Savvy Investors Love The Block Properties - Here's Why
With The Block houses going to Auction this coming weekend, we thought it was the ideal time to look at the benefits brand new properties can offer investors. And take look at how investors have traditionally gravitated to The Block properties come auction day.
We spoke to Josh Stirling, joint Principal at McGrath St Kilda, who is auctioning Jimmy and Tam’s property next weekend on The Block, to explain the benefits in more detail and specifically how they work for this property; as it is often easier to understand with real examples.
Josh explained when you buy a Block property you are not only buying the four walls, but you are also buying all the fixtures, fittings, furniture and inclusions. As the quality of the build is heavily controlled and therefore of a high standard, if you were to buy the land and build a comparable property with the same inclusions it would most likely cost significantly more. The Block properties represent ‘really good value for money’ for both home buyers and investors.
However, for investors they also offer some other significant benefits that apply to all new constructions not just those on The Block. Here is a look at the 5 key benefits a brand-new build offers investors. They:
- Offer significant depreciation benefits for investors which can be used to offset tax
- Often have strong tenant appeal as people like living in new homes. What this means is the investor has a greater chance of finding and attracting high-quality tenants who will in turn be more likely to look after the property and pay their rent on time
- Come with brand new appliances and often extended warranties on major systems such as electrical, plumbing, heating and air conditioning. What this means is if something breaks or goes wrong, the factory warranty should cover it
- Have low or no maintenance costs which means fewer annual expenses for investors
- Have protection; builders of new properties in Australia are required to take out home warranty insurance which is meant to protect the owner in the event a major building defect
As Josh explains if an investor buys a new build, they can claim the decline in the value of the building, as well as appliances and equipment inside it as a tax deduction, provided it was used to generate income. If we look at Jimmy and Tam’s property, with their $120,000 Gagganeau appliance fit out in the kitchen, and brand-new high-end appliances and furnishings throughout the home, they have the highest depreciable property on The Block this year. What this means is, according to BMT’s Tax Depreciation Estimate on the property, in the first year an investor could potentially claim up to $143,000 in depreciation, in the second year approximately $151,000 and so on for a number of years following. For more information about this contact the McGrath St Kilda office here.
In addition to this, given the quality of styling and the popularity of the property, the investor would most likely be able to generate approximately $100,000 in annual rental income. The combination of strong rent and strong depreciation potential has made Jimmy and Tam’s property very appealing for investors this year which could increase the price that property investors are willing to pay for the property and give the pair the winning edge during the final auction.
Looking at the benefits new builds offer investors it’s no surprise that over the last few years they have been the dominate buyers of The Block properties. In 2019, three out of the five buyers and in 2018, four of the five buyers were investors. We will have to wait and see how it plays out this weekend and whether Jimmy and Tam’s property will be bought by a homeowner or an astute investor, but either way the new owner will undoubtedly love this beautiful home.
A final word
For the average investor, who most likely doesn’t have $3.5 million to spend on a property from The Block, the good news is you too can tap into all these benefits of buying a brand-new property. Keep in mind while brand new properties may offer tax deduction incentives and attract investors looking for cashflow, ensuring you do your due diligence is important. Undoubtedly your financial advisor and accountant will also look at a range of other criteria such as location, capital growth, rental growth etc which are also very important measures to determine the viability of an investment property. For more information about what to consider when buying an investment property click here.
If you’re interested in talking to the McGrath St Kilda office about Jimmy and Tam’s property, click here.
If you’re interested in finding out what new build properties we have on the market at the moment click here.
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