One of the first questions home buyers typically ask themselves is whether the house they purchase should be a brand new build, or a pre-owned home. This question is even more important for property investors, who are aiming to use the property to build their wealth, achieve financial independence and possibly fund their retirement.
With the Housing Industry Association (HIA) announcing that new home building approvals hit an all-time high in March 2015, it's a matter more pertinent than ever. So which of these two types of properties is likely to get you the best return? The following are the pros and cons of each.
Established houses offer a number of key advantages for investors. For one, settlement tends to be quicker - usually around 42 days - and renting can start on settlement, which means you can begin earning a rental income faster.
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Older properties also offer the possibility to drive up value by carrying out renovations. A new home is typically built with all modern needs in mind, including insulation and aesthetic features. By contrast, an older property may need a slight facelift in certain areas, which - as long as it's not too expensive - can add significantly to its eventual sale price. Nonetheless, it's a good idea to have a rental appraisal and pest inspection carried out before you buy ,so you know what repairs are necessary and have a better idea of what kind of return you'll get.
With an established property, you're also not having to wait for what can be a time-consuming building process. According to the Australian Housing and Urban Research Institute's most recent estimate, a detached house takes an average of 7.5 months to construct. You won't need to wait for land registration either, making the process much quicker.
By contrast, one of the biggest advantages to pursuing a new home is the depreciation benefits that come with it. Newer properties come with higher depreciation rates - the fall in value of of features like fittings, fixtures, appliances and the structure of the home. With a depreciation schedule drawn up, this loss can be used to lower your taxable income, increasing your cash flow. This will help reinforce the savings you make on stamp duty, which is charged on the land only in a house and land package.
And while the opportunity for renovations may not be on the cards, this may not be a bad thing. Long term capital gains are often a more dependable property methodology than short-term flipping, and this also means your property has less chance of needing significant repairs. Builder's warranty will protect you from poor workmanship, while it can also alert you to any maintenance needed down the line. By contrast, an older property could have many unknown, expensive issues, leaving you with higher maintenance costs.
Don't forget that more modern home built with energy efficiency, up-to-date technology and sustainability in mind has the potential to attract a higher calibre of tenants, allowing you to charge more. You may even be able to customise the home to a particular buyer, if it hasn't been built yet.
Newer properties are typically more attractive to tenants.
Finally, a new property may end up helping you make a better decision. Because there's no home to visit, the potential to get emotionally invested is less. Rather, you'll be basing your choice on the data and facts available.
If you are thinking of building a new property, remember to work with the right professionals. DPN will connect you with builders who offer guaranteed build times, as well as rental provide rental guarantees and a sound selection methodology.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879. Casa Capace Operations Pty Ltd, NDIS provider number 4050038018 trading as Casa Capace.