Investors should be wary of buying house-and-land packages in mining hotspots: Terry Ryder

Property investors should be wary of buying house-and-land packages or newly built homes in mining hotspots because they’re often overpriced, according to hotspotting.com.au’s Terry Ryder.

“I strongly tend towards buying second-hand houses than a new product,” said Ryder during a Property Observer webinar.

“One reason is the new product is so much more expensive

“For example if you buying a new house and land package in a place like Gladstone, where there are a lot of new developments, you are paying for the developers’ product and their profit margin."

Ryder says one of the traps investors fall in is buying a new house because of the greater tax deprecation benefits.

“It’s a bit of a trap in places like Gladstone, where there are lot of house-and-land packages being developed and where there are some very big marketing pushes telling people this is the way to invest in Gladstone.

“They push the depreciation benefits, but I think it’s a bit of a trap.

“People need to be wary of that.”

Ryder says investors can buy more affordably by choosing an established property.

“The record shows you get better capital growth from established properties because new properties start from behind the eight ball because you are starting at a very high buy-in base.”

In addition, Ryder says ABS data shows that on average a new houses cost $70,000 more than an equivalent house in the same area – and in some areas the difference is much higher.

“You won’t get the same capital appreciation benefits, but tax benefits should never be the primary reason for what you buy and when."

And the capital return can be poor, especially if someone is forced to sell soon after buying a new home.

In these instance, he says investors seldom got their money back.

“That’s because the true price of that product in the market is less than what the developer is asking and that’s the biggest problem.”

To get more tips and insights on investing in mining hotspots watch the free Property Observer webinar: Why the mining boom is far from over - and how you can benefit