It’s a straightforward question with a less than straightforward answer: when investing should I buy an old property or new?
If one thing is certain, both have clear benefits and disadvantages, with experts divided on which is the preferable option. Generally, all properties need to be viewed and assessed independently – some older properties will easily outclass their new counterparts, and vice versa. There are however, a set of general guidelines which apply to both new and existing properties worth thinking about while you shop around.
Benefits of buying an older property
One of the most attractive benefits of nabbing a pre-existing property for investors is the generally lower purchase price compared to a new dwelling. Adding to this, older style properties are not only cheaper, but often come with value-add opportunities in the form of renovations. As long as renovations are aesthetic (as opposed to any costly structural changes), then renovating an older property gives you the opportunity to substantially increase its value.
Whilst on the topic of price, since purchase costs are lower, you’re generally less likely to have shortfalls with bank valuations, so financing the property may be easier.
Another benefit includes the ability to inspect the property (if comparing with new ‘off the plan’ options) that extends to greater assurance of the property’s build quality.
Lastly, buying an older property in an established area can give you a more accurate idea of its value since you can compare it with other pre-existing dwellings. This is a helpful benefit when purchasing and potentially selling the property later on.
Benefits of buying a new property
Newer properties are a mixed bag of house and land packages in outer city suburbs as well as redevelopments closer to the city and off-the-plan apartments and townhouses.
These new home options aren’t created equally in terms of investment opportunities and returns, though buying new, for potential savings and tax depreciation, is a generally universal benefit. For investors, there are much larger tax depreciation advantages (for new homes) that reduce the holding costs of your investment property. Meanwhile, significant stamp duty benefits can mean thousands of dollars in additional savings.
Other benefits include the generally lower maintenance of new homes as well as generally higher rental yield and lower vacancy rates for investors looking for a rental investment.
Disadvantages: older properties
In the case of older properties, it’s especially important to lean on building inspectors, surveyors and solicitors to ensure that your investment is ship-shape before proceeding. Older properties can have structural issues that require costly repairs, whilst easements or caveats on the title may affect your plans to subdivide or renovate the property.
Disadvantages: new properties
If you’re looking at a new property as an investment, focus on areas where there is limited supply, or you’ll risk slow capital gains growth and weak rental demand. You should also do your homework when assessing the builder. What you save in taxes you may end up paying back in repairs or legal fees if you buy a property built buy a sub-par builder seeking to make a quick dollar.
If shopping for apartments in particular, over-supply of new establishments can make your investment difficult to rent out, so be wary.
So, should you buy old or new?
Yes we know, we still haven’t answered the question. As you’ve probably guessed that’s because there is no single answer to suit every person and situation. Older properties are generally less expensive and if you find one in a good area that’s structurally sound and can be easily (and inexpensively) renovated, then you’re probably on to a winner.
On the other hand, new homes provide outstanding tax benefits for some investors and they’ll generally be less of a headache as long as they’ve been built well. They may even make for an excellent investment as long as they’re in low supply, in a high demand area.
If you want expert advice or a second opinion when comparing new versus old properties, get in touch with our team at Providence. With over 10 years of experience, we can assist you to identify investment opportunities that suit your budget and goals, assisting you throughout the process, from research to acquisition.
Get in touch with us for an obligation-free chat about increasing your portfolio.
Written by Lynton Stevenson, Managing Director, Providence Property Group.