Is it smarter to sink your cash into an older property that can be improved via renovations, or a new property that delivers instant high tax incentives?
It’s the age-old question that plagues property investors across the country: is it smarter to sink your cash into an older property that can be improved via renovations, or a new property that delivers instant high tax incentives?
It’s a query that real estate agent Luke Woollard from www.thepilots.com.au fields on a regular basis, particularly from investors who are new to the property game.
While Woollard agrees that there are advantages and disadvantages of both types of investment, he points out that there’s no definitive “right or wrong answer”, as it ultimately depends on each investor’s own strategy and goals.
To help you decide whether the next piece of real estate you buy should be an established home or a brand new property, Woollard offers the following advice.
3 reasons why new property pays dividends:
Reason #1: Appreciation of depreciation
If you own an investment property, you’re eligible to claim depreciation on all items of eligible plant at the property – and the newer the property, the higher the level of depreciation available to you. Appliances like dishwashers, heaters and air conditioners, carpet floor coverings and more have high rates of depreciation. “Each property will have different rates of depreciation according to the size and inclusions, but new and renovated properties have the highest rates of depreciation,” Woollard says. “As a result, new property ownership can have significant tax benefits for the owner.”
Reason #2: Ideal tenant appeal
Tenants often seek quality new homes, “particularly in city and coastal locations”, Woollard says. “Often you'll be able to find a tenant prior to construction completion.”
Reason #3: Mandatory statutory warranty
“Builders of new homes in Australia are required to carry statutory home warranty insurance,” he says. “This protects the purchaser for a number of years in the event of a major building defect. As a last resort, you can also make a claim against the insurance to rectify defects if your builder fails to meet their obligations.”
3 reasons why old is gold:
Reason #1: Readily add equity
When you buy an older property, you should research what land and building costs are in the area and assess this against the property asking price, Woollard advises. “An advantage of buying workable older homes is that you can renovate and extend to create equity. Renovations can be achieved more quickly than rebuilding completely and if you do the sums right, you'll add instant equity.”
Reason #2: Concealed appeal
“Sometimes, older homes hide great features that newer homes simply don’t offer, like brilliant hardwood flooring underneath daggy old carpets,” he says. When researching an established property, be sure to poke around and ask as many questions as possible so you can try and unearth the hidden features.
Reason #3: Location fixation
“Many established suburbs have a charm and appeal that is not easily replicated, and which ensures a continued demand from owner occupiers and tenants,” Woollard says. “For example beachside Mornington in Victoria has a historic appeal and glamour. Buying a home in a charming established area is a sure way to investment success.”
“When you are ready to buy, whether its old or new, make sure you are fully informed,” Woollard says. “Many classified real estate websites have built in price and area information. Make sure you speak to some local real estate agents who can offer a vast reserve of helpful information.”