If you’re thinking of investing in land, there are pros and cons to consider before you take the plunge.
Fact checked
Are you wondering what the pros and cons are of buying a block of land for investment purposes? Consider the advantages and disadvantages of investing in land with Savvy and compare them to buying an income-producing investment property. We can help you save money when choosing your investment loan by presenting you with a range of products so you can find the best deal available to you in Australia more easily.
There are many advantages to investing in land, or buying land for investment purposes (or to build on later) as compared to buying an investment property. These include:
However, there are also some barriers to overcome if you do decide you want to invest in land. These are:
Negative gearing is a term used to describe borrowing money to invest, where the cost of borrowing is greater than the income received from that investment. If your investment makes a loss, this loss can be claimed as a tax deduction against other sources of income, resulting in less income tax being paid.
In the case of a vacant block of land, you won’t receive an income from your investment (assuming there’s no income from farming livestock or growing crops) so the entire cost of buying that land can be claimed as a tax deduction. These costs may include:
If you subsequently decide to build on your land, you can still negatively gear it if the rental you receive doesn’t cover the investment loan interest costs you’re paying. If you then decide to move into the home you build, it becomes your primary place of residence and can no longer be used for negative gearing purposes.
Investment loans may be fixed rate, variable rate or split loans, and can be principal and interest or interest only. You should seek financial advice before deciding how to structure your investment loan to maximise your negative gearing benefits.
Your accountant or financial advisor will advise you as to whether you should be seeking to minimise the interest you pay on your loan. If you’re in a high-income tax bracket and have few other tax deductions you can claim, saving on interest may not be your financial priority. You may be more interested in negative gearing potential. If this is the case, your decision to buy a block of land should concentrate on buying to maximise your capital growth.
However, if you aim to eventually build on your land, you may be looking at building up the equity in your investment so it can be used as a deposit for a loan to cover construction costs. If this is the case, loan features which can minimise your interest bill (such as an offset account or the ability to make additional repayments) should be your focus. Savvy’s home loan extra repayments calculator will help you see how quickly you can build up equity in your investment property by making additional repayments.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
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© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
© Copyright 2024 Quantum Savvy Pty Ltd T/as Savvy. All Rights Reserved.
Quantum Savvy Pty Ltd (ABN 78 660 493 194) trades as Savvy and operates as an Authorised Credit Representative 541339 of Australian Credit Licence 414426 (AFAS Group Pty Ltd, ABN 12 134 138 686). We are one of Australia’s leading financial comparison sites and have been helping Australians make savvy decisions when it comes to their money for over a decade.
We’re partnered with lenders, insurers and other financial institutions who compensate us for business initiated through our website. We earn a commission each time a customer chooses or buys a product advertised on our site, which you can find out more about here, as well as in our credit guide for asset finance. It’s also crucial to read the terms and conditions, Product Disclosure Statement (PDS) or credit guide of our partners before signing up for your chosen product. However, the compensation we receive doesn’t impact the content written and published on our website, as our writing team exercises full editorial independence.
For more information about us and how we conduct our business, you can read our privacy policy and terms of use.
