A common question that people ask when considering purchasing an investment property is, “Should I buy brand new or older established properties?”
Is it wiser to purchase older property that can be improved or a newer property that delivers instant tax incentives and requires no upfront work?
I'm sure we've all asked ourselves these questions and discussed with family and friends.
Well, we need to look at some fundamentals when deciding between new and old. The basic facts to consider are the time we have available in our busy lifestyles, as well as the resources, knowledge and the skills we have available to us.
Consider the amount of risk you are willing to take on when purchasing older, established properties of value-adding appeal.
If you have the spare time, skills and extra cash reserves to renovate an older property then perhaps established property will suit.
Older properties may also be cheaper compared to new properties of the same type in the same area, and occasionally you may be able to negotiate the price with a vendor who is motivated to sell quickly.
However, older properties do require upgrades and repairs due to wear and tear, which will eat into your profits. Older properties typically have lower rental returns, if run-down and may offer less appeal to tenants due to the outdated design and fixtures.
If you prefer a less hands-on approach, a property with current styling, very low maintenance costs, new-build warranties as well as tax deductions, then new properties present a lot of advantages.
With newer properties, you have tax deduction benefits like depreciating the building at two and a half per cent per annum. You'll also have fixtures, fittings, floor and window coverings and appliances over the near-term which have a higher rate of depreciation.
Depreciation benefits and rent appeal can mean the difference between putting $50 to $100 dollars in your pocket each week for a newly built property compared to covering a $100 rental shortfall every week
This basic comparison of new versus old comes down to your personal circumstances and skills level and experience you have.
So, know your numbers before you decide.
Run through some projections with a professional and make any property purchase in line with your long-term goals and plan.