Investing in property is a popular way to build wealth in Australia, and one of the increasingly favoured methods is purchasing a house and land package.

This approach offers unique advantages, from tax benefits to higher rental returns, making it an attractive option for savvy investors.

Here's how it works and why it might be the perfect investment strategy for you.

What is a House and Land Package?

A house and land package involves buying a plot of land and selecting a house design that a builder will construct on that land. Essentially, you're securing the land first and then arranging for the home to be built, creating a brand-new property that is ready for tenants upon completion.

Advantages of House and Land Packages

1. Lower Stamp Duty:

One of the significant benefits of investing in a house and land package is that you only pay stamp duty on the land value, not the combined value of the land and the completed house. This can result in substantial savings compared to buying an existing home.

2. Higher Rental Returns:

New homes often command higher rental prices. Tenants are generally willing to pay a premium for brand-new properties because of their modern features, energy efficiency, and low maintenance requirements. This can lead to a better return on investment for you.

3. Tax Depreciation Benefits:

New properties come with substantial tax depreciation advantages. You can claim depreciation on the building and its fixtures and fittings, which can significantly reduce your taxable income. This includes everything from appliances to flooring, giving you a higher tax deduction compared to older properties.

The Financial Aspect

1. Two Loans Required:

Financing a house and land package typically involves securing two separate loans: one for the land purchase and another for the construction of the house. The land loan is straightforward, similar to a standard mortgage. The construction loan is drawn down in stages as the building progresses, which means you only pay interest on the amount drawn down at each stage.

2. Mortgage Payments During Construction:

One of the setbacks to consider is that you will need to start making mortgage payments as soon as you purchase the land, even though the house hasn't been built yet. This can put a strain on your finances, as you'll be servicing the loan without any rental income until the property is completed.

3. Loan Structure:

Your mortgage broker can help you structure your loans effectively. Often, the construction loan can be interest-only during the build phase, which can help manage cash flow until the property is ready for tenants.

Why It Can Be a Great Option

Despite the need to manage mortgage payments during the construction phase, house and land packages can be an excellent option for investors, especially those with limited deposits. The lower initial costs, coupled with higher rental yields and tax benefits, can make this an attractive investment strategy.

Moreover, new properties tend to attract quality tenants who are willing to pay a premium for the benefits of a modern, energy-efficient home. This means less wear and tear, fewer maintenance issues, and potentially longer tenancy periods.

Final Thoughts

Investing in a house and land package in Australia offers a range of benefits that can make it a compelling choice for building your property portfolio. While there are some financial challenges to navigate, the long-term advantages often outweigh the initial hurdles. With lower stamp duty, higher rental returns, and significant tax depreciation benefits, this approach can be particularly advantageous for investors looking to maximise their returns on a limited deposit.

As always, consulting with a property strategists will ensure you make the most informed and beneficial decisions for your investment journey.

Happy investing!