As a Property Investment Specialist one of the questions I do get asked is “should I purchase a new or old investment property?”
The answer to this question differs for each investor depending upon individual circumstances, wealth strategy and goals. However I do say ‘Buy New’ every time.
Ok, you may argue that when buying old, you buy in an established location with the charm and infrastructure that new can’t match. Buying old can give you investment potential; especially in the case of a big block were possible future rezoning can provide the opportunity to subdivide, renovate and develop.
I say, fantastic go for it, as long as it suits your wealth strategy and you have done your research. You know you are able to bank roll all the maintenance, repairs and upkeep with the lower rental income, higher vacancy rates and lower tax incentives that comes along with purchasing an older property.
While you do that… I will invest in a shiny, brand new, low maintenance property!
Why?
My Number One reason is tax incentives, through depreciation
Depreciation is the term applied to the diminishing value of a structure inclusive of its fitting and fixtures as they age over time.
The Australian Tax Office allows anyone who purchases a property for income-producing purposes to depreciate both the items within the building and the cost of the building itself – against their accessible income, over a period of 40 years.
If you purchased a house that is older than 40 years (before July 1985) you can only claim the fixtures and fittings within the building, not the building itself. If you renovate, you can then claim this as an expense.
With an older home you need to know the costs involved in any recent renovations it has had. The younger the building the more you can claim for a longer period of time. And if it is brand new you can capture everything from the structure to the tap wear because it is in the building addenda and is easier for your quantity surveyor to work out the total depreciation, giving you significant tax benefits.
Always ensure that you engage the services of a reputable quantity surveyor for your depreciation schedule, no matter how old or new your investment property is, and the good thing is their fee is 100% tax deductible.
It’s New… and you know what you are getting
There isn’t any hidden expenses once you purchase a new property. All new builds within Australia are required to have structural guarantees and warrantees, and in most cases, if the property is brand new, the builder will offer you 6 months maintenance review. This is where the builder is liable for any issues that might crop up – not you.
With an older build, any structural defects will come out of your pocket… and those pockets may need to be very deep!
Quality Tenants, Higher Rental Yields and Low Vacancy Rates
People like new and shiny and love the fresh modern feel and layout that you get with a new home. Not to mention new homes are generally more energy efficient and low maintenance.
New homes do attract the ideal tenants who are happy to pay a premium for a new low maintenance home. Resulting in lower vacancy rates for new homes and higher rental yields.
Location is Everything!
However saying all this, whether you prefer a new or old property it still comes down to one thing… Location is everything! To be a successful investment a property needs to be in the right location, close to major infrastructures for your ideal tenant to be able to live, work and play.
Before investing in property do make sure that you do your research and seek professional advice to ensure that the property you are purchasing suits your wealth strategy and personal goals.
