There are four types of investment properties in the residential investor’s toolkit. Each delivers different benefits and fits into a logical sequence in the development of a stable, risk-tuned portfolio.
New House / House & Land
Of the four types of investment properties, these can provide a solid base but need to be carefully selected and managed to ensure that all costs are accounted for, fixed and financed. Off the plan purchases can be a great way to enter the market. However, if not approached as an investment and with the right guidance, this type of investment can end up being more expensive than it started off – often falling victim to unforeseen site costs and display centre upsells.
New apartments should be considered cautiously in terms of location as there is an oversupply of apartments in certain areas. Similarly, media scrutiny has demonstrated the potential pitfalls of low-quality builds. However, luxury apartments with genuine high-quality architects, designers and materials remain a great opportunity for urban investors to enter the market closer to the city – and often at a considerably lower entry cost. By comparison with House & Land, luxury apartments also offer additional benefits to investors wanting to cap their level of upkeep.
This is a more sophisticated investment that creates two dwellings – with one often becoming the primary residence of the investor – on the one title. It serves to create an income stream that ultimately replays the build cost without incurring the purchase cost of more land. Dual occupancy can replace an existing dwelling (knock down and rebuild) or be build on vacant land as off-the-plan.
A dual occupancy investment as part of a broader strategy can be a great way to leverage existing property and extract some of the land value of a property when nearing retirement rather than selling the family home to unlock capital gain. This strategy requires significant planning and professional advice as it has significant cost and tax implications.
This is the classic property renovation. In a boom market the renovate and flip strategy can yield strong returns. It should be noted though that older dwellings can hold many unexpected and often costly surprises that can quickly drain the planned profit. Similarly, speed of turnaround is a critical factor in this approach as slow renovations can expose investors to changes in economic factors that can erode potential profit. If the plan is to renovate and rent out, investors need to consider the more limited depreciation opportunities that older residences provide.