A brand new property may look amazing, but is it the right move for you as an investment?
Buyer’s agent Chris Gray weighs up the advantages and disadvantages of buying brand new.
Buying brand new property has significantly more depreciation benefits than second-hand properties. You can deduct 2.5 per cent on the building alone for 40 years. This can mean an extra $10-20k+ tax deduction which will reduce the tax you pay on your salary.
Easy to rent
Tenants love new properties. They rent very well given their new clean looks and new shiny appliances.
Another attraction for tenants is the inclusion of the very latest technologies, such as reverse cycle air conditioning, automatic blinds and remote control lights.
Easy to manage
Property managers often jump at the chance to manage new properties as they don’t require the significant time investment for repairs that is often required of older buildings. Having a good property is also likely to attract a better manager.
Callout fees and labour for minor repairs add up and over the life of your investment and can really eat into your profits. Buying new means you are less likely to need repairs and most items will be under warranty, reducing your yearly ongoing costs.
Overpriced / emotional purchase
It’s very easy to fall in love with a brand new property, as it looks so perfect. An emotive decision might tempt you to pay what the bank will loan, rather than evaluating the property for what it’s worth. No matter how good it looks, if you’ve overpaid, it’s a bad investment.
Not the best location
Most of blue chip suburbs located close to capital cities are already built up with little land remaining for re-development. If there is land available, it will often be very expensive due to short supply. This means most new developments are in speculative up and coming areas, further from the CBD.
Construction and quality building materials are everything. While most new builds look beautiful on day one, if they are poorly constructed who knows what it will look like in five to ten years. When buying new, research the builder to ensure the construction is sound and that cosmetic features aren’t in place to hide low quality workmanship or poor quality building materials.
Rental guarantees / depreciation
Be wary of properties offering tax efficiencies or rent guarantees. The golden rule on any investment is never buy purely on the basis of tax, as taxes can change over time with changes in Government. Concentrate on how much the investment will make you, not what it saves you.
High strata fees
New builds often come with gyms, lifts, pools and 24 hour concierge. While these are fantastic features for tenants, for landlords they add significant costs. For example, I’m currently renting a unit where the rent is $1,400/wk and the strata fees are $500/wk. So my landlord is losing nearly a third of his income in features I’m enjoying.
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