Old property vs new property – which is a better investment?
Mortgage explainers | 17 November 2020
One of the most common questions for new property investors is, “Which type of property performs best, a new property or an old, established property?”
While there are pros and cons to each approach, ultimately the value of a property is influenced by a variety of macro and micro fundamental factors.
To explain the pros and cons of both strategies, we spoke with Bradley Wearne, General Manager and Head of Research at Property Investment Consultancy Meridian Australia.
Old property
Pros
- 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 to purchase than a new property.
Cons
- Maintenance. An older property may require upgrades and repairs due to wear and tear on the property over time. This could negatively impact your profit if a major renovation is required. Should this be the case, it may also lead to 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 Established properties typically have less appeal than new properties as they may have an outdated design which may have a detrimental impact on saleability.
New property
Pros
- Government incentives. Your state may have stamp duty concessions and grants available for first home buyers when buying off-the-plan, which could significantly reduce your upfront and ongoing costs.
- Peace of mind. Builders of new properties in Australia are required to take out comprehensive 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 of 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.
Cons
- 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, 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.
Ready to get started on your property investment path, or looking to develop your property portfolio? Ask your Nectar broker to put you in touch with an expert Property Investment Consultant. We’d love to hear from you.
