What are the pros and cons of buying new property over established?
We are often asked this question and everyone will have their opinion on it. Should you invest in an established property that you can add value to or a new property that will give you immediate tax benefits?
There is no ‘right’ answer, just pros and cons to each. The ‘right’ answer depends ultimately on each investor’s financial goals and lifestyle.
Three key reasons to invest in new property –
1. Due diligence – a very important consideration when investing in property is ensuring you know what you’re buying. At Calla Property, we look into the history of the builder and all senior members involved in the building process, the quality of the materials they use and the contracts, to ensure they’re fair and reasonable. In Australia, new home builders are required to take out statutory home warranty insurance. This protects the purchaser for a number of years in the event of a major building defect. Being at the coal face, so to speak, we see and hear too many horror stories of investors who relied on building and pest inspections, only to find, once the tenant has moved in, that major, expensive work needs to be carried out. It is extremely hard to conduct thorough due diligence on second hand property.
2. Tax benefits – investors are able to claim depreciation on all items of eligible plant at the property. The newer the property, the great the depreciation. Appliances like, heaters, dishwashers and air conditioners have high rates of depreciation. This can be an important contributor to protecting your cashflow, especially in the first few years.
3. Rental desirability – There is a strong correlation between the age of the renter and their preferred property in terms of age. The younger the renter, the newer they prefer the property to be. In most capital cities, the majority of renters are under the age of 30 and they seek out new properties. It is not uncommon for new properties to have tenants secured prior to the property settling.
The main reasons investing in an established property would be preferable are:
1. Equity uplift – when you buy an established property it is possible to add value (or equity) to a home through renovation or extension. A new kitchen that costs $20 000 could add more than the cost to the valuation of the property.
2. Location – sometimes there are great areas to invest in that simply don’t have any new properties being built. Many investors don’t do the research required to identify the suburbs set for strong capital growth or they don’t know how to, so for them, buying in an area they know makes sense.
So if you’re an investor who is looking for an investment based purely on the numbers and you want to build a portfolio of ‘set and forget’ property, then buying a new property is the strategy that’s most suitable.
However, if you’re an investor who lives close to the property and likes renovating or being available to do handyman work, investing in an established property might be more suitable.
At Calla Property, not only do we conduct the due diligence required on new property, we look at over 100 drivers of capital growth and rental stability to ensure you invest in the right property at the right time in the right place. If you would like us to help you invest well, call 02 9016 2852