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Is it better to buy a new or old investment property?

Whether you buy a brand new property or an established one as your investment, you need to have a clear strategy in place.

Are you better off investing your hard-earned cash into an older, established property or buy a brand new house off the plan? An older property may require more maintenance but could give you more options to renovate and add value. Buying new offers some potential tax incentives and might have more appeal to a tenant.

There's no wrong answer here. It depends on what you want from your investment.

The benefits of buying a new property

  • Depreciation benefits. If you’re an investor, the newer the property the higher the amount of depreciation available to you. You can deduct 2.5% on the property itself for 40 years which can lead to a significant tax deduction. Appliances such as air conditioners and dishwashers generally have a high rate of depreciation. For more information about the tax benefits available to you, visit the Australian Taxation Office (ATO) website.
  • Tenant appeal. Typically new dwellings are perceived to be higher quality which means you may have greater tenant appeal. This is because tenants will be attracted to modern appliances and technologies such as reverse cycle air conditioning and will be prepared to pay a premium. The ability to attract high quality tenants could mean that you lower the risk of untenanted periods for your investment property.
  • Protection. Builders of new properties in Australia are required to take out home warranty insurance which protects you in the event of a major building defect.
  • Low maintenance. When you buy a new property, you can benefit from the convenience of not having to spend money on repairs or ongoing maintenance.
  • Security. Most items for a new property are under warranty which means you can minimise your ongoing costs as they are covered by builder’s warranty insurance.
  • 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.

The downsides of buying a new property

  • Less affordable. Depending on the location and property type, new dwellings are generally more expensive than established dwellings which could mean that you struggle to meet your repayments. In addition, new properties often have high strata fees associated with maintaining communal facilities such as gyms and pools which could harm your cash flow.
  • Limited value-adding potential. There is little opportunity to add value to the property once you’ve purchased it so it may take longer to achieve capital growth.
  • Greater market risk. New properties are often the first to see price declines when the market softens, while established properties will either maintain their price value or experience a minimal adjustment.
  • Build quality. This depends on the building in question, but many new builds are of lower quality than older buildings. This is something you need to judge on a case by case basis.

The benefits of buying an old property

  • 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. These renovations are often tax deductible.
  • Affordability. An established property is generally more affordable than a new property which means that you may be at less risk of facing mortgage stress levels. Enter your details in the calculator below to see how much you need to earn to live in the suburb of your choice.
  • Property history. Historical data about the property will give you an idea of how the property value has changed over time which can help you make an informed decision.
  • Negotiating power. When you buy an established property, you have the ability to negotiate for a fair price. Vendors of established properties often have a motivation to sell relatively quickly so you can use this to your advantage to negotiate a bargain.
  • Capital growth. Generally a well-bought established property will outperform the averages over the long term and experience high capital appreciation which will benefit your long-term cash flow.

The downsides of buying an old 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, this could mean that you risk loss of rental income if tenants need to temporarily vacate.
  • Lower rental return. If the property is run down, the rental return will typically be lower compared to a new property.
  • Less appeal. Established properties typically have less appeal than new properties as they may have an outdated design.

Buying new or old: Which is right for you?

You may end up paying more for a new property than an old one. But a new property may have more appeal for potential tenants. And if you live in a brand new property first, and you're a first home buyer, there are big stamp duty savings on offer.

There are fewer tax benefits when buying an established property, both in terms of depreciation and stamp duty savings. You may need to spend more to keep the place maintained too. But an older, established home with renovation potential in a good suburb could represent the best long-term value as an investment.

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Written by

Belinda Punshon

Belinda Punshon worked for Finder as a writer on home loans and property and as a corporate communications executive. She has a Masters in Advertising, Public Relations and Journalism from the University of New South Wales and a Bachelors in Business from the University of Technology Sydney. See full profile

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