10 reasons why you should choose a Brand-New property over the Old for Investment?

Investment property is one of the safest means for creating long term wealth and achieving financial freedom. Not only there are some tax savings associated with property investment in Australia, but it also creates a source for sustainable income in years to come. Purchasers often struggle to decide between an old property with large lot size and a brand-new property with a reasonable lot size.

First-Time Investors most often get multiple advice by inexperienced people to buy an old property with a reasoning that the old property will be cheaper and that the rental yield is better, and thereby an opportunity to generate good equity with lower associated costs.

Please consider the following pointers before taking a decision on what type of property to buy. Remember, it’s your money and you’ve got to pay the mortgage repayments, not your influencer.

1. Why were you able to get a great rental yield? Remember rental yield is yearly rent/ value of the property. Means either the rent is too good or selling price is too cheap. Most often the tenant will not be willing to pay a higher rent for an old property, means it’s the later.
2. In today’s scenario, when we are in rental crises, every property can fetch a decent rent. Will this trend continue forever? No one knows!! If it does not, remember, the best-looking properties will be the first to be leased and will command a better rent and no one would touch these old properties – be it house/ townhouse/ apartments. Who wants to live in an old stinking house, except for the circumstances when there is a crisis!
3. The other reason of good yield is low value of purchase. Remember, the average rental yield across residential is 4.5%; if you are getting a high yield property means that the vendor is ready to sell their property for lower value and hence generating a higher yield. Point to be noted here is, if the vendor is currently unable to fetch the average rental yield for their property and have to lower the price to exit the investment, for a property say “X” years old; how would you be able to sell the same investment property “X+20” years old!! This property will be a pain in the neck going ahead.
4. You buy investment property so that you can save tax and grow wealth! The depreciation is available only for 20 years and hence these old proprieties will not give you any benefit in terms of tax-saving, as opposed to a new property which will give you depreciation benefits for next 20 years ! How much is the depreciation benefit? Say your property generates a depreciation of $20,000 per annum and considering you are in a 43% tax slab, you save $8600!!! This could be your yearly overseas trip or a family vacation.
5. The property is at its best for 20 years when it doesn’t require any major repairs. That’s the reason your builder covers you for 20/25 years in terms of warranty!! They don’t want to be repairing houses at no-cost to you. They are aware, most of the houses will not have repairs for the first 20/25 years and it’s only after this that the tradies would start frequenting your house. You don’t want to enter an investment where you start feeding the tradies!!
6. Investors think a larger land would make more sense!! Probably a sub-division years later or a granny. Remember, you are an investor and not a builder to carry out these jobs. Do you have the time, effort, energy to carry out these time-consuming tasks or you want a hassle-free investment which gives great results. As an investor you want to build a portfolio of brand-new properties which delivers depreciation benefits and are possibly positively geared (at least able to pay their mortgage repayments). Keep these proprieties for 20/25/30 years and then sell them as mortgage free assets thereby reaping the benefits of appreciation and paid-up principle.
7. In brand new properties, you are buying a house/apartment/ town-house in a brand new estate; meaning brand new roads, in the company of brand new houses and a beautiful neighbourhood. As opposed to the old property which is in-between old-looking houses with no design guidelines for the neighbourhood.
8. When you buy a brand-new house in a brand new estate, you participate in the growth story of the neighbourhood. You see the neighbourhood growing with you and thereby your investment. As the surroundings gets populated, the schools/ parks/ town centre/ and other social infra gets expanded which results in exponential growth of your investment. After about 10/15 years when the infra is at its peak, it’s the time for owner occupiers/ first home buyers to come in. Remember, investors are visionary. They see what owner occupiers don’t and that’s what sets them apart.
9. The technology is continuously upgrading!! The current technology of construction is far better than what use to be 30 years back. Old houses had problems like termite etc which is far lesser in the new builds. You don’t want to be doing termite and other periodic treatments and making the pest control companies richer.
10. Ask yourself a question, as an owner occupier – would you want to buy a 20/25-year-old house built by a reputed builder or a 50/55 years old?

REMEMBER YOU ARE BUYING AS ASSET WHICH YOU WOULD WANT TO OWN FOR NEXT 30 years!!

BETTER BE A PROPERTY WHICH CAN STILL BE RELEVANT IN THE MARKET WHEN YOU WANT TO SELL IT!!