are after capital growth, house and land will generally be the best option,” he said.
Mr Nesci said “sticky tenants” were sought-after by landlords.
“Houses usually attract families and bigger incomes,” he said.
“Parents with kids want to stay in the same area/community for school and friends. They tend to stay longer and not move as much as singles or couples. With kids growing and adding more things to the house, it makes it more difficult to move around.”
Let’s face it, we’ve all got more riveting things to be doing than domestic maintenance, whether in our own homes or an investment property. For that reason, a brand new house can seem far more appealing to an investor than an existing property that may need time and effort in its upkeep.
Ms Wood said new homes meant the potential for having to attend to maintenance issues was significantly less.
“The house is less likely to need any renovation or maintenance work, often the building, fixtures and fittings are covered by a warranty for a set number of years, and the new home has significantly lower running costs and upkeep,” she said.
“At Frasers Property, we have an in-house property management service which means investors are able to access their property prior to settlement, and we can work with our investor customers to help secure a tenant who’s ready to move in the moment the property is settled.”
7. Builder warranty
One of the big advantages of house and land is that the construction should be covered by a builder’s warranty if something goes wrong.
If the warranty is valid and you find a defect after settlement, this is likely to cover repairs so you’re not out of pocket. This will give you some peace of mind compared to purchasing an established home where it’s usually a case of buyer beware and you’ll be left ‘carrying the can’ if a problem arises.
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