The most common question among investors is which type of property performs best, a new property, or an old property?
While there are pros and cons to each approach, ultimately the value of property is influenced by a variety of macro and micro fundamental factors.
This article will assess the pros and cons of each property type.
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.
Affordability. An established property is generally more affordable as compared to a new property.
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, but this could also mean that you risk the loss of rental income if tenants need to temporarily vacate.
Lower rental return. If the property is dated and run down, the rental yield will typically be lower compared to a new property.
Dated design. Established properties typically have less appeal than new properties as they may have an outdated design which may have a detrimental impact on saleability.
Government incentives. There are stamp duty concessions and grants available for first home owner grants when buying off-the-plan which could significantly reduce your upfront and ongoing costs. More recently, the announcement of the Government Homebuilder scheme offers a further incentive to purchase new property. To read more about this scheme and to see if you are eligible see here.
Peace of mind. Builders of new properties in Australia are required to take out home warranty insurance which protects all purchasers in the event of a major building defect.
Depreciation benefits. If you are an investor, a new property offers greater depreciation benefits which may translate to a substantial tax deduction. Read more about what can be claimed on a new home here.
Rentability. Typically new properties are perceived to be higher quality, which, more often than not increases the appeal to tenants. This is because tenants will be drawn towards properties that are equipped with modern appliances and technologies such as reverse cycle air conditioning and other modern conveniences. The ability to attract high-quality tenants could mean that you lower vacancy risk and potentially command higher asking rents over older comparisons within the market.
Low maintenance. When a new property is purchased, you generally do not have to worry about spending money on repairs or ongoing maintenance that often presents in older properties.
Less affordable. Depending on the location and property type, new properties are generally more expensive than established properties.
Limited value-adding potential. When looking at house and land packages, the general trend is that land sizes are decreasing in comparison to an existing property in established suburbs. The downside of this is that new properties may have a reduced capacity to add value in the way of a land subdivision or extension at a later time down the track.
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Bradley Wearne - General Manager & Head of Research at Meridian Australia
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.