Making Smart Investment Choices
Investing in real estate can be a rewarding venture, but it’s crucial to make informed decisions in order to ensure you maximise your returns. One common mistake we see many inexperienced investors make is getting swept up in the allure of brand-new properties while overlooking the significant benefits that an established home can offer. In this blog post, we’ll discuss the downside of favouring new builds over established properties and highlight the key reasons why focusing on the land component should always be a priority. However, it should be stated before we start, that there is nothing wrong with this type of product and it does suit certain buyers in certain situations. As an investor though, if the goal is to purchase a property that is going to appreciate, the following should be taken into consideration.
The Allure of New Properties:
New properties often come with enticing marketing campaigns, glossy renders and the ability to customise finishes. While these features may seem appealing, it’s essential to remember that you’re primarily paying for these extras rather than the critical element—the land itself. In essence, when you invest in off-the-plan apartments or new developments, you’re essentially purchasing a portion of land that represents a minimal fraction of its total value.
Land Appreciation vs. Building Depreciation:
Over time, it’s the land that appreciates in value, whereas the building itself depreciates. Some proponents may argue that depreciation helps reduce taxes, but in reality, you’re front-loading these costs. Additionally, you need to consider the various expenses associated with new properties, including marketing costs, referral fees, construction costs and the developer’s margin—all of which can eat into your potential returns.
The Power of Established Properties:
Investors seeking long-term appreciation should prioritise properties where a substantial percentage of the value lies in the land with a smaller portion in the dwelling, which has likely already depreciated. When the majority of your asset appreciates, you’re more likely to experience robust growth over the years.
Another significant factor to consider is the location of new builds. These properties are often situated in less desirable areas because prime locations are already built up. As an investor, your goal should be to acquire assets in the best possible locations, which typically means established homes in superior areas. The location of your investment property plays a pivotal role in its potential for capital growth.
The Long-Term Perspective:
Ultimately, the aim of any investor should be to purchase assets that offer substantial capital growth. Buying new properties might seem like a good idea, especially for novice investors, but it can set you back for years without delivering the expected returns. In contrast, investing in established properties in better-quality locations can yield far better results over the long term.
In the world of real estate investment, the land vs. property debate is an important and essential consideration. While new properties may have their allure, it’s crucial to focus on the land component for long-term growth. However, having said that, as mentioned previously this type of product does suit certain buyers in certain situations. As an investor though, if the goal is to purchase a property that is going to appreciate, you don’t want to be buying a property that has a very small land component. Established properties in prime locations in most situations tend to offer superior investment opportunities and a more stable path to financial success. By making informed decisions and avoiding the trap of new property hype, investors can achieve their financial goals and continue building their real estate portfolio.
Thinking about building your own real estate portfolio? We’re here to help. Reach out to our team today.
Disclaimer: The information provided in this article is for general guidance only and should not be considered as legal or financial advice. Always consult professionals for personalised advice related to your specific situation. Real estate markets and financial regulations change, and past performance does not guarantee future results.
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Matt Sharp - Director
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