Old Property Vs New Property | Which One You Should Invest In?
In this blog, we’ll be discussing whether it’s a better strategy to buy old property, or whether it’s a better option to buy new.
We’ll look at some of the pros and cons of both across various dimensions: growth, depreciation, tenant appeal, maintenance, government incentives, value add and land to asset ratio.
This discussion could very well change what you know about investing!
There are plenty of people out there trying to sell you brand new property.
It’s worth considering whether these people have a hidden agenda and are being paid by the developer to sell that property.
As soon as you hear words like population growth or growth corridor in house and land packages for new property – alarm bells should be ringing.
This is because new investment property will always underperform when it comes to growth.
These new properties are generally in areas with a lot of land on the outskirts of town, which is why the developer is able to produce so many house and land packages.
This results in plenty of supply. And as we know, supply is the enemy of growth.
When a property, or any good for that matter, is scarce then its price increases.
Without this scarcity, and lack of demand as a result of too much supply, new build investment properties will generally not perform well when it comes to growth.
Land to Asset Ratio
When buying a property, it’s really important that the majority of the value resides in the land component of that purchase.
This is because it’s the land that appreciates, while the building depreciates.
So if you’re spending a lot of money on a small area of land, which is most common in new homes, it’s unlikely you’ll be achieving the right growth targets.
You might already be convinced that brand new properties have more depreciation than when buying an old house for investment purposes.
You might also believe that this will boost cash flow and save on tax.
But the reality is much different.
When you sell that property, in 5, 10, 20 years time, you’ll have to give nearly half that depreciation back to the AUstralian Tax Office.
Nearly half the amount you’ve accumulated from depreciation benefits will have to be paid back, all in one sum, when you sell that property.
That’s a huge liability to carry on your back.
It’s also important to remember that when buying old property you can still get depreciation. It’s definitely worth getting a schedule done so you can save on tax through depreciation benefits.
Remember: depreciation is a side benefit of owning property and should never be prioritised as a core element of an investing strategy.
So many people will try to argue that by owning a new property, tenants will be easier to find.
This is another myth.
If more than half of all properties are owned by investors (as is so often the case with new developments) then there is going to be lots of competition between these landlords.
This means that if a tenant does leave, there will be plenty of options for them to choose from in that area.
So it isn’t necessarily the case that a new property will make it easier to minimise vacancy rates.
Maintenance on Brand New Property
Lots of investors will try to avoid maintenance costs by focusing on new property.
Yes, a brand new property is going to be lower maintenance.
However, the cost savings involved in minimising maintenance by buying a new home don’t make up for the growth you’ve sacrificed.
Ask yourself, is it really worth sacrificing hundreds of thousands of dollars in growth, for a few thousand dollars in maintenance each year?
For strategies on how manage maintenance costs and minimise the impact on your passive income, check out the video below
It might be hard to imagine where investing will take you.
While you can’t see yourself renovating, splitting or developing strategies when starting out, it’s hard to know what you might do as an experienced investor.
So many investors have started out with simple strategies.
But fast-forward ten years and these same investors are carrying out commercial developments and making so much more from it.
You can add value to established properties and make more money by doing so. This is very hard and even impossible to do for new properties.
Buying new property now may limit your potential in the future.
The bottom line…
Of course, the old property vs new property debate will depend on what kind of investor you are.
Sure, buying new property seems like an easier sell, with rental guarantee, low maintenance, and tax benefits through depreciation.
But sometimes the easier option isn’t always the best.
If you want to make money through investing, build passive income and alter your lifestyle, it’s quite clear that this can’t always be achieved by buying new property after new property.
Established property beat brand new properties nine times out of ten.