Investment Strategy Part 1
When I first became an investor in property I had a totally different investment strategy to the one I use today. I would look at buying the cheapest established house in the area, detonate and renovate. This investment strategy worked for a while until I started to see the benefit in an approach to property investment like Brett's Set and Forget Philosophy: that requires less money down, is less risky and takes out the time, effort and stress of knocking out walls with a hammer.
Looking back I wish I'd known what I know now about investment strategy, then. With the time and money I've invested in the past I would have seen much better returns!
So the question is : “to build, or not to build!”
Should I buy an existing property or buying off plan or a house and land package as my investment strategy?
Investors concerned with the effective investment strategy are constantly asking this question. So I thought I'd explore both sides of the question so you can be fully informed and make up your own mind. At the end of the day answer will be different for everyone, it depends on the individual's situation.
Investment Strategy: Buying existing property vs. building new
Positives of buying existing
- You can buy in a suburb or location that is already established. You can see value in buying on the beachside of the highway over buying across the highway further away from the beach.
- In most situations there is more established than new property available closer to the heart of the city and it can be a more affordable avenue to entering expensive areas.
- Spend less money on the dwelling and more on the land. Using the strategy ‘buy the worst house in the best street' can be blood sweat and tears yet in the end the work will pay off.
- It can be easier to buy an existing house and start renting it out straight away.
- What you see is what you get
Positives of buying new
- The investment strategy of buying or building new can potentially save you thousands of dollars per annum on depreciation tax write offs. This combined with potential stamp duty savings and government incentives can create less financial pressure, reduce your initial outlays and let you take advantage of capital growth.
- Buying new will automatically entitle you to a Building and Pest Report. And in general your maintenance costs will be minimal in the initial years – In my experience maintenance cost with existing properties can and usually will blow out to thousands if not tens of thousands of dollars every year.
- You can build in up and coming areas and get the benefit of capital growth as your investment strategy. In some cases when buying off the plans you'll even get the benefit of capital growth before you start paying a mortgage. I look for areas with massive growth potential rather than those that have had growth, much like Brett's zig-zag strategy.
- Tenants and in particular families prefer to rent and live in new properties – newer properties are likely to rent out first and for more money.
So there you have it – both sides have their benefits, so which strategy should you use?
Stay tuned for the second part of this article about investment strategy where I'll give you a real world example and try and answer the question once and for all!
If you have any questions give the team a call on +44 (0)207 923 6100.