Building new for first IP

Hi Josh,

So you have 3 questions to answer and I will throw another into mix, just because it's Monday. The fourth question I will answer is the economic term, "Opportunity Cost".

Pros of a New Build (often what is marketed):
– Better Tax advantage
– Better rental yield
– Low entry costs ($1000 down and fin the rest after build)
– Lower maintenance
– Often considered an "easy" option and psychologically "new" is considered in our heads as intrinsically better.

Cons of a New Build:
– Lower land content (often around 30% or less)
– New subdivisions with substantial land supply
– Developer risk – builder or land developer going broke
– 10% GST
– Little opportunity to value add
– Builder profit margin, developer profit margin and property marketer commission (seen these as high as 8-9%)
– Lower capital growth (often a consequence of previously mentioned factors)

Now to living in it. Some tenants are good and some tenants are bad. At the end of the day, tenants have their bond and the "potential" for litigation against them, meaning they won't care for it as much as a person who has $450k directly invested in the property. You may find yourself living in a house that is not so "new". Secondly, I would direct you to an accountant as some of my clients have found there is tax implications when you have the intention of moving into the property in the future. Personally, I wouldn't do this because…

… this brings me onto my next point, Opportunity Cost. New builds are good in some circumstances, for example, if you have a development site and are looking to increase your rental yields. From my experience with clients, family, friends, myself (i know some people on here have different strategies) the first purchase i always recommend to my clients is: a high capital growth property. The equity from this initial property, in the future, will allow you to purchase cash flow properties, your own new build home, or higher capital growth properties (ones I’m biased towards.)

I may be wrong, but if this is going to be your life wealth creation plan, be sure to research as much as you can BEFORE you buy and hope.

Hi Josh,

It also depends on income, deposit and what YOU want to do (goals, skills, motivation and other). If I knew a little more about your situation I could give you examples of clients in the same place. Some basic tips:

–          Put your plan on paper
–          Break it down (work back from retirement to now)
–          Educate yourself
–          Seek advice of professionals.
–          Make sure you as well as your partner are committed to the goals.