Once you found where you wish to live or you have decided to own a property to create passive income, your next question should be: buying or building?
3 reasons to buy an existing property
1- Ready to use
Once the due diligence has been done and paperwork has been signed, you can move into the property or immediately put it on the market to start receiving passive income.
In Bali, the average construction time can take from 6 months for a “simple” villa to more than a year for more complicated projects. Are you willing to wait that long? If you get a loan from the bank, you will have to pay the mortgage and the rent on top of the costs for building the property.
2- No hassle with the construction
Taking care of the construction can be painful, especially if you don’t know anything about it:
- You must deal with many different professionals, with their own agenda and priorities: local administration, architect, interior designer, structural engineer, contractors…
- You need to control what is happening, especially in Bali. Or to have someone you trust to handle the construction. Not having the right team of professionals to support your project can result in a loss of time, energy, money, and even loss of your property if you did not do a proper due diligence.
- Your budget can blow out: you might think you did your costs analysis properly but there will be extra expenses and unexpected events. There will always be things going wrong that are beyond your control.
When you buy an existing property, you won’t have to worry about that. However, keep in mind that unless you find the perfect house, you will still have to spend extra money on repairs, decorating, landscaping…
3- Location, location, location
In popular areas, such as tourist places and city centers, there is no land available for development anymore. Or the price can be out of reach of the majority of people. In Canggu for instance, a freehold are costs more than a billion IDR. Buying an existing property allows you to have access to many more opportunities.
3 reasons to build instead of buying:
1- It can be cheaper, if built properly
There is a “rule of thumb” in Bali, your newly built property will appreciate by 50% once in the market. For instance, if you spent 100k to buy a piece of land and build on it, you might be able to sell it for 150k (don’t take it as a rule of truth though, that is just something we noticed on different projects well managed).
Building your property can thus be cheaper and bring more revenue than buying an existing one. Why?
- Many people do not wish to go through the building process so, if you do, you create value.
- Although it can be time-consuming, finding the right piece of land and negotiating the right price for it can already create a nice return on your investment when sold. Adding a new property on the land and you might be able to make an even nicer return.
- In some cases, your investment in construction can be tax-deductible (to double-check with your accountant/tax specialist).
2- Customization
The main benefit of building vs buying is that you are the full master of the construction and of the design of your property. Apart from the local building regulations (size of the building, shape, color of the roof in some areas…), you can, more or less, do whatever you want.
- Your house, your style: create your dream house from scratch.
- You can build the property to answer current market needs: demand is changing and being able to develop something new based on the current trends will give you a competitive advantage over the existing competitors.
3- Meet current standards
When buying an existing property, you don’t really know what is “behind the walls”, what are the foundations, what is the strength of the structure (important in seismic areas for instance.). Also, older homes can be a turn-off for potential buyers as they could require extensive renovations to meet current standards and they may contain asbestos, lead paint, or mold. The same principle applies to electric and water consumption, older properties are generally less energy efficient.
Building a new home allows you to have a positive impact on these aspects, and many more.
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