Investment – What You Need to Know
Before you buy a new build property for investment, consider how much it will cost and what to look for when comparing properties. Here we cover the deposit and the factors you need to consider when choosing a location. It would be best to consider the area and potential rental yield before deciding on a new build property for investment. These tips will help you find a property that is both affordable and profitable.
Cost of buying a new build property
Buying a new build property for investment comes with a lot of advantages. Unlike purchasing an existing property, you have more control over the price. New build properties are usually affordable, but you need to know several things before investing in one. First, you need to be aware of the timeline. Some new builds take up to four months to complete. Other times, they can take up to six months.
Buying a new construction property is also a good choice if you already know where you want to live and what you’re looking for. New developments may have several options for buyers, including flexible move-in dates and low deposit requirements. You also get to customise your home to your specifications. Whether it’s the colour scheme, light fittings or carpet, you can have a completely customised space.
For those that don’t want to spend time selecting the final features and colours, our bank of builders has done this before and will take the turnkey hassles away from you with a selection that has proven to be effective with tenants and better returns.
Deposit required
If you are planning on investing in a new build property as an investment property, you should understand the process that will lead you to complete your dream property. A deposit of 20 per cent of the total purchase price is required to secure a new property. However, this amount may vary depending on the builder. Some builders may need a smaller deposit or a higher deposit. A higher deposit may be worth it if you plan to rent your investment property out immediately. Depending on the builder and the investment property type, you can negotiate a more flexible payment plan.
A 40 per cent deposit is standard for investors purchasing an existing property and 20 per cent for those buying new homes for investment purposes. However, new builds are generally eligible for lower deposit amounts because of loan-to-value ratios. New builds usually require a 20% deposit, so if you want to buy a $500,000 property, you will need to put down a smaller amount of money. This will help you spread your deposit over two or more properties rather than one larger one.
Location
Before buying a new property for investment, you should consider its location first. If the area is considered desirable, the property will likely sell quickly. However, the sale process may take longer if the area is over-saturated with homes. To avoid this, conduct some research on the local market. Find out what prices were achieved for similar properties in the area, the average selling time, and the estimated returns from the property.
There are two types of locations for new builds. The first is a popular area near the CBD. These properties are available in limited sections and generally have a lower rental yield. New estates often are located in fringe suburbs and more rural areas, requiring a longer commute. On the other hand, existing properties are more likely to be located in mature suburbs, where the area has matured over time and has plenty of amenities. The second type of property has the potential to increase in value over time.
Interest rates
When you compare interest rates on existing and new build property for investment, you’ll see that the latter is better for investors. The difference is in the amount of down payment required. While it is common to need 20%, experts recommend a 25% down payment. That is because new build properties have lower interest rates. In addition, they are better protected against interest rate rises as new builds come off the site. Listed below are the differences between the two types of mortgages.
For those who plan to sell the investment property, rising interest rates will affect their plans differently. While they won’t affect the price of the investment property in the short term, they’ll affect the asset’s long-term value. Rising interest rates will make financing projects with thin profit margins harder. Rising interest rates will also slow down the construction process. On the other hand, rising home prices will help you increase your returns in the long run.