Purchasing a brand-new investment property can be an exciting prospect. You are the first owner of a property and get the opportunity to create strong capital gains. However, the idea of investing in a brand-new property can scare some buyers as they perceive the process as a risk. Being the first owner carries a number of benefits not offered to those buying second hand properties.
- Allows you to save additional cash over the construction period
The investment process of buying a property new includes the investor placing a 10 per cent deposit into a trust account, which is held until the construction of the development is complete. At which point finance is obtained, the purchase is finalised, and the property is tenanted.
Medium to large projects include a construction phase that is regularly over 18 months. This extra time period allows investors additional time to create a buffer of financial security, or contribute extra money to the purchase, whereas buyers of a second hand properties need the full costs of investment ready initially.
Over the construction period investors are able to lock in a purchase price, with the possibility of the investment appreciating with market movements. This gives brand new buyers the upper hand in gaining usable equity, by using the property market to their advantage.
- Ability to select the most desirable properties
Often when a second hand property comes to market there is a concentration of buyers bidding for the only available apartment, townhouse or detached house. The property may have some downfalls – a bad design, small floor plans, an unfavourable view but it is the only property available, so buyers forego these factors to get into the market.
Savvy investors that buy brand new obtain the prime properties within a development. They are able to choose properties with the most favourable features by gaining off market access, before other buyers. Ultimately, these properties with a point of difference offer stronger long-term growth prospects and a greater exit strategy. This also allows properties to be rented easily, as they are more appealing to prospective tenants.
- Tax Benefits
There are various aspects that allow brand new properties to be more feasible in an after-tax scenario. Maintenance, repairs, rates and property depreciation can all affect the practicality of an investment when holding over the long term. Property depreciation in particular can account for a significant yearly claim that is now unavailable to those buying second hand. Depicted below, depreciation can create a world of difference for a first-time investor – In the below hypothetical of a $500,000 purchase even a small depreciation claim can save investors very week.
*Projection is based on 5%, Interest only loan.
**Rental income indicates no void.
***Depreciation of building is as standard (straight line depreciation at 2.5% of building cost).
At Blue Wealth we enter an approved project as soon as possible, and eliminate properties with inferior features. This allows us to select the best and enable our clients to get favourable results. Asset selection can be a massive part of your investments overall performance, we believe that brand new properties create the most beneficial returns in Australia’s continually shifting markets.