When looking to buy a home, one question buyers face is whether to purchase an established property, or to buy land and build a home from scratch.
While both methods offer significant financial and social benefits, ultimately, the “better” method depends on the priorities of the buyer, according to the Domain Group.
“First you need to determine what your needs or wants are, to be able to determine what’s classed as ‘better’
“Consider it like buying a mode of transport. What’s better – a Prius, a motorbike, a sexy two-door sports car, or a Range Rover? They’ll all provide transportation, but do they cater specifically for your needs?”
Domain Group asked experts to outline the pros and cons of each method, allowing buyers to determine the option that best suits their lifestyle and financial position.
What to know: Established home
Buying an established home offers several key benefit that appeal to buyers.
Generally, an established property will be located closer to a city centre than a new home (as vacant blocks are rare in inner-city areas), and therefore be nearer to facilities and infrastructure such as schools, employment opportunities and public transport.
Not only is this location usually considered preferable, but the parcel of land the home sits on will generally be bigger than what’s offered for new builds.
Land sizes used to be bigger than what current home and land packages offer
“An established property often has a nice-sized yard along with a good-sized house, something you generally have to pay through the nose for in a brand new build.”
Buying an established home is a quicker process than building a new house. Once the initial house hunting is done and the deposit has been paid, buyers can often move in and start their new life in as little as 30 days.
New homes, on the other hand, require months to build and have the potential extra burden of delays and complications. Because of this, many buyers will need to continue renting another property while their new home is being built.
There is also an enormous time drain to pick all of the finishes, colours and fittings for a new home. This is even more time consuming if building an architectural home.
Another factor to consider is the positive impact of established gardens, parks and trees in longstanding homes, which are often lacking in new housing estates.
If you ever drive through a brand new estate the missing foliage and flowers are starkly obvious.
Gardens are often overlooked when locking in a mortgage for a new home but perhaps they should be listed in the cost … If you have never set up a whole garden and lawn before, you may not be aware how very costly it is.
A key question buyers must ask themselves is whether they are looking for their forever home, or an investment property. If it’s the latter, the established home is generally the better bet.
If first home buyers want the opportunity to move to a second bigger and/or better home, they need to ensure that their first home will grow in value to allow for this upgrade.
Buying the right established property can add instant value with the right makeover and they could find themselves up levelling to the property of their dreams much faster.
Buyers can also more easily compare prices and investment results of similar properties when dealing with established homes.
Purchasing an established home also offers buyers a good understanding of the design, style and price point for other houses in the area, allowing them to understand the home’s future financial value.
At a glance…
- Closer to the CBD and established infrastructure
- Better investment potential
- Larger land parcel
- Comes with established landscaping
- Can move in quickly
What to know: Building a new home
Buying land and building a new home from scratch offers several unique benefits not offered when purchasing an established property.
Many first home buyers are drawn to this option due to the savings and concessions available, such as reduced stamp duty and the First Home Owner Grant.
If you choose to use your new home as an investment property, you can claim depreciation quite rapidly over the first few years, which is a good tax benefit to take advantage of.
As a new home is more likely to be built to a higher energy efficient standard and carry fewer maintenance issues than an established home, there’s also the potential ongoing savings.
An architecturally designed home utilising responsible building practices like natural ventilation, PV panels with battery backup, grey water systems and one that takes full advantage of winter sun in any area will always appreciate in value.
Even if issues do arise, these will generally be covered under warranty.
You have a house that you won’t have to put any money towards over the next few years. Everything is nice and new, so there is no work to be done.
Of course, the major drawcard of a new home is the creative control this offers buyers.
You decide where the fireplace goes, what cladding you use, how big your entertaining area is.
The stories you’ll share with your mates while you’re enjoying a cold one around the barbecue become more real and you’re passionate about them because you were involved in the process.
This method of buying can be particularly rewarding, and arguably gives vendors more bang for their buck.
