Land appreciates and buildings depreciate. Right? Yes but this where the fun begins.
This is why so many educated property investors choose house and land as their property of choice. Not only do you get more land component compared to a unit or a townhouse you also get more flexibility on what you get to build on the land. In comparison, if you purchase a unit or townhouse from a developer they decide on the design and level of finish.
Even if you have decided on house and land as your next investment property there are still so many choices and options for you to decide on.
The first decision you need to make is whether to buy off the plan or as a land and build contract. When buying off the plan you only need to sign one purchase contract, pay an initial deposit (usually 10%) and pay the balance at settlement once the house has been completed by the builder. This has the advantage of not having to pay progress draws during construction or interest on your loan however the builder will factor all these costs plus more into their price which will be higher than a traditional house and land contract. When buying off the plan houses, there will also be limited choice as not all builders are willing to buy land and construct the house for you at their cost until settlement. Remember you will also be liable for stamp duty on the full purchase price of the house.
A traditional house and land contract will require you to settle the land and make progress payments during construction to the builder. You will also be required to make interest payment on your loan once the land settles which will increase as you loan draws down during the construction phase. The total interest payments during the build are around $10,000-$15,000 for a $500,000 house and land package at a 4.5% interest rate. So you need to factor this in. Stamp duty will be payable on the land component of your package only which is about half of what you would pay for an off the plan house.
Assuming you have decided to buy a traditional house and land package you need to decide where you are going to buy. This is often determined by your borrowing capacity. For example if your budget is $500,000 then Sydney is out of the question; you either need to change States or go up or out. Going up means purchasing a unit and going out means looking further away from Sydney. In this instance the Melbourne and Brisbane markets would be within budget for a house. Another important factor is which market is going to give you the highest long term growth. In 2017 Melbourne was the fastest growing major capital city with 8.4% median price growth to September 2017.
Once you have decided on your market you then have to choose whether you purchase in a master planned community or build in an in-fill or established area. Both have their advantages. Some of the benefits of buying in a master planned community are that the land price goes up over time as the developer and council build facilities such as schools, bike paths, shopping centres, sporting facilities and owner occupiers build large homes. The earlier you buy into a master planned community the more you benefit from this phenomenon. The higher the proportion of owner occupiers the greater the price appreciation. The major disadvantage of buying in a master planned community is that valuations often come in under purchase price in the early stages due to a lack of comparable sales. Buying an in-fill house and and package can be advantageous when there is lots of existing infrastructure and facilities nearby that have already been constructed and there is no more large parcels of land left to develop. It is the classic case of demand exceeds supply and can lead to strong capital growth. The major disadvantage of in-fill areas is that they are no longer affordable.
A lot of things to consider. Many pitfalls to avoid.
Choosing an experienced house and land investment property specialist can give you an unbiased opinion and point you in the right direction.