Are you in the market for an investment property? After you’ve worked out your finances, goals and strategies – the next step is to find the right property.
Here’s three things to consider before you start searching for that great deal.
- Firstly, how old should the property be?
- Secondly – how big should it be? A flat, townhouse or house?
- And finally – where should it be? In the city, suburbs or country?
In this post we’ll take a look at the pros and cons of brand new and older properties. In our next two posts we’ll tackle property style and location. Hopefully these articles will help you make you make some decisions!
What’s better – a new or established property?
New Property Benefits
If you’re time poor or not interested or skilled in maintenance, then new is a good option for you. At completion time, any defects will be covered by the builder or builder’s insurance.
These days new properties are designed to maximise light and space, so they are quite appealing to tenants. And if they’re close to commercial/industrial areas or well situated in terms of transport links then they can often command higher rents.
And from a tax point of view, they usually offer higher or longer depreciation benefits, not only from the fixtures and fittings but also from capital works. It is possible for investors to use these tax benefits to assist with monthly cash flow.
The Disadvantages of New Property
- If short term capital growth is an important part of your investment strategy then new properties may not be ideal for you for the following reasons:
- they often cost more than older properties in the same area
- there are probably a few very similar properties being sold at the same time if the property is located in a brand-new development. A few hasty resales can affect the values of all the properties in the immediate area.
- there’s not much scope to add value by renovating or extending, as all the work has already been done by the developer and any more work could see you over-capitalizing.
The Pros of Buying an Older Property
Of course with older properties there’s a lot more variation of one older property over another when it comes to condition and value, but there’s still many advantages to consider.
- There is usually less price fluctuation than new properties in the same area.
- You can add instant value through renovating, extending, subdividing and developing. Some investors have even managed to get their property for ‘free’ by subdividing a large block and selling off a portion of the land.
- Older properties are often situated on larger blocks, which usually drives property value upwards.
- Investors can also be more certain that the property they are purchasing has a ‘true’ market value, with no profit margin set by the seller.
- They are usually found in well established suburbs which can demonstrate consistent growth.
The Cons of Buying an Older Property
The biggest disadvantage of older properties is the cost of maintenance. If renovations are required to make it livable or more modern to attract good-quality tenants, then you need to factor in the loss of rental income during the reno period.
If the property is a bit run down, then the lower rental rates and higher maintenance costs could impact on your monthly cash flow.
Finally, lower depreciation values could impact potential tax benefits.
What About Buying Off-the-plan?
Buying Off-the-plan is not often considered by investors, but is should be, as there are some advantages.
- The stamp duty payable on the purchase is also often reduced because the property is not yet completed, with NSW currently waiving stamp duty entirely for off-the-plan purchases under $600,000.
- There is the potential to secure the property without putting any money down. Some developers accept deposit bonds to cover the deposit instead of you having to use your own cash. If the property is not completed for a couple of years, this is a much cheaper option and allows you the flexibility of using your cash for something else.
On the down side, there have been occasions where properties purchased off- the-plan may have dropped in value by the time the property is completed and ready to settle and you may find yourself out of pocket. Paying the upfront deposit prior to any valuations being completed also commits you to the property before you have a true ‘value’ on it.
If there are a number of developments going on in the same area causing an “oversupply” situation, then this may reduce the value of the property you have purchased even before it is completed.
In summary, there’s a lot to consider, and it is important to choose a property that fits with your investment goals and lifestyle.
We’re here to give you all the information and support you need to make the best decisions for your circumstances. And of course our help is free. So give us a call if you’re ready to find out more.