Often you get a lot more for your money. Sure, a two-bedroom unit might be cheaper but it’s pretty awesome having a new home that’s built exactly how you want it to be
And while building may be the more time-consuming process, it can save buyers several weekends of time spent at inspections, auctions and negotiating with agents.
There is far less competition in buying a block of land and building your home than an existing home. Many people are turned off by the stress and cost of building.
If you’re looking for a home to raise your family and live in for decades, the new build can be a fantastic option.
Home designs and sizes have changed dramatically in Australia over the last 20 years, so by building a new home, you can create the exact floor plan that you desire rather than taking on the costs involved with creating an open floor plan in an existing property with an outdated design.
At a glance…
- Can be built to your exact specifications
- Lower ongoing costs in terms of maintenance and energy
- Significant buyer incentives such as the First Home Owner Grant
- Less competition to buy land
- Issues and defects covered under warranty
Please see the following bullet points of criteria queries we would ask you to answer so we can start the ball rolling on your investment property strategy:-
- PRICE RANGE ??
- LAND SIZE??
- TYPE OF CONSTRUCTION EG BRICK/TIMBER/RENDERED??
- TYPE LOWSET/HIGHSET; T/HOUSE; UNIT??
- NUMBER OF BEDROOMS??
- NUMBER OF BATHROOMS??
- NUMBER OF GARAGES??
- AIR CON/ CEILING FANS??
- SECURITY ACCESSORIES
- TRANSPORTATION SERVICES
- SHOPPING FACILITIES
- PARKS AND RECREATION AMENITIES
- Your full names:
- Current address:
- Email Address:
- Home PH:
- ABN (if Applicable)
AT A GLANCE: WE OFFER:-
- Property Management – BRISBANE WIDE
- Sales of properties with tenants in place
- Body Corporate Management
- Competitive Commission Rates
- LET FEE FOR REFERRALS, We are a business built on 20 years of Referrals.
- NO Lease Renewal & Comparable Market Analysis’ Fees/Charges
- PHOTOS TAKEN ON ENTRY, tenants are shown about safety switches and water mains etc. OUR LEASE EMERGENCY CONTACT INFORMATION IS CARLOS DEBELLO 0413560808 SO AS TO AVOID UNNECESSARY CALL OUT FEES CHARGED BY TRADESPEOPLE.
- We meet all tenants on site.
- Hands on approach to all Property Investment Management Matters.
At LJ Gilland Real Estate we offer a breakdown of fees associated property managements services, noting property investors with more than one property receive reduced commission rates.
We take pride in managing properties, our Core business, you will find that we differ in the level of care we take with, for example, the amount of photographs we take of the investment property, which helps to keep you informed and ensures that you make confident decisions, we strive to ensure your property is well maintained, and you receive prompt rental payments.
Since 1996 our Agency has demonstrated a genuine enjoyment of working with people, developing long-term relationships and delivering on the promise of great service. Our Property Management Team offers investors with in-depth advice, well-researched rental valuations, and highly professional rental management services.
Because we are a family business we have a more personal approach than most other agents, we continue to support your Investment Property Strategies aiming to maximize your rental returns and limit high turnover of tenants which could affect wear and tear on the property i.e. for example we take extraordinary amount of photographs of your property for use in addition to each entry and exit of tenant, not relying on generic RTA condition reports to back up in any potential claim mounted by any future tenant.
What we charge vrs what others charge:-
You need to own the right type of property; one that will be in continuous strong demand from both owner occupiers and tenants, because the former push up market prices, whilst the latter help to pay your mortgage
These 8 specific and calculated criteria can be summarised as follows: 1. Capital Growth Rate >7.5% 2. Population Growth >2.7% 3. Residential Vacancy Rate4. Established and Planned Infrastructure 5. Median Property Price +15% 6. Rental Yield ~4.3% 7. Tax Effectiveness 8. Added Extras
Priority has been given to the economics of the area FIRST and then to the specific property criteria SECOND. The reason for this relates to an old real estate belief that suggests that one should buy ‘the worst house in the best street’ indicating that it is not the physical house that increases in value, but rather, it is the land in the area that achieves and experiences capital growth. Therefore, going from a MACRO to a MICRO level in the selection criteria would indicate a logical process by which one should select a specific property as an investor. Once a suitable area has been identified, it is then important to select a property within that area that will represent both a logical and tax effective investment opportunity.
