Why a house behind house development could be your next investment opportunity.
Over the past few years more and more people have been choosing to build in their own backyard. Whether your end goal is to build to sell or to rent out the property; a rear strata development could be a great way for you to start your property portfolio.
Build to sell
Rear strata investors may look at the opportunity to build and sell to make an immediate return on the project. This usually involves investors building a brand new home at the rear of the property and on-selling this once built.
Matching the correct house for the block, and the area are essential in getting maximum returns on the project. I can’t stress enough that if you are intending to build to sell, ensure that you have done sufficient market research on the area, while factoring what the market will be like once the new home is constructed.
Build to rent
If the end goal is to rent out the property and the intention is to keep the house for 5 – 10 years, then history shows that the investment will increase in value, while you receive the tax advantages of having an investment property.
Historically, the longer you hold the property, the greater the capital gain and the risk of a successful development minimised. Longer term investments also buffer against falls in the market price.
All markets around the World have booms and busts in property and shares. The benefit with a property is that to hold the property long term then a fall in the market price should have little effect on the investment unless you have to sell.
When considering building to rent, investors may also consider moving into the new rear house and renting out the front existing home. With this model you are getting all the benefits of a demolish and build with the added benefits of a rental investment.
So why develop in your own backyard?
With the price of land increasing every year in Perth, the ideals of purchasing close to the CBD are outside most peoples reach. Many suburbs located within 12km radius of the CBD have blocks that are large enough, and have the required zoning to build two houses on one block. Many of these prime locations are referred to as “blue chip areas”, and the trend of subdividing the back yard is growing, as is the demand to live in these well located areas.
Large block owners cashing in
The cost of maintaining a large backyard is not affordable for many people. Maintenance of a pool or a garden has increased over the past years and if the family has grown up and moved on, it makes sense to subdivide the block in two, reduce the overheads and create a cash injection for the owner.
Now we have established time is your friend, and with time you minimise the risk with market fluctuations, it is imperative that you plan the investment and know what outcomes you are striving to achieve.
There are several online sites that will give you examples of other properties that are selling or renting in the same area, and you can also talk to your Builder who will be able to give you a sound idea of the building and associated developing costs.
Ventura iD and Multi Living Developments offer a free consultation service so you can see if developing is an option for you. Call (08) 9241 1600.