“Buy & Hold”, but how long?

Maruco, it’s the land component that you want to “hold” as long as possible. Improvements on land, in this case a dwelling, are a depreciable item. Although property prices increase over time, the dwelling in fact does the opposite. Bear in mind, all properties will require maintenance, it’s like buying an old car vs. new car. If you hold it long enough, it will at some time require maintenance.

Buying an older home is not a bad strategy if you’re handy, as the repairs and maintenance may be marginal initially. If you plan to treat the property as an investment, the upside is, the renos/repairs are a deductible expense (refer your Acct for full taxation disclosure).

Another point to note, buildings (along like business chattels) can be a depreciable item!
Someone correct me, but I think it was from 1985-87 (whenever Keating was in power) Negative gearing was temporarily abolished, but the government introduced a 4% allowance for homes built in this period of time. After this time (1987-now) all homes can be depreciated at 2.5%.

Again, these dates are just my memory of the events, but again check with your accountant. If you hold a property long term, you may also benefit from future zoning changes. An example, purchasing a 750m2 block and home in an r15-r20 district, would enable only single dwelling construction, but as the urban sprawl extends and the population thrives, councils and locals are always lobbying for changes to zoning. I’ve recently seen (2 years ago) a whole section of Rivervale change from R20 to R40 and even R60 in stages, I can tell you, it was a developer’s dream!

So, long term hold is a great strategy, as land is the precious commodity; the more you have and the longer you hold it, the more people will want it and be prepared to pay for it!

Hope this is of some help?

Regards,
Rob

Rob Whyte
Certified Mortgage Consultant MIAA

Principal & Licensee
The Mortgage Gallery
e [email protected]

Winner 2004 National Office of the Year!

Accredited with over 27 lenders nationally. 15 years experience in commercial and residential lending, ask me anything, if I dont know, I’ll find out!

I think in Asutralia where everything is so new we have a use and throw away mentality. It is one of the reasons we focus so much on how big a house is and how cheap it is to build. The future for units… look to London. you don’t see them ripping down old houses in the middle of the Peterborough Estate just because they ar 50 years old.

circumstances change for evrything. to say buildings go down in value and land up come with qualifications. recently in WA it is the replacement value of buildings that has been a main driver of capital growth. Also land is not land – a 1000sqm block inthe sticks could be worht the same as the land component of an inner city apartment.

INVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT

As an example I’ve had land for 6 years now slowly developing the lots. Power, fencing, landscaping and some minor road construction. It has acted like a catalyst with other like minded people doing the same. The land has probably increased in value some 300 – 400%. It still has the ability to increase another 300 – 400% with large developers now getting involved in the area. Do I sell now and take the increase or hang on another couple of years and hopefully get even more? Or will rates go up so high no one will want to buy at any price? It’s all an educated guess. I work on capital gains not rent return. How greedy are you and how much risk do you want to take? Environments change too. What was once an attractive area getting good rent can quickly change with the wrong development. No straight answer here.