The Australian Bureau of Statistics (ABS) states that the total value of houses purchased by individual investors available for rent or resale in December 2013 was $9.15 billion. This can be contrasted with $742 million being the total value of houses constructed by investors for rent or resale in December 2013.
As property investors, we choose from many options when it comes to achieving our desired outcomes. There is no proven single path to achieve success and strategies will differ according to age, opinions, timing, retirement requirements etc. Evidence shows there is no right or wrong decision so investors should identify their favoured preference and go forth.
One of the first decisions investors need to make is between purchasing an existing property or a new one. Many believe that buying a new property is too expensive. However when other factors are considered; the price differential might not be as large as expected.
There are two main components that make up your ‘property’ – land and physical structure. Land appreciates over time and largely drives the capital growth. The physical structure (e.g. house, unit) depreciates over time, becoming less valuable.
Existing properties offer investors greater opportunity to add value, e.g through renovation or subdividing the land. The ability to negotiate on price is often higher, particularly if you find fault / damage during inspections. Buying at a price set by the market and not a developers’ arbitrary price is another benefit, enabling you to identify market demand and capital growth.
New properties offer investors lower stress and less effort than existing properties. Warranties and defect periods are in place, requiring the builder to fix certain things if they go wrong in the early stages of ownership. Investors therefore do not have to worry about capital expenditure for many years. Newer properties cost much less to own and ‘run’ than established ones. The type of tenant and willingness to pay higher rents is more prevalent in new properties. Tenants can’t say ‘the last tenant did it’ so more likely to treat the property better. One of the biggest advantages with new properties is the tax benefits via depreciation.
The actual purchase price of buying new over existing might be more expensive. However when you consider the additional costs, e.g. renovation, fixtures / fittings broken, less depreciation, higher running costs, higher chance of addressing tenant concerns; buying new might not be so uneconomic.
New properties require less time investment and stress however existing properties offer many opportunities to increase value for the seasoned investor…