Buying Existing Vs Building New Vs Renovate
When it comes to property investing, you can deploy two primary strategies to generate profit: either Buy-and-Hold or Buy-and-Sell (Flip). Each of these strategies can be tailored with, what I call, sub-strategies, namely:
- Buying Established
- Building New
The options become endless when you marry the two primary strategies with each sub-strategies. For example:
- Buying established in an area with great rental yield then hold and earn positive cashflow;
- Subdivide and build new on part, then flip the other land;
- Subdivide and build new on both, then receive combined rent income and hold;
- Buy established, renovate, then increase rental yield to achieve positive cashflow;
- Buy established, renovate then flip for profit;
- The list goes on...
As you can see above, the options are endless. No matter what strategy you wish to deploy, it all comes down to one and one thing only: You have to buy the right property in the first place! Just because a land can be subdivided, does not mean it can give you profit. What if you can’t sell? What if there is no growth or you can’t get the rental amount you’re projecting, thus, putting you in the “red”?
So, before we even talk strategies, let’s first do a quick check to see if the property is the right one to buy:
- Population of the area, especially jobs, whether it's growing or decreasing;
- Proximity to CBD;
- Amenities such as public transport, hospitals, schools, shopping malls;
- Check for the type of properties in demand within the area. You do not want to build a triplex in a place where 99% are houses for example;
- Check for ""average days on market"" so you can project your holding cost should you wish to flip;
- Battle-axe lot and busy road street-front properties are often cheaper and in less demand, so make sure you're not overpaying for them and you can get the selling price you want.
Once you qualify the area/suburb, we can now start looking at deploying the strategies.
Let's take a look at the sub-strategies and the relevant advantages/disadvantages of each.
Buying established property
- You do not have to go through the process of building, which if you're not careful, can be painful, long and expensive;
- The property is ready to work as an investment vehicle right from day 1;
- Location is often better than building new if you compare the purchase price “apple-to-apple”.
- As it is older, there would be less depreciation. Remember, depreciation can affect your cashflow as an investor;
- You might need to spend money on maintenance and fixes;
- Older houses might not attract as much rent, thus, affecting your cashflow.
- Great depreciation;
- Attract higher rent;
- You can control the build cost;
- Generally better cashflow overall compared to established;
- Little to maintenance and fixes cost at least for the first few years.
- You have to manage your builder very-very well or else, building price can skyrocket;
- You need to make sure you’re building the right product;
- You have to worry about colour combination, house designs, layout selection, which, if you are not doing it right will hugely affect demands and selling price;
- You can get a return on your money fairly quickly. Within 3-10 months, depending on how long the renovation lasts, you can realise a decent profit;
- As you are practically buying an established property, location in relation to purchase price can be greater than building new;
- You can potentially negotiate an excellent purchase price since a property for renovation is often in “need of love&rdqu