A house with a yard has always been a central theme of the Australian property dream, and most people default to suburbs that are similar to those that they grew up in. But this is a home ownership dream – the property investment dream is often very different.
If you’re serious about building a property portfolio, the idea of buying an established house in an established suburb early in your investment career can actually hamper the growth of your portfolio.
It’s important to remember that property investment is a long game. Time is a critical factor – the sooner you start, and the longer you hold your properties, the better off you and your portfolio will be. If you’re an early-stage property investor this means that you need to be careful to protect your borrowing capacity. You also need to ensure that you extract every bit of value from every property you buy.
The rapid rise in established house prices in most of Australia’s big cities has made it harder to make the numbers work.
According to the December 2021 Australian Bureau of Statistics Residential Property Price Index “the weighted average of the eight capital cities Residential Property Price Index rose 5.0% this (the September 21 quarter) and 21.7% over the last twelve months. The total value of residential dwellings in Australia rose $487.0b to $9,259.2b this quarter, and the mean price of residential dwellings rose $42,000 to $863,700”.
At prices like these, established properties can do some real damage to your investment momentum. They will lock up more of your working capital, are more likely to end up negatively geared, and can also mean having to wait longer to buy your next property – which may have also increased in price during the intervening period.
At the end of the day you are buying someone else’s capital gain.
That said, there’s no doubt that properties with land can play a valuable role in any portfolio. Land values typically build over time so the greater the footprint, the greater your capital growth will be. Land also gives you or your future buyer options for capital improvement (think renovation, swimming pool, entertainment areas) that add to the overall value.
So, house and land isn’t so much a question of if – but more a question of where.
The prices of established inner -urban homes with land have prompted many investors to look beyond the city boundaries – to the new property projects in the growth corridors on the fringe of Melbourne, Sydney or Brisbane.
These can have significant benefits for new investors looking to build their portfolio quickly as well as apartment investors looking to diversify and add a land component that also generates income (rent) to their portfolio.
Key benefits of an outer fringe / growth corridor house and land investment?
Entry point pricing – Quality new house and land packages in these corridors can be very reasonable – especially if you are buying with an investor (rather than a home buyer) mindset. Remember that it’s the options and finishes that drive up the price. That said, a well finished, well optioned off-market house and land package can price in the $550,000 range.
Tax Benefits: Unlike established property, new property gives you a range of legitimate tax deductions that can offset your income and free up more income for other investments.
Better cash flow: The lower entry cost combined with the potential tax benefits can mean that these types of investments frequently work out as cash-neutral.
Rental Appeal: House and land properties in these corridors are often particularly desirable for families looking for affordable, quality rental housing in areas with emerging employment opportunities. Many developers in these areas now wrap a range of community amenities and infrastructure around their homes, thereby adding to the immediate appeal and long-term leasing prospects for these House and Land packages
Capital Growth: As mentioned earlier, the land sitting under your rental asset appreciates while the house generates rental income. The less you have to pay to get that dual return working for you the better.
But not all developments are the same. There are a number of considerations that can help you identify strong house and land opportunities.
Developer track record
One of the benefits that new properties have over established property is that you can look at the past performance of that developer’s previous projects. Good developers have a track record of creating projects with good quality over time and strong capital growth. These operators prize their reputation and understand that scarcity drives demand.
They will often limit the number of homes in a stage, and the number of stages in the project.
Access to public transport and road system
Outstanding development projects provide easy access between the local community and their parent city. Look for close access to the public transport system, freeways and major arterials.
Amenities
Check proximity to shopping centres, sports facilities, hospitals and community areas. Many new projects are positioned in or near natural reserves, wetlands and open spaces.
Employment & industry
What are the long-term employment options in the local area? It pays to research the surrounding commercial and industrial precincts to determine the long-term employment levels that would draw people looking for housing to the area.
If you are considering adding House & Land to your portfolio, it is important to be clear about the role your house and land is playing in your broader portfolio plan and to be sure that you are taking advantage of every possible benefit.
