New Vs. Established
Is it better to buy a new or established investment property?
Property investors often face the dilemma of whether to buy new or old. We take a look at the major considerations for both new and established dwellings to help you make an informed decision.
It’s the old versus new debate. Are you better off investing your hard-earned cash into an old property that offers value-adding and equity building potential, or a brand new property that guarantees higher depreciation and tax incentives and better quality tenants?
While the value of a property is influenced by several factors-- including location, size, aspect and amenities --the decision to buy a new or established dwelling is just one of many issues to consider when buying an investment property.
We break down the key considerations when weighing up between new or old.
Buying a New Property
- Depreciation benefits. If you’re an investor, the newer the property the higher the amount of depreciation available to you. You can deduct 2.5% on the property itself for 40 years which can lead to a significant tax deduction. Appliances such as air conditioners and dishwashers generally have a high rate of depreciation. For more information about the tax benefits available to you, visit the Australian Taxation Office (ATO) website.
- Tenant appeal. Typically new dwellings are perceived to be higher quality which means you may have greater tenant appeal. This is because tenants will be attracted to modern appliances, such as ducted heating, reverse cycle air conditioning etc and will be prepared to pay a premium. The ability to attract high quality tenants could mean that you lower the risk of untenanted periods for your investment property.
- Protection. Builders of new properties in Australia are required to take out home warranty insurance which protects you in the event of a major building defect.
- Low maintenance. When you buy a new property, you can benefit from the convenience of not having to spend money on repairs or ongoing maintenance.
- Security. Most items for a new property are under warranty which means you can minimise your ongoing costs as they are covered by builder’s warranty insurance.
- Less affordable. Depending on the location and property type, new dwellings are generally more expensive than established dwellings which could mean that you struggle to meet your repayments. In addition, new unit properties often have strata fees associated with maintaining communal facilities such as gardens and insurance which could reduce your cash flow.
- Limited value-adding potential. There is little opportunity to add value to the property once you’ve purchased it so it may take longer to achieve capital growth.
- Greater market risk. New properties are often the first to see price declines when the market softens, while established properties will either maintain their price value or experience a minimal adjustment.
Buying an Estabished Property
- Renovation potential. A major advantage of buying an established property is that you can renovate and add value to the property which can boost your equity. These renovations are often tax deductible.
- Affordability. An established property is generally more affordable than a new property which means that you may be at less risk of facing mortgage stress levels.
- Property history. Historical data about the property will give you an idea of how the property value has changed over time which can help you make an informed decision.
- Negotiating power. When you buy an established property, you have the ability to negotiate for a fair price. Vendors of established properties often have a motivation to sell relatively quickly so you can use this to your advantage to negotiate a bargain.
- Capital growth. Generally a well-bought established property will outperform the averages over the long term and experience high capital appreciation which will benefit your long-term cash flow.
- Maintenance. An older property may require upgrades and repairs due to wear and tear on the property over time. Not only could this eat into your profit, if a major renovation needs to take place, this could mean that you risk loss of rental income if tenants need to temporarily vacate.
- Lower rental return. If the property is run down, the rental return will typically be lower compared to a new property.
- Less appeal. Established properties typically have less appeal than new properties as they may have an outdated design.
*Please note, this information is general in nature and should not be taken as investment advice. Please speak to your financial professional when determining whether this suits your situation.