From low maintenance and modern efficiencies through to tax advantages, there are many reasons to invest in new property
There really isn’t anything quite like entering a brand new property. Similar to a new car, there’s something pretty special about a new house or apartment, from that fresh paint smell to the shiny new finishings and newly laid carpet.
But new properties aren’t just attractive aesthetically; they’re also an attractive investment option for many property investors, including myself. Here’s why:
This is probably the most important item. As an example a new apartment worth $400K, at current interest rates, generates between $6K and $9K tax rebate, depending on various factors, including the investor’s marginal tax rate and assuming stable interest rates. This will make the difference between having a cash flow positive property and a cash flow negative one. In the initial years, the amount of depreciation decreases sharply and then stabilizes in year 8 to 10. At the same time, rent increases over time, and in a round-about way compensates for the falling depreciation. As a result cash flow is pretty stable in the initial years. When depreciation deductions level off in year 8-10, and rent keeps increasing, cash flow improves dramatically.
As a result, while tax benefits shouldn’t solely drive investment decisions – capital growth should - they are definitely part of the equation to help an astute investor with cash flow in the initial years.
All investment properties
qualify for ‘capital allowance’ or ‘building allowance’ depreciation, which is related to the actual building itself.
Other items that can be claimed against include carpets, furniture, appliances, air conditioners and blinds.
Low maintenance and low cost
Generally speaking, a new property requires very little maintenance, compared to a property that’s say 10, 20 or 30 years old. All of the features and appliances are going to be in good condition and it’s highly unlikely an investor will have to face any of those issues that come with older properties such as mould, failing appliances, rising damp or a leaky roof.
For investors, this is not only a convenience; it’s a very real advantage, because unexpected repairs and maintenance issues can wreak havoc with cash flows!
Security of cash flow is ideal for any investor, but especially for first time investors still adjusting to life with a mortgage, or investors who really like to ‘set and forget’. And so often a new property is ideal for these investors.
Certainly, a new property is not a guarantee against maintenance issues, but typically speaking, investors face much fewer repair headaches with new properties compared to older properties.
Investing in a new property can be a great way to secure good, long-term tenants. Like I touched on above, new properties have a particular charm about them that certainly extends through to potential tenants, not just buyers.
Renters love new properties and the opportunity to live in a brand new home is very alluring. New properties boast many mod cons which older properties lack, such as air conditioning, built-in wardrobes, security elevators and garages, dishwashers and more.
Furthermore, new properties typically feature modern designs and efficiencies, such as open plan living, MPRs (Multiple Purpose Room) – big draw cards for tenants, and usually these features will a prospective tenant over if they’re tossing up between a new property and an older one down the road.
And of course, all of these modern features enable the investor to charge a premium rent!
Remember, not every new property is going to be an ideal investment, but selected well, a new property can offer a stable, low-maintenance, hands off tax efficient route towards financial freedom.
Join Philippe for his next Free Property Evening in Sydney on 5th May, with special guest Craig James from CommSec.