There is long-standing debate among property investors that has been going for years: should you invest in an existing older property or is building a new property the smart way to go?
There are definitely advantages to both options, but there are also downsides to consider too. When it comes to choosing the right investment property to add to your portfolio, take into account the pros and cons of each before making your decision.
When people look at investing in property they need to consider which type of property is going to give them the greatest benefits not which property they are attracted to. “Heart Buying” is for the property you want to live in not the property you want to make you money.
Many established suburbs have an appeal that can’t be readily duplicated in brand new estates. For example, historical suburbs are often characterised by stately old homes and well-established streetscapes.
Building a new property in a newly-established subdivision means streetscapes may not be completed or fully-formed yet. Of course, the increasing level of urban infill offers more options for building newer homes in amongst established properties too.
Buying an older property gives some investors the opportunity to add value to the property by completing some cosmetic renovations. Researching land and building costs in a particular area and comparing them against the values of similar properties in the same suburb can be a great way to uncover undervalued properties. An investor then has the opportunity to renovate and increase the amount of available equity in the property.
Of course, there are also opportunities for new homes to increase in value, especially if the property is built in an up-and-coming location.
Property investors are eligible to claim depreciation on capital works, plant and equipment. Newer properties have a much higher level of depreciation, which can provide significant tax benefits to a property investor.
An investor may be able to claim some depreciation on the actual building with an older property, as long as it was built after 1987. However, the capital works on a new property can be depreciated for up to a maximum of 40 years. The fixtures and fittings within the property, including appliances, flooring and window coverings are all depreciated at different rates, so the depreciation of any plant and equipment in a newer property offers greater tax advantages.
Many older homes may require repairs as they age. A leaking roof, cracked walls, old plumbing and electricals, or septic problems can cause a drain on finances if you’re unprepared. By comparison, newer properties usually need much less maintenance and are likely to require fewer repairs.
Newly constructed homes also come with a builder’s structural guarantee and a statutory home warranty. A property investor may be protected for several years in the event that a major building defect or structural problem is discovered.
A new home can be more enticing for a prospective tenant than an older property. Modern designs, energy efficiency, new appliances, and built-in wardrobes can offer more appeal to a tenant compared to an aging home with fewer inclusions. In most cases, it’s possible to find a willing tenant before construction is even completed.
Many investors prefer to purchase an existing property, simply because they can begin receiving rent right from settlement day. When you’re constructing a new property, the tenants can’t begin paying rent until the building is completed.
Of course, new homes can sometimes fetch slightly higher rental yields than older properties in the same areas, simply due to having more modern inclusions and features that appeal to tenants.
When it’s time to consider choosing the right investment property to add into your portfolio, take all the pros and cons into account before making a decision. Take the time to understand how an older versus a newer property will impact your taxable situation and make an informed choice that matches your personal financial and investing goals.
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