Developing property as an investment

While many people enter the investment property market by purchasing an existing, “second-hand” dwelling, another option is to build your own.

Many developers provide house and land packages, which take the hassle out of DIY building. Similarly, units are available in new developments on a “walk in” basis.

Unless you have the time and expertise to buy run down property and carry out your own renovations, there are many benefits in buying new, compared with existing property.

The benefits of buying a new property

Some of the major benefits include:

• There are considerably greater tax benefits attached to a new property, as discussed below.
• There is greater tenant appeal in a new property, enabling you to obtain rental returns at the upper end of the market.
• A better quality of tenant can usually be secured and they are likely to stay longer – reducing your vacancy periods.
• Maintenance costs are reduced. Most building repairs are covered by the builder for seven or ten years and equipment carries a manufacturer’s warranty for 2-3 years.
• Unforseen costs such as termites and building maintenance are almost eliminated, enabling you to set a firm budget.

Tax benefits of new property

Tax benefits fall into two groups:

• Depreciation allowances
• Building allowances

Depreciation allowances are available on many items including floor and window coverings, air conditioning, light fittings and kitchen appliances. Under the Income Tax Assessment Act these allowances are generally in the range of 5-20%. While they apply to both new and existing properties, the amount will generally be higher for a new property because the items are new.

Income producing buildings, where construction was commenced after June 1985 can be eligible for building allowances. These are claimable on certain parts of the building construction and will invariably be higher on a new property. As an example, a new residential property with an allowable component of $290,000 would qualify for an allowance of $7,250 a year – an important aspect in minimising tax on your investment.

Make sure you seek advice if you think this option suits your needs, including the availability of a beneficial finance package.

KK’s gut instinct

A number of years ago I attended a meeting on investing in Hastings as it was proposed to use this port for shipping rather than dredging the Bay. I was in Hastings over the weekend, chatted away to locals (over a beer) and the word is that it’s back on and signed off by the Baullieu crew. Take a drive, chat with the locals and decide for yourself if its a worthwhile opportunity.

Sporting tip of the month

Nadal will win Wimbledon.