There are good reasons to invest in both new and existing properties. Deciding which is right for your investment strategy means understanding what makes each option unique. We’ll discuss the main benefits of building a brand-new investment and how you could build your investment portfolio with this option.
New construction can be an excellent way to start a new investment portfolio as there are many benefits associated with investing in brand new homes.
Tax Benefits Through Depreciation Deduction
Investors in real estate are entitled to several tax benefits, but may not understand the full potential of their depreciation deduction.
As a building gets older, its structure and the assets contained within it wear out and depreciate. The Australian Taxation Office (ATO) allows owners of income-producing properties to claim this depreciation as a tax deduction. As a property investor, you can capitalise on your investment property’s depreciation.
For residential investment property owners, depreciation deductions can significantly improve cash flow. If the property is newly built, you can claim the depreciation deduction of the home over several years.
Depreciation can be claimed on capital works and depreciating assets for investment property.
Capital Works Deduction
Capital works deductions are income tax deductions that an investor can claim for wear and tear on the property’s structure and items considered to be permanently fixed to the property. Essentially, these components of the investment property are items in the house that are not removable.
Examples of capital works include, but are not limited to:
- Walls;
- Roof;
- Concrete;
- Wiring; and
- Bricks.
Depreciating Assets
Depreciating assets in an investment property are often referred to as “Plant & Equipment” as the items wear and tear, which causes them to depreciate faster. These assets are items that are part of the house that are not part of the structure of the building but will require replacement eventually.
Examples of Depreciating Assets include, but are not limited to:
- Carpets;
- Curtains;
- Dishwasher;
- Oven;
- Hot Water System;
QPG recommends you to speak with an industry professional for more information about depreciation.
Tenant Attraction
Tenants are frequently drawn to newly constructed homes with modern amenities. With newer builds, they often include modern features, appliances, and installed technology. Appealing inclusions for tenants include smart appliances throughout the house, energy-efficient heating, and security features like screens, locks, and window coverings.
As the house is brand new, it will be more energy efficient and require less maintenance compared to an established home. A newly constructed home provides tenants with peace of mind that minimal maintenance will be required, and their power bills should not be excessive.
New properties require minimal maintenance. If there is a fault in the house, it will likely be covered under warranty. As an example, the QLD Home Warranty Scheme protects homeowners against non-completion, defective work, and subsidence for up to 6 years from completion. This provides security and protection for the owner against structural and/ or major defects once the house is built.
How Does Building An Investment Property Work?
If you’ve ever considered building your next investment property or a new home, there are a few things to keep in mind.
Understand your current financial situation
The first step is to determine your financial situation and explore all the financing options available to you. This will allow you to have a clear guide on the type of property you can afford and identify any limitations that may arise throughout the process. You can begin assessing your current financial situation by completing a Homeownership Assessment.
Get your finances in order
Before buying land or a house and land package, it is important that you get your finances in order. This means having an accurate budget and being able to afford the monthly payments on any loan that needs to be taken out for the building process. It also means being able to make regular monthly deposits towards the loan so that it does not take too long for it all to be paid off once the property is finished.
Once you are financially ready, you can explore the property options available.
Select your Home & Land Package
Depending on your finances and preferences, purchasing a Home & Land Package in an estate may be the easier option for you. Securing a home in an estate can be more appealing to tenants because they are often situated closer to local amenities and public transportation.
As the demand for registered land continues to increase, many buyers find it difficult to secure their ideal lot in their preferred suburb. A Buyer’s Agent can assist you in finding the right property and save you time and hassle.
Takeaway
It may seem intimidating at first, but with a great real estate investment strategy and some assistance from the right people, you can find the industry professionals to assist you in finding the right property. Book an appointment today to get started on securing your next investment property in South East Queensland.