At LJ Gilland Real Estate, we do not believe that the ‘Golden Rule’ of property should only refer to ‘Position, Position, Position’, instead, we believe that the ‘Golden Rule’ should be expanded to also include: ‘People, People, People’ After all, it is people who buy property and people that rent property and therefore it is people that choose ‘the good’ and ‘the bad’ positions. This relates to the basic laws of supply and demand and an area that is experiencing a positive population growth would result in an ever increasing level of demand for housing. As a result of this ever increasing demand, basic economic principles would indicate that this would result in an increase in price for housing.
As an added dimension, an area that it is in strong demand is also more likely to experience a stronger capital growth rate as many of the factors that attract tenants to the area will more than likely be the same factors that attract owner occupiers to that same area.
Some of the specific elements that influences demand within an area is the degree to which established infrastructure is readily accessible to tenants and, as such, it is important that the existing infrastructure surrounding a property be properly assessed and identified.
At LJ Gilland Real Estate, we recommend that a property investor invests at a price point that is no greater than 15% MORE than the median property price for that particular area on any one particular property
This means that within that +15% price range, an investor is able to obtain an ‘above average’ property that is in stronger demand by both purchasers and tenants than at any other price point. This is, quite simply, a property that the majority of people can afford to buy and/or rent. By avoiding the ‘cheaper’ or the more ‘expensive’ properties you are able to supply a product for the largest population percentile and therefore are able to achieve the greatest level of demand when choosing to rent OR sell the investment property.
An area that has a high rental yield will, generally speaking, have a low capital growth rate and alternatively an area that has a low rental yield will, generally speaking, have a higher capital growth rate. The reason for this, we believe, is that the property investment market is always striving to reach a state or equilibrium or balance. When rental returns are high (that is, greater than a 5% rental yield) investors are willing to accept a less than average capital growth rate. On the other hand, when the rental yield is low (that is, less than a 3% rental yield) investors need to be compensated by achieving a greater than average capital growth rate. The market always strives for balance and the investor needs to make a choice between a little more money now (higher rental yield & lower capital growth rate) or a lot more money later (lower rental yield & higher capital growth rate). That is the reason why we recommend a rental yield range between 3.9% to 4.7% as being the most ideal. This range, which fluctuates around an average of 4.3%, would indicate an area that is achieving a moderately solid growth rate, is relatively balanced and has an acceptable cash flow income stream by which to assist in the servicing an maintenance of the investment property.
The level of depreciable allowance should be assessed prior to making a specific property recommendation to an investor.
Tenants today are faced with a multitude of options and choices, i.e. do we rent this property or do we rent that property? There are, however, certain elements that make a particular property unique and therefore more desirable to a prospective tenant. They quite simply represent any element that may give a particular property an edge over another when looking through the eyes of a potential tenant. For example, if an investor was looking at acquiring a house and land package as their preferred investment choice, an added extra could include: • an additional living area within the home, or • an air conditioning unit, or • an outdoor ‘alfresco’ dining area, or • an extra large garden. If the preferred choice for an investor was a townhouse or unit, extra’s could include features such as: • a security estate operated via a remote controlled entrance • open gardens or parklands with barbeque facilities, • a swimming pool, or • a gymnasium, or even • a tennis court. Added extra’s are exactly as the name suggests and are explored and identified only after the property has satisfied all the preceding criteria.
We look forward to your feedback.
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