Should I Buy A New Home Or An Established Property?

As a consumer it’s true that majority of the time newer is better, but does this credo also apply to properties in Australia? This is the question that you’re bound to face as you join the real estate hunt in 2017, regardless of whether you’re a first time buyer or experienced investor. Perhaps the real question however that you really need to ask yourself is, “Am I willing to purchase an older home that I can to spend money on to make my own, or, do I want a new build that’s going to deliver instant cash back and tax incentives”?

Ultimately there’s no real wrong answer; it simply depends on your own investment goals and present financial position. To help you make a decision let’s take a look at the benefits plus any associated risks that comes with each investment.

Be Bold, Go Old

If you’re looking for a charming abode in an established neighbourhood then buying an older property could be for you. Just remember to always do your research. This includes having a building inspector go over the property with a fine toothcomb to find out if there are any hidden pest or structural issues. Read on to find out more about the advantages and disadvantages of “going old”.

Advantages

  • Reputable neighbourhood
  • Established gardens, fencing etc.
  • Greater opportunity for saving
  • Less chance of being affected by price changes
  • Closer to services, work, entertainment

Add value quickly: One of the main advantages of buying an older is home is that you’re able to add value to the property without over-capitalising. This is not only cheaper than building an entirely new home but also allows you to create additional equity quickly. Just make sure that you do the sums before you purchase – you don’t want to be in a situation where you’ve overpaid without any room to renovate.

Location, location, location: As a property investor you make your money when you purchase, not when you sell. This is to say that by buying at a good price in an affluent suburb, you put yourself in a strong position further down the track when it comes to selling. Newer properties are more often than not built further away from services, amenities and business areas, meaning that there’s a greater chance of them depreciating over time. By securing an older home in an established suburb, you can safeguard yourself against dramatic decreases in pricing.

Disadvantages

  • All wiring may need to be replaced
  • Older homes are rarely eco-friendly
  • Limited storage and/or car parking space
  • No tax concessions for first home buyers

Maintenance issues: A major drawback to consider when it comes to investing in an older home is the fact that it’s almost guaranteed to require more upkeep and maintenance during it’s life span. This not only means you’re going to have to sink money into keeping it up to scratch; you may also be inconvenienced when certain facets of the home fail to deliver. For example, the heating/cooling system fails or you have structural instability that was overlooked by the building inspector.

Emotional purchasers: If you set out to purchase an older home and expect to get it for a steal come auction or negotiations, then you could be in for a surprise. Emotional purchasers are more likely to become attached to an older, more charming property and will pay a premium to secure it. This could then blow out your margins. If you’re an astute investor that goes only by the numbers, they’re essentially your kryptonite.

The Newer The Better

Less maintenance, higher claimable depreciation and significant stamp duty benefits mean that you’ll probably save money in the short term when it comes to new properties. This should tick all the boxes for an investor right? But what about the fact that newer homes are generally more affected by slow long term profit growth.

Advantages

  • Less initial maintenance costs to outlay
  • More energy efficient and eco-friendly
  • Lower vacancy rates
  • Depreciation benefits

Everything’s been taken care of: Being able to rent your new property almost immediately is a huge bonus if you’re looking to take advantage of a high performing rental market. This is opposed to an older home that’ll probably require touch ups and maybe even extensive remodeling. A new home is primed for tenants and ready to rent with all fixtures, fittings and outdoor features already in place.

Tax depreciation benefits: As the owner of a new investment property you’re able to claim depreciation on all eligible appliances and inclusions in the property. Even though all items have different rates of depreciation, there are still significant tax benefits in buying new versus purchasing an older property.

Disadvantages

  • It may be a substantial commute to CBD’s which could be less desirable for to potential renters
  • Limited charm and “bland” design may not appeal when it comes to resale or to certain tenants
  • You may be paying a premium to cover a developers costings

Slow growth: If the property is part of a larger development or has been built in an outlying suburb then it may be subject to slow growth rates when compared to older properties in the inner city. While this may not affect the property in the short term if you’re looking to rent it, resale prices could take a hit if you’re required to sell due to unforeseen circumstances.

Whether you’re buying a quaint old property in the inner suburbs or a new single level family home on the fringes of town, it’s important to do your research and find out what suits your investment goals. If you’re looking to rent the property then maybe a new home is perfect for a quick return. Conversely if you’d like to renovate and sell for a profit, an established property at a fair price is probably best.

References:

  1. Elizabeth Weintraub, 6th October 2016, “Buying Newer or Older Home?”, (https://www.thebalance.com/buying-newer-or-older-home-1798298)
  2. Alice Bradley, 5th February 2016, “Which is Better Buying: Old or New Properties?”, (http://www.realestate.com.au/advice/which-is-better-buying-old-or-new-properties/)
  3. Nila Sweeney, 21st December 2016, “Old vs new property – which is best?”, (http://www.yourmortgage.com.au/article/old-vs-new-property–which-is-best-117823.aspx)
  4. Pam Walkley, 5th May 2016, “Buying a new home versus an established home”, (http://moneymag.com.au/buying-new-versus-established-home/)
  5. Investor Assist, 24th May 2012, “Which Investment Property to buy: New vs Old?” (http://www.investorassist.com.au/articles/which-investment-property-buy-new-vs-old)

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