7 things to consider when building an investment property

There’s much more to building an investment property than meets the eye. You’re not just waiting for the construction to finish and moving in tenants. As an investor, you need to be involved and carefully consider all aspects of the building process if you want it to be successful. 

Here are important things you need to consider when building a rental property: 

Find the right type of building contract 

Building contracts are not all the same. The kind of building contract you choose will affect the total cost of your investment property and could impact the project's timeline.  

The two main types of building contracts are: 

• Lump sum contract – This is a fixed-price contract. Investors pay the contractor or builder a fixed price for the entirety of the construction. You and the builder will agree on the price beforehand before they execute the project. 

• Cost plus contract – This contract means the builder will be reimbursed for the cost of building the property plus a fixed fee or percentage of the overall cost of the project. 

Each contract has its pros and cons. Lump sum contracts are a popular option among investors because everything is agreed upon upfront. The fixed-price contracts give you a clearer budget and a set timeline for project completion. 

Meanwhile, a cost plus contract allows investors to oversee the project closely and monitor the progress. For contracts like these, you can talk with the builder and put a cost cap in place so as to not go over budget. 

Choose high-quality fixtures and fittings 

The devil is in the details and that’s especially true for building investment properties. Make sure that your contractor or builder uses only high-quality lighting, plumbing, kitchen benches, and the like.  

Using subpar fixtures and fittings could lower the value of the property. They’re also prone to break which means more maintenance costs. You may also have to replace them more often which can be costlier.  

High-quality fittings and fixtures can improve a property’s value and may be cheaper to maintain. Installing top-grade fixtures and fittings can also be a great selling point for tenants. 

Think about who your tenants will be 

Identify the kind of tenants in the area and build your investment property to their tastes. The location of your investment property will dictate who would most likely be renting.  

For example, a property near the suburbs will normally attract families. Meanwhile, building near universities or the CBD area will have more young professionals looking for housing. Study the area demographic so you can cater your investment property to your future tenant’s needs. 

Many renters are willing to pay a premium for modern features and a nice layout, while others won't care as much and will take a house that has four walls and a roof. The better your property suits the needs of your intended market, the more rent you are likely to get over time. 

Take advantage of stamp duty benefits 

Building an investment property instead of buying an existing one can have major stamp duty benefits. Because the house doesn’t exist yet, you’re only paying for stamp duty on the land which could give you significant savings. 

If you’re buying an existing house, you’ll have to pay for stamp duty on both the land and the house itself. You’re essentially paying stamp duty twice with an existing property. 

See if you qualify for additional tax benefits 

Among the usual investment property tax benefits (e.g., interest deductions, loan fees, etc), builders of new investment properties can also claim large depreciation deductions. 

Investors can claim depreciation losses on newly purchased items, such as appliances, blinds and carpets, furniture and water systems and more. A newly built property will likely have brand new fixtures and fittings which means more depreciation deductions. If the project takes over several years, you could claim depreciation of the cost of construction.   

We recommend checking the Australian Taxation Office (ATO) for more information on the tax benefits of investment properties.   

Figure out if a turnkey package is worth it 

If you already have the land but don’t want to handle the rigorous planning involved in building a home from scratch, a turnkey package could be a good idea.  

Turnkey packages, also known as turnkey house-and-land packages, include everything from the building construction to the furnishings. This option can be more expensive but can save time for investors who don't want to deal with the excessive admin of deciding every minute detail.   

Get a good deal on your construction loan 

Finding a low-rate construction loan is a must when you’re building an investment property. A good value construction loan can save you money and provide favourable terms and conditions to help you achieve your investment goals. 

At loans.com.au, we offer a range of construction loans specifically made for those who want to build from the ground up. We also provide discounted loans such as green construction loans and solar construction loans.