What You Need to Know About Investing in a House and Land Package in Sydney

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At Buyer’s Domain, we understand the allure of investing in a brand new house and land package. These properties, with their glossy brochures and modern designs, may present an attractive option for many investors. Yet, it is crucial to weigh the advantages against the potential drawbacks before making a decision. Here, we explore the main pros and cons of such investments.

The Main Pros

Tenants Adore New Homes

Brand new properties are highly attractive to tenants. Everything is pristine, featuring the latest designs and modern floor plans. For investors, this often means finding a tenant can be relatively straightforward (subject to the supply dynamics in the area) and the potential for strong rental returns is significant.

Maintenance

One of the significant advantages of a new property is the minimal maintenance required in the initial years. Investors should not have to concern themselves with the property falling into disrepair shortly after purchase.

Stamp Duty Savings

Investing in a new house and land package will incur stamp duty only on the land component and not the overall package. This can result in substantial savings, potentially amounting to thousands of dollars. There may also be applicable first home buyer benefits.

Flexibility

Building a new home offers the opportunity to customise certain aspects to meet specific needs or to enhance the property’s investment potential.

The Main Cons

Paying for Someone Else’s Profit

The price of a brand new property includes the developer’s profit margin and a portion of the marketing expenses. These hidden costs can negate several years of potential capital growth, placing investors at a disadvantage from the outset.

Compromised Location

Many house and land packages are situated on the city outskirts, in areas with an abundant supply of land but weaker economic drivers and limited infrastructure. This can make significant capital growth challenging to achieve.

Uncertainty

Purchasing off the plan introduces uncertainties regarding the quality of finishes, the characteristics of surrounding facilities and homes, and the risk of the final bank valuation not meeting expectations. Additionally, the prevalence of similar properties sold to investors in the area may not be clear.

Land Value

Established wisdom suggests seeking properties with a high land value component, as land drives capital growth. However, with new properties, the value is often concentrated in the building, which depreciates over time, potentially stifling capital growth.

Paying Without Receiving

During the planning and construction phases of a new investment property, no income is generated, yet interest payments on borrowed funds commence.

Building Surprises

Construction can be fraught with challenges, including delays and unexpected costs necessary to complete the property.

Inability to Add Value

Renovations are a proven strategy for enhancing a property’s value and accelerating wealth creation. This opportunity is seldom available with new properties.

Conclusion

While the prospect of investing in a new property may seem enticing, it often leads to dissatisfaction over the long term due to weaker capital growth. For those considering a long-term investment, a second-hand property frequently emerges as the superior choice.

At Buyer’s Domain, we are committed to guiding our clients through the complexities of property investment, ensuring they make informed decisions that align with their long-term financial goals.

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