One of the biggest mistakes I see investors making is that they get caught up in buying new properties and miss out on the real value that comes from an already established home.
I’m sure you’ve probably seen some of the slick marketing that comes with a new home. Beautiful renders, maybe a display suite. You can even choose what tiles you want.
While this might be nice and the product will probably look great, at the end of the day, all you’re doing is paying for all of this when you should really be spending money on the most important element – the land.
When you buy an off-the-plan apartment, you are mostly buying a large structure on a small piece of land. In the case of a large building with 100 apartments or more, you are basically only getting one per cent or less of the land value.
Over time, it’s the land that appreciates in value, while the building depreciates. Some of the spruikers might tell you that depreciation is great because it helps you reduce your taxes. But in the end of the day, you’re simply just paying for it upfront.
Then you need to factor in all the costs that you’re actually paying for. There’s the marketing costs, the referral fees, and the costs to build plus the developer’s margin on top of that.
Now let me say one thing, there is nothing wrong with this product and it can suit certain buyers. But as an investor, if the goal is to purchase a property that is going to appreciate in value, you don’t want to be buying a property that has a very small land component.
Because it’s ultimately the land that increases in value while the building depreciates.
It’s much better to buy an established property where 70-80 per cent of the value is in the land and 20-30 per cent is in the dwelling because it’s almost fully depreciated.
If you’ve got 70 per cent of the asset appreciating in value, then you’re likely to get much stronger growth over the long term.
The other factor to consider when buying new is that the location of these new builds and house and land packages are often in inferior locations. That’s because all of the locations that are highly desirable are already built up.
So the developers are forced to go further and further away to be able to build home and land packages or build the large off-the-plan developments.
Typically, if you just bought an established home in a better quality location, you would end up doing far better from an investment perspective. Ultimately, as an investor, our goal is to buy the best possible assets in the best possible locations. That’s going to give us the most capital growth and will allow us to then buy again in only a few years’ time.
Too many investors purchase a new property when they are just getting started, and not only does the property not grow, it puts them back many years, and they never go on to purchase anything else and assume property “doesn’t work.”
When in reality, had they bought well in the first place, they would probably already have picked up another 2-3 properties thanks to the great growth they would have achieved by buying established to start with.
If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.
