It’s a question as old as time itself: do new or established properties make better investments? I’m a big believer that new properties offer a raft of benefits that investors can take advantage of, though there are some things to be aware of.
As a real estate investor of more than 15 years, I’ve bought a number of different property types. Without a doubt, the most successful investments I’ve purchased have one thing in common: they were all brand new.
Investing in new properties is advantageous for a number of reasons, including:
Cash Flow & Tax: if you buy a new property it will generate depreciation-related tax claims that are worth thousands of dollars more than are available with a second-hand property. The government changed the rules around plant and equipment claims in 2017, as they relate to second-hand property. If you invest in a 6 month old property for example, your depreciation benefits in the early years could be half of those of a new property, potentially making a difference of thousands to your cash flow.
Upkeep: without question, new properties are lower maintenance. I own a property that was a few years old when I purchased it that appeared to be in good shape, but I have had issues since day one. The roof pitch was not correct, causing water leaks within the home ($3K to repair), the storm drains were deficient ($8K to fix), the shower membrane was defective ($6K to replace), and the list goes on.
Transparency: with a new property you know who the builder is, so you can undertake your own due diligence regarding their quality and track record. The property I referred to above caused me so many headaches, as I constantly had tradies in and out.
Higher returns: because new homes also have new fixtures and fittings, they have high appeal and can serve to attract a much higher rental return. In a street with a mix of property styles and ages, the contemporary homes can attract rents that are much higher than their established counterparts.
As you can see, there are plenty of benefits to buying new properties to invest in; however, risks do exist. I would caution investors against purchasing off-the-plan apartments in the current market. Although new apartments have similar benefits to those I’ve outlined for houses, they also have their own unique set of drawbacks. Particularly at the moment, buying off-the-plan units can be challenging due to lending restrictions and slow capital growth driven by oversupply. This may change in the next few years, as developers slow down building apartments.
Instead of diving into purchasing off-the-plan apartments, I suggest investors consider new master-planned communities, which have come a long way over the last 20 years. These are very well thought out, with plenty of parks and community features and covenants to ensure that the quality is top notch. Another option for investors keen to buy new is an ‘infill’ project, which is a single property built on a lot in an established suburb. These types of properties have high appeal to a broad range of tenants and, most importantly, in the medium term they offer strong capital growth prospects.
Philippe Brach is CEO of Multifocus Properties and Finance.
Philippe is an experienced property investment specialist, mortgage broker and author of ‘Creating Property Wealth in any Market’.
Contact Philippe and get a jump start on your portfolio with expert advice.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property