When someone comes up with the ways of becoming an investment property dealer two options comes to his or her mind. These options are either to build an investment property or to purchase an already existing one. Building an investment property is better than purchasing an investment property. Building an investment property has both advantages and disadvantages. The pros and cons that building an investment property offers are discussed in detail below:
No doubt building an investment property offers more advantages than disadvantages. Some of the important advantages are given below:
Return on investment
Building an investment property provides you with a granted and steady source of cash in the form of rents and related investments. A builder of investment property can find efficient ways to increase investment and increase his cash flow and returns.
Less Chance of Risks
Buying an investment property is less risky than purchasing an investment property. A property investor will not have to face the risk of going out of budget, bad location, negative cash flow, vacancy risks, bad infrastructure, etc.
Cheaper Than Established Property
It is a lot easier and cheaper to build an investment property than to purchase an already existing one. Buying the right place for building investment property rather than buying an already built property is cheaper. The technique of buying the right place and then building an investment property is used by Hotondo homes.
Ability to Depreciate
Building an investment property also has the risk of depreciating. A property that is newly built has the ability to be depreciated at the cost of construction in the coming years. The advantage that depreciation offers to the builder is that the builder will be able to turn negative geared property or losses incurred to positive geared property and profit.
The Cons of Building an Investment Property
Building investment properties also has many disadvantages. Some of them are discussed in detail below:
The first disadvantage of building an investment property is that the locations are limited. You cannot build it on your desired location. There are certain places where new lands are available and on only those places you can build investment properties. The locations where the property can be built on can be highly expensive – this may discourage an investor from building investment property.
High Initial Investment
Building a property requires a high initial investment that is difficult to raise for some investors. Also, in the case of building an investment property an investor does not get any income until the property is completely established and functional. This means that the investor has to pay rent and other maintenance charges on his own until the property becomes functional.
Other Competitors Can Seriously Influence Your Investment Property
Other competitors building investment properties in the same location can hinder and disturb the growth of your existing cash flows. Also, if the competitor is providing more services at lower prices or is providing services better than your investment company, you will face serious problems.