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WA’s ‘mum and dad’ investors are taking advantage of faster building times and discounted building costs to dive into small-scale developments, report Perth property buyers agents.
Liz Sterzel, managing director of Property Wizards Buyers Agents and Developments, said educated investors had come out of the woodwork in recent months to capitalise on the unique features of the market.
“At the height of Perth’s last property boom, it was taking up to two years to construct a new home and those delays cost investors building rental properties a great deal in terms of interest costs,” she said.
“Now, it might only take twelve months to build and builders are also discounting their fees up to 25 percent, working on low margins to secure work.
“Savvy investors, understanding where we are in the cycle, are snapping up small development sites where they can subdivide and quickly build two to three units while the time is ripe.”
Ms Sterzel said all of the group’s investment clients this year had been seeking out such opportunities.
“Some investors will upgrade and rent out the existing home on the site while they build a second home to hold and lease both over the long term,” she said.
“It’s a very unique time in Perth’s market and perfect for fast-tracking the creation of a property portfolio but it won’t last much longer and may well disappear before the year is out as the market gains momentum.”
Ms Sterzel said the demand was being driven by the knowledge that this type of development strategy was often superior to buying several existing investment properties.
“In these scenarios, the investor’s portfolio is made up of well-renovated or new homes which mean a better quality tenant, higher rents and a good depreciation schedule which all boost cash flow,” she said.
“Effectively, they are buying in at a “wholesale price” because the developer’s profit, which would normally be included in the price of a new home, is going directly to them instead, increasing their personal wealth.
“Because of this, this strategy can be a faster way to add value to a portfolio as a typical ‘retain and build’ development or triplex will add $100,000 to the investor’s wealth as a lump sum, as well as creating properties that provide rental yields and capital growth.”