November 9, 2021
Buying a new build property or off the plans helps build the country’s stock of available houses amid a housing shortage, but it also makes sense from a financial perspective:
· The banks don’t require as much of your equity or cash as a deposit – usually 20%versus up to 40% for existing properties
· You can deduct your interest costs for tax purposes, while that benefit is being phased out for existing properties
· They require less by way of repairs and maintenance, and don’t require retrofitting to comply with Healthy Homes legislation.
· The ‘bright line’ period is shorter – you have to pay tax on capital gains only if you sell a new build in less than 5 years, whereas that time period is now 10 years for existing properties.
Even if you’re investing with your eye on long-term capital gain rather than your property providing cash flow, the rental yield still matters. Rental yield is basically your property’s revenue. To work it out, divide the annual rental revenue by the purchase price and multiply by 100. You want to aim for at least 4%, because that helps ensure the property doesn’t put too much pressure on your own finances, particularly as interest rates rise.
One of the most important things to consider when buying an investment property isn’t actually about the property itself, but about your own financial situation. Ideally you need to be able to hold your property through a property cycle. That means not having to sell if the going gets tough, which is where your own financial management and the pace at which you’re making personal financial progress matters. Paying off your home mortgage faster and building up a buffer that can tide you over any gaps in tenancy, changes in lending requirements or rising interest rates will help make you more resilient.
This article by enable.me has also featured in Style Magazine.