Building as a property investment option: 5 reasons why building is a better real estate investment option.
There are a number of advantages when building a new home, as opposed to renovating. Demolishing and rebuilding is often more cost-effective than renovating an old home, which, in turn, will give you a greater return on investment.
Before you make any sort of decision, it’s important to consider a number of factors that will impact how much money you can save and make from your property in the long run.
1. Weigh up the costs
Budget blow-outs are synonymous with renovating, particularly if the house is old or the renovations are extensive. More often than not, you’ll be faced with hidden issues and unknowns, as renovating generally involves working around the existing structure. For example, you may have to implement more structural steel in the roof or footings, or upgrade the footings to take certain loads, especially if you’re considering a second-storey.
Renovating can also mean signing up to a cost-plus contract, by which you agree to pay the contractor the actual cost of the work, plus a fee (the fee may be a lump sum or a percentage of the cost of the work). This presents uncertainty because the final cost cannot be easily determined until the renovations are finished.
On the contrary, building a new home involves fixed-price contracts, so you have a much better idea of what you’re up for. Building a home from scratch is much more cost-efficient than renovating; there are less upfront costs, and less time and effort you need to devote to unforseen maintenance issues.
2. Think about the stress and mess
Renovating as an investment option presents a unique set of problems, especially if you decide to continue living in your home. It can be disruptive and inconvenient, particularly if you work full-time and/or raising a family. Sidestepping mud, dealing with missing walls and open-roof structures after you come home from a long day at work is never fun.
Building a house from scratch helps avoid the stress and toll renovations can have on your family, long after the dust has settled.
3. Sourcing the right construction materials can be an issue
Matching up new and old materials to renovate a house can prove to be incredibly difficult. There is an enormous disparity between newer materials available in the current market and older resources that may or may not be in production any longer. This means you may end up compromising with inferior materials, leading to a sub-standard renovation.
An example that springs to mind is a two-storey renovation. If your existing house has footings which don’t cater for a double brick construction, then you’re forced to opt for a lightweight build. This results in a framed construction which means you won’t be able to add bricks to the top floor. The compromise is using boarding or sheeting instead, which often doesn’t match the rest of the home.
4. Safety (and energy) first
When you’re building a new home, you can be guaranteed that it’s more energy efficient and structurally safer than its old or renovated counterparts.
All new homes abide by standards and codes, and carry a 6 star energy efficiency rating. If we were to run an efficiency checklist through established properties, we’d find that most of them wouldn’t comply.
Compared to renovated homes, the ongoing running costs are much less for a new build. They are not only less susceptible to termites, but easier to maintain and much more energy efficient.
5. What’s old is new again. Or is it?
When it comes to deciding whether to build or renovate, the million dollar question invariably involves the battle between cost of renovating and the improved value of the property.
Renovations have long been considered a ‘bandaid’ solution – trying to adapt an older existing structure to a newer facade doesn’t always work. By renovating, you don’t cater for the wider market nor do you get the full value out of it when you’re merely adding to an older dwelling.
In the case of return on investment, the sense of a lived-in home can attract fewer buyers – some of whom are not always willing to pay the market price. On the other hand, a new home has far more appeal to a ripe market, many of whom are after a modern build and functional design layout. Building from scratch guarantees you a newer structure that keeps up with current trends and, more often than not, promises greater equity value.
It’s important to note that building and renovating have their own place. Building a new home can prove to be a more profitable decision in the long-term for developers and investors. On the contrary, renovating is often a lifestyle choice that enables you to hang onto a property worth its weight in sentimental value, or allow you to stay in your suburb of choice. However, it’s important to note that turning something old into ‘new’ does not always guarantee a return on the value of what you spent on the project.
Ventura Developments and Multi Living Developments offer a free consultation service so you can see if developing is an option for you. Call (08) 9241 1600.