NEW Vs OLD INVESTMENT PROPERTIES
Thinking of investing into property but not sure to invest in something new or old? Let’s take a look at 4 main advantages of each.
ADVANTAGES OF OLDER PROPERTIES
A Better Deal
When looking at any investment, you need to do your research and you need to establish what exactly you are looking for. Older properties come with a number of advantages, but the biggest advantage is that you will more than likely get a much better deal with an older property than new. As most of us understand, anything you buy new off the shelf, always costs more than something second hand. The old saying goes, with cars, once you drive it off the floor you lose thousands. This is still relative when it comes to property. When buying a new property, you are not only paying the builder, you are also handing over a chunk to the developer. Keep in mind, developers place their marketing and profit margins in your purchase price. When investing into established real estate, you will find you have the potential to negotiate a better deal at a fair price. Older properties with cosmetic flaws will have less competition for buyers thus meaning you can get a better deal. Just be sure to make sure the cosmetic problems are going to be worth the discount and not leave you out of pocket for excess upgrades and maintenance. Searching for older investment properties, means you can always find a diamond in the rough or you may snag one that is looking for a fast sale, thus taking a lower offer.
A Better Location
When purchasing a new investment property, normally you will be much more restricted to the area to build, as new estates are often further away from town centres (especially home and land). When purchasing established properties, you can have your pick of the crop when it comes to location. This may mean, closer to schools, shopping centres, transport services and location of employment. The closer your property is to schools and shopping centres, the more demand your property will have when it comes to renters. Meaning it will be less likely to go through times without tenants.
Potential to Add Value
Who doesn’t love a good renovated older property? TV shows such as ‘The Block’ & ‘House Rules’ will show you exactly how much renovating an old outdated home can help to increase an investment properties value. New homes generally come with all the bells and whistles, ready to move into with no real room for improvement. Many will see this as an advantage but it can be a disadvantage for those looking to spend a little extra to make some fast capital gains. Older homes, give you that room to move. Buy something outdated that could do with some modernising and spend a little money to make a lot. Avoid structural repairs and look for more cosmetic changes. A good renovation will cost you under $30,000 but add $60,000 in value to the property. This gives you the chance for a relatively fast increase in capital growth.
Know Your Market
One of the golden rules when it comes to buying real estate is to know your market. By purchasing an older property, more than likely you will be in a well established area where there is plenty of data and records to prove the performance of the area over the last few decades. Things to look for are average prices and average rental prices. You can compare the price of the property you are looking at, with other properties recently sold in the area. A history of a suburb will also give you socioeconomic information on the potential tenants you may have for that area. These days most of that information is readily available to you on the internet through a number of sites such as realestate.com.au. For newer suburbs this information is much less accurate as it is relatively new and won’t have extensive historical data.
There we have a few of the major advantages to buying an older more established property, as opposed to a new property. Of course, like any big decision, you will need to do your research as there are also a number of factors that can work against you when purchasing old.
ADVANTAGES OF NEW PROPERTIES
The number one rule when it comes to investing in property is to never sell. Why? Because the whole point of investing in property is to build equity and gain a rental income. You want to pay off the property in the fastest time possible and earn extra income through tenants renting. Not only that, when you sell you are going to incur capital gains tax, which is just dead money. Buy, maintain and live off the income. In order to do this, you will need something that’s actually going to last a minimum of 25 years. Older properties may last 25 years, yes, but the likeliness of them requiring more and more maintenance issues is a hell of a lot higher and this will kill your cashflow. Thus, making it a lot harder on your pocket in the long run.
When a property is newly built, you get to depreciate a number of things. Not only can you claim depreciation on the cost of construction on that building over a number of years, you can also claim depreciation on internal fixtures and fittings. Most new properties will claim between $10-15K on depreciation within the first year, meaning you can maximise your claim up front. See your accountant for more information, this information is for educational purposes and is not considered tax advice.
As you can probably predict after the statement above, a new property is going to have much less maintenance costs compared to older properties. A newer building should not have any real issues maintenance wise. When buying new, you will generally get a builder’s warranty to cover any short-term issues and in QLD you will find nearly all new homes come with a 10-15 year structural warranty. Both of which, you will not get with older properties. Also, newer properties are generally much more energy efficient and environmentally friendly than older properties. A lot of new places are being built to much more “green” standards and built towards the progression of a low maintenance home. For investors, you may want to look at this point as a risk management strategy. The last thing you want to be doing is buying an investment that ends up costing you an arm and a leg to maintain. These warranties and new building standards are really driven towards low maintenance to make it easier for investors.
Now, you may say this is debatable. However, a brand-new apartment complex or a brand-new housing estate will generally attract a higher rental cost and thus attract a crowd more directed to professionals and well established renters. These higher-quality tenants are happy to pay a premium price for a brand-new property. The ‘modern day tenants’ love to have everything brand new, shiny, working and full of lifestyle features such as; more light, more windows, alfresco areas and multiple living areas. Therefore, they will be more likely to pick the brand new property for a slightly higher cost, than the outdated one.
Another advantage that not many people realise, is to look at the growth value in the property over the construction period. For example, in this growing market, you can buy a block of land for $320k and in 4 months, once it’s built, the land could be worth $335k just in keeping with the trend of the current market. Meaning, the price you purchase the home and land originally, could end up becoming a lot less than the actual value once its finished.
We are also seeing the growing trend lately in dual occupancy homes. A lot of investors look at it as; if you are going to build, why not pay a little more and look at getting dual rental income from the one property.
All in all, there are a lot of advantages to buying new as opposed to buying old in the current investment property market. But keep in mind there are a lot of advantages to buying old also. Do your research and assess what your circumstances are, what you are looking to get out of it and most importantly look at the long-term strategy as a whole.
If you are still unsure or if you have any questions or queries, please feel free to contact one of our brokers for some more information – 1300 858 386