One of the least understood conversations in buying Real Estate is the benefits of buying either an old or a new property. Informed investors understand that each have their own set of benefits and it really comes down to which suits your personal needs, skills, experience and income. There is definitely a place for both, but before forming an opinion let’s wrap our heads around which would work best for you.
Should I buy a new property, or an old one? If you asked your typical C grade investor this question they would rattle off a couple of reasons why either new or old is the only way to go, and for them that very well may be the case.
But we are all different and live with a unique set of circumstances, so there is no firm rule that suits everyone.
Lets take a look at buying a brand new property. The immediate benefits are obvious, as typically a new property would have no need for any renovation (and it should remain this way for the new few years at a minimum) and therefore be immediately tenant ready. And because the house / apartment is shiny and new it is easier to attract a higher quality tenant who is, of course, willing to pay more rent each week for this luxury. We see this occur most often in the most desirable coastal suburbs.
Essentially, this option would appeal those who are time poor and just need an investment property that is ready to go. Or, if you’re like me, you’re a “lazy” investor, and just prefer to use your time in other ways.
Many who are time poor are this way because they put a lot of their time into their families and also their working lives. And if you find yourself in the enviable position of being a high income earner new property can also be a positive.
New properties bring with them the ability to claim immediate tax breaks in the form of maximum depreciation claims. These are legal tax deductions that you can begin to claim immediately after settling on a new property. These amounts vary, but could be as much as $25,000 in the first year, and then the gradually decrease each year after that.
You can ask for a “Depreciation Schedule” before purchasing any new property to see exactly what your legal tax deductions will be. This will assist in understand your cashflow before you commit.
They are some of the benefits in buying a new property, which, depending on your circumstances, may be more appealing to you. But lets now take a look at the other side of the investing coin to see what older properties have in store.
As a general rule, older properties tend to be more affordable than their younger counterparts, which may make it easier to get started if you are a lower income earner. Typically (and yes, this is a generalisation so it will not always be the case), older properties may have the need for renovations, be it a small “face-lift” or something more substantial. Again, depending on your personality and skill set this can either be a headache, or a fabulous opportunity.
While a lazy investor such as myself would see the need to renovate as a potential headache, it can be a fantastic way to immediately create equity in a property. Even just updating the fixtures and fittings, a fresh coat of paint and some light landscaping can add value, and increase appeal for tenants.
These jobs can appear easier than they really are, but if you have the ability and skills to undertake these upgrades on your own then it can work out well. Plus, the cost of these changes are also tax deductible.
Property investors can claim depreciation on a property for a maximum of 40 years from the date of construction completion — which means investing in newer properties will give you greater depreciation benefits.
As you can see, both new and old properties come with very different benefits that will garner varying appeal depending on the individual. What I can say for certain, however, is that no matter which direction you take it’s imperative that you buy these properties in growth markets.
Capital growth should be the primary goal of any property investor, and the aforementioned benefits of new or old property will not save your investment if you have bought in a poor location, or at the wrong time in the cycle.
Our criteria has allowed us to boast a 100% success rate in picking growth markets right around Australia. To learn more about how we research and identify these markets for our customers click now.