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Old vs. new debate settled: which is a better investment?

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Your Investment Property | 23 Jan 2013, 12:00 AM Agree 0
Your Investment Property tests whether old properties trump new properties or vice versa. While opinions differ, the arguments speak for themselves
  • Frankle | 15 Aug 2013, 08:44 PM Agree 0
    'New properties attract higher tax claims due to having higher depreciation'
    um - the ATO changed the term 'depreciation' after excessive use by property spruikers, to its more correct meaning 'loss of value' - buy new so you get lots of loss of value - right ?

    'New properties ... no unexpected maintenance issues ... Everything is under builders or appliance warranty for many years' - I think I read 95% of new buildings (particularly strata unit complexes) have building faults, and developers have typically been very canny to ensure they avoid any liability during the ?5 year warranty period - e.g. by using sales contracts that give control of the owner's committee to the developer 'to ensure smooth running' until the 5 years are up - after which claims are met with 'gee - sorry - I'd like to help but it's out of warranty!'
  • Wayne, Real Property Advice | 16 Aug 2013, 12:01 AM Agree 0
    As independent property advisers we're rather unfazed about being firmly in the new or established property camp. We'll happily advise on both new and established properties, provided they suits the client's individually planned property strategy and are safely within their risk profile and borrowing capacity. It's certainly true that each has their pro's and cons so my comments still recognise this.

    However, I'm distressed to read yet another 'property person' advocate new property, largely for the taxation benefits. Now, I'm not saying that the tax outcomes of a property investment should be ignored but to list them as the number one reason is a tragedy and possibly negligent. Yes, net cashflow is critical but how can a tax strategy be equated with an investment strategy - in any asset class? Surely, the key to any investment is its fundamental capacity to (out)perform in an open market and not how it's treated by the ATO - which is largely an outcome which cannot be controlled. Don't forget that established properties and fixtures can also be depreciated even if not as highly as new.

    In many cases, the reason stock providers recommend new properties exclusively are the high commissions offered by builders, developers and marketing companies appointed to sell their stock.

    How's it possible that 100% of the property investment needs of 100% of investors are best served by new properties which probably make up less than 15% of all properties available on the market? What new property advocates are saying is that only 1 in 7 properties for sale will make the best investment for you which means that 6 out of 7 should be automatically excluded. Really? Defies logic doesn't it?

    The second reason touted is the appeal of new to owners and tenants. Well the ratio of owners to tenants is still roughly 70/30. When considering your exit strategy (interestingly, this wasn't mentioned), which market would you prefer to sell into? Naturally, the larger so shouldn't this also be taken into account? Let me state a property heresy - or, maybe, dispel a property myth. High rental demand alone is no guarantee of long term investment success. It's the same lie that says, as a stark example, that houses in mining towns make great investments. Yes, shortage of accommodation can create (artificially) high rents but what happens when supply increases and/ or demand drops away as has happened quite recently? Rents fall dramatically and values follow accordingly - a double whammy almost overnight. There are many ignorant or poorly advised investors feeling this exact pain today.

    Tenants move to such locations for work. Most wouldn't care to live there otherwise. Investors should question just because a remote town is surrounded by a dozen holes in the ground whether that makes the properties there investment grade - even if the rents are artificially high. In many cases, the rent are not paid by the occupant but are heavily subsidised by their employer. Either way, above average rents reflect above average incomes so they couldn't be afforded by locals not earning those incomes. The resale market is then limited to new investors buying the hope that those rents will remain or even rise. How many investors have the stomach for micro markets with that level of risk and volatility?

    Irrespective of your current preference it's likely it will change as your circumstances and/ or the market conditions and opportunities also evolve - or you may want to spread your portfolio across different property types, even in different locations. Beyond new and established there are still other factors to consider. Also research the property styles, locations, rents and underlying demand, social and hard infrastructure, demographic trends, historical performance, availability of finance and price range that best suit you and your needs and avoid dogmatic arguments that are generally unhelpful.
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