Buying: House & Land versus Established House

In this article, we will be looking at some of the benefits that building a new property has over existing property. Furthermore, House & Land packages are not to be confused with ‘Off The Plan’ properties as these are more related to apartments

  • Stamp Duty savings:
    • When you buy a House and Land package, you are entering into a 2-part contract. The first contract will be in relation to obtaining the title to the land and settling on that purchase first. Why? Because you cannot construct a house on a land that you are not the owner of. The second part of the contract is with the builder to construct the house. As a result, stamp duty is only payable on the purchase price of the land which is the transfer of the title from the seller to you. For example, let’s assume you buy a House & Land Package with a total cost of $450,000 in a high growth area located in the state of Queensland. Let’s assume the cost of the land is $250,000 and the cost of build is $200,000. This means stamp duty will be only payable on the land value of $250,000 as the build price is, considered to be an improvement to the land and does not attract any stamp duty. So, in this example the amount of stamp duty payable is approximately $6,125. Now if we compared this to buying an established house at the same purchase price of $450,000, your value of the title transfer is the entire amount and therefore stamp duty will need to be paid on $450,000 which equates to whooping $14,175! That’s a difference of $8,050 in savings, now if you compare that cost savings to how long it will take you to save that amount of money through your current employment, it makes sense to go down the path of House & Land package as this is the first step towards wealth creation! You are already thousands of dollars in the money before even buying a property!
  • Instant Equity
    • What baffles me the most is that we are currently in the period where everyone wants things to be done instantly. However, we also know that good things come to those that wait! You are probably wondering how this relates to property? Well, when it comes to property you have the two options, buy an established investment property or construct an investment property. Those savvy investors that chose the path of construction understands that they WILL get ‘paid’ for the time taken to build. The reason for this is most individuals do not have the time needed to go through the construction process as they are already occupied in their everyday activities. This is where Braye Property can assist and make the process so much smoother and do the leg work for you. As a result of this, established homes are priced at a premium when compared to House & Land packages. In most cases, you are able to attain an instant equity of $50,000 upon the completion of the property when comparing a like for like property that’s already established and currently on the market. Again, when it comes to wealth creation, the savvy investors are looking at getting into the market with properties destined to make them money from the get-go! Through this method, you are looking at already creating your own wealth instantly in the ranges of tens of thousand of dollars! This is what we call “Manufactured Equity” in the investment circle. Which means you have created wealth rather than only waiting for the market to go up as a form of making money
  • Maintenance Costs
    • Across most states in Australia, builders have to offer a home warranty on structure for a minimum of 7 years. When purchasing a House & Land package, you will be entitled to this warranty giving you peace of mind knowing that any major issues will be dealt with by the builder at no cost to you. This is something you will not get when buying an established home which can cost you around $20,000 for a roof repair. Furthermore, with brand new homes your general maintenance is next to nothing compared to established homes where you will need to potentially do some sort of cosmetic renovations such as changing the floors, carpets, repainting the house, changing the taps due to leaking issues, and the list goes on. Once again, a $1 saved in ongoing costs means more money in your pocket, increasing your wealth and getting you a step closer to your dream lifestyle. As a rule of thumb, I usually use a 1% maintenance cost on the value of the property as the annual cost for established homes 10 years or older, taking the example of a $450,000 established home means annual cost of around $4,500, major repairs or renovations are in addition to this cost.

  • Depreciation – Tax Incentive
    • For newly built properties, you will be able to claim a tax deduction in the form of depreciation. Depreciation in the eyes of tax law is a cost that is deductible, however this is not a cash cost so has no negative impact on your cashflow! I say negative impact, because in fact the impact on your cashflow is actually positive!! Let me explain, lets assume your depreciation in the first year of your investment property is $10,000. All else held equal, we will assume your taxable income of $100,000. The depreciation amount will be offset against your taxable income meaning you will pay tax on $90,000 ($100,000 – $10,000) which will equate to approximately $22,000, where as if you did not have the depreciation to offset your taxable income, you would pay tax on your taxable income of $100,000 which equates to approximately $26,100. That’s a tax saving of $4,100, meaning more money in your hands!

As you can see there are a number of benefits of owning an investment property but even more benefit if the right property is chosen not just on the location metrics but also on the current status of the property.  If we look at the above where we have looked at a $450,000 House & Land package against an established property at that price. You will be better off through Stamp Duty savings of $8,050, Instant Equity of $50,000, maintenance cost saving of $4,500 and depreciation benefit of $4,100. This gives a total potential positive impact of $66,650. What does this mean? It means you are on your way to the next investment property to duplicate this investment and substantially increasing your wealth over time! In 10 years’ time, be the person that looks back and is proud to have taken action as opposed to be the person who looks back and hoped they had started back then! The choice is yours, you can choose to be normal and live the 9-5 or take control of your destiny and live your life on your terms!