New vs. Old
In general, which is the better investment, new property or old?
Maximising return is central to a successful property investment strategy, but is only half the story.
Minimising expenditure is also a key element and is one area in which older properties tend to struggle.
Many people take one look at the craftsmanship and care that was taken in the construction of older homes and fall in love. They don’t look beyond those emotive first impressions and fail to see past that fresh coat of paint.
Unlike new properties that use capital growth and rental income in the first few years to build up a buffer against the cost of future maintenance, owners of second-hand properties are faced with immediate maintenance outgoings (sometimes payable even before tenants move in).
The costs of maintenance and repair to older homes can swell ongoing expenses quite significantly.
Optimising your tax position
Look over your tax returns and you’ll soon see another reason to buy newer homes rather than older counterparts.
The depreciation scale for new homes provides far larger tax incentives to investors and the difference can amount to thousands of dollars in just a few short years.
Measured over a five year period, the depreciation gap between a new property worth $360,000, and an older one similarly valued, can be more than $25,000.
Increasing your rate of return
Assuming average outgoings, and a borrowing rate of 7%, your cumulative cash investment also varies enormously between old and new properties.
On a $360,000 older property without fixtures and fittings depreciation or building allowance, and assuming a maintenance bill of $2,000 a year, your cumulative cash investment could increase by more than $35,000 over a ten year period in comparison with a new property that provides maximum taxation allowances and lower maintenance costs.
Whilst the gross equity would remain the same, your real rate of return on investment could decrease significantly due to increased holding costs.
In most cases, new properties win hands down.
Whether new or old, the quality, location, style and design of the property, together with its compliance with local market demands, is paramount if you are to achieve maximum results.