Is it better to invest in an established property or buy brand new?

new v established investment property

It’s the age-old property investment debate – buy an established property full of potential, or a new property that delivers instant tax incentives.

The answer, of course, depends on your priorities.

Let’s break it down.

The appeal of the new

  • Depreciation benefits: Anyone who owns an investment property is entitled to claim the depreciation of both the building and its contents against their taxable income. The newer the property, the higher the depreciation benefits. As a result, new property ownership can offer considerable tax benefits to owners and a greater chance of positive cash flow.
  • Tenant appeal: The light, space and convenience of new properties in inner-city locations can be very appealing to tenants. Usually high-income tenants are willing to pay a premium for shiny new properties in great locations.
  • Low maintenance: New properties can be an appealingly low-effort investment. They generally have lower maintenance costs, and if there does happen to be a defect then you should be covered by the builder’s statutory home warranty insurance, which protects the purchaser against major building defects.

But remember…

Sometimes the cost of purchasing a new property can be higher than purchasing an established property in the same location, as developers may need to cover their profit margins. New properties also offer less potential to add value through renovating, since most of the work has already been done.

When old is gold

  • Equity creation: Buying a workable old house that’s full of potential means you can renovate and build equity further down the line. As long as you do your sums and don’t overcapitalise, renovating can add instant value.
  • Value: Older, established properties tend to come with larger blocks of land, which can offer greater potential for capital growth in the long term. You may also find it’s easier to determine the ‘true’ market value of an older home for a couple of reasons – they come without any extra costs or profit margins set by the builders, and sales of comparable established homes in the area are a fairly reliable indication of value (newer property can be harder to value if there’s nothing to compare it with).
  • Location appeal: Established homes in charming suburbs have an enduring appeal and are usually a good bet for future investment success. 

But remember…

Older properties come with higher maintenance costs, and if you don’t keep them in good nick you may find it harder to attract good tenants. Lower depreciation values also mean less significant tax benefits.

Ultimately, it’s not really about ‘new’ versus ‘old’. Your first priority as an investor is determining the best location in which to buy. From there you can identify which property is in demand in that area and make a decision that fits the bill.

Need help finding an investment property in Sydney?

When you do take that all-important leap into property investment, contact property management experts K.G. Hurst to find out how they can help manage your investment.

Image courtesy of tungphoto / FreeDigitalPhotos.net

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