There’s a lot of debate over whether it’s better to buy established or brand-new property. The answer is, it really depends on your situation. For investors looking for a more “set and forget” strategy – as opposed to creating sweat equity through a value-add renovation – there are some great upsides to adding a ‘brand-new’ property to your portfolio.
Here are some things to consider:
- Better tax benefits – Recent legislation changes to depreciation has made buying new property increasingly more attractive to investors. In some cases, investors are now able to claim up to $20,000-$30,000 more in tax benefits in just the first 5 years over an older, established property. This increases your chances of owning a positive cash-flow property
- Premium rent returns – Living in a brand-new property is always more desirable and tenants are willing to pay a premium which can lead to easier month-to-month serviceability on your mortgage
- Better Quality Tenants – You are more likely to attract and hold onto a higher caliber of tenant. They can also be more likely to look after a brand-new property over a property that is older and has existing imperfections
- Low maintenance – Once the initial defects have been rectified, you are minimising any maintenance issues that can plague older, more established properties. Everything is under builders or appliance warranty for many years. This can help you avoid future headaches and make a significant difference to your long-term cash flow
- Stamp Duty Saving – This is only applicable if you are making a property purchase through a two-part contract – for example a house and land package. In this instance you must only pay stamp duty on the land value component which can be a considerable up-front cost saving
There are also risks with buying off-the-plan property that should be considered:
- Finance Risk – Unless you are extremely confident about both the property purchase, market conditions, and your ability to attain finance in the future, it is generally advisable that the property be due for completion & settlement within 6 months of getting your finance approved. This will save you having to redo your loan application down the track and risk a change in circumstance which could affect your ability to get funding
- Don’t overpay – Certain developers have been known to inflate their prices to increase profit margins and cover their marketing costs. Do your research to compare what you’re buying against similar competing developments as well as the existing local market to make sure you’re paying a fair market price
- You still need to buy well – Just like with any property investment purchase, you need to make sure you’re buying in a solid area that will bring both strong future capital growth and ideally be close to positive cash-flow. You also need to be confident that you are buying from a reputable & experienced local developer
In 2019, be prepared to look at markets outside of Sydney which are more affordable, have higher performing rental yields, and solid future capital growth projections such as Brisbane, the Geelong region, and suburbs north-west of Newcastle.
Let us know your thoughts by commenting on our blog and feel free to give us a call on 0430 227 328 if you have any questions.
Article by Simon Salotti, Business Development Manager at Divitis Finance
