Property development has been a successful investment model for decades. With record-breaking results reported in capital cities across Australia, many investors are using Australian property to become financially independent.
While lucrative, there are several factors involved with purchasing a property as an investment that may interfere with your first time property investing.
Firstly, buying a property has a high barrier to entry in the form of the purchase price. Buying even a cheap home will require a deposit of over $50,000 plus another $450,000 or more in finance from a lender, which will require ongoing interest payments. In addition, there are also the ongoing expenses of owning a property such as maintenance, body corporate, and/or land tax.
Secondly, the performance of an investment property is solely influenced by the market, which means that for a property to be a successful investment it requires extensive research to choose a suitable property.
Finally, due to the high transactional costs associated with buying and selling a property, it can only be feasibly done as a long-term investment without impacting profitability; think decades, not years.
What many investors do not realise is that there is another investment option available that allows them to capitalise on the excellent performance of Australian property: property development. Investing a property development project can provide the benefits of an investment property (chiefly a high ROI) while overcoming these factors.
Investing in a property development requires more funds upfront ($250,000), but doesn’t have any ongoing expenses or hidden costs that chip away at your cash flow.
While the performance of a property development is affected by market performance, it isn’t dependent upon it. As long as the combined sales price of the developed properties is higher than the cost to build them, we still achieve a profit. There are a variety of factors other than final sales price that also influence how much profit a particular development will generate. This allows investors to achieve a profit from the lucrative property market without being completely dependent on the performance of the market.
Taking into consideration up-keep of the properties, market volatility and the research and ultimately purchase of a property, investing in property development is the smartest choice of investing. You can then let your money work for you so you can focus on what’s important to you.
Here is an overview of the main benefits of investing in a property development project.
Lucrative property markets mean that property developments can achieve an internal rate of return (IRR) in excess of 40% on equity.
Investor’s capital is secured against a tangible asset: the development site itself.
A variety of distinct property markets and property types allow for a diversified investment portfolio.
The total value of Australian residential property is nearly $7 trillion.
Investing in a property development is an alternative first time property investing opportunity that may allow you to harness the performance of Australian property if you are unable to purchase a property of your own.