An investment home can provide great returns if you approach the process in the right way. Just like with any new or repeat venture, there are do’s and don’ts to recognize and follow. You can only control what you can predict, after all, so make the most of your advantages and avoid any foreseeable pitfalls.
Areas for Positive Maximum Return
There is the potential for great depreciation when it comes to a new build. You can claim maximum depreciation on both construction and fixtures. For negatively geared properties, that could mean a shift into positive; whereas you will still save on taxes if the property is positively geared. However, it is important to discuss any tax matters with an accountant to fully benefit from potential tax breaks.
If you do your research correctly, you can access a constant market where you will always be able to rent at the desirable yield. Always make sure to evaluate both the current and predicted market trends in areas you are considering. Instant equity is another consideration for making a maximum return based on the market. Getting the land for the right price and building a property that is highly valued will allow you to revalue the property with the lender, giving you additional equity that you can reinvest elsewhere.
Do not dismiss the potential for a dual tenant property, with the potential for future subdivision. Building a new property essentially gives you a blank state for future builds, allowing you to recreate the same property elsewhere or tweak the design elements as needed for the market.
Potential Cons of Investment Properties
You have to consider whether there is great availability of land in the locations where you want to build. Building a property for investment and making a maximum return is often dictated by available locations. Even if you find a location with plenty of land, you may not want to settle if the potential for maximum yield on rent or resale does not exist.
Going back to the market, there is only so much data available and, although typically reliable, it is predictive. New developments are one consideration which isn’t always included in market predictions for a number of reasons. Without that additional information you run the risk of seeing your property competing with new developments which will damage your yields.
Financing is perhaps the trickiest aspect of building for investment when you have your own mortgage to pay on top of construction costs. To help you avoid running into any issues with your finances, it is recommended that you put at least 6 to 12 months of preparation into ensuring you can manage your payments until you start receiving rent from your tenants.
As with all best laid plans, new builds are notorious for running into budgeting issues which you will need to address. It is better to live by the motto of anything that can go wrong, will go wrong. It is possible to head off certain budget increases by asking for a breakdown of costs and final pricing from builder’s reps and contractors. However, always leave yourself plenty of wriggle room in your budget so that you do not have to go back to your lender and risk paying higher rates on your loan.
For any major build, stage construction inspections are recommended before signing off on each stage. Houspect provides expert inspections in the Northern Territory and throughout Australia, with detailed and easy to understand reports available within 24 hours in many cases.
