So you’ve made the decision to invest – next comes the property hunt! The only question now is, should you buy a new, or existing property? I personally have taken both approaches and have seen success in both new and existing property. I know the decision can be tough, and there are a lot of things you need to take into consideration. That’s why, to help you weigh your options more thoroughly, I’ve put together some key benefits and considerations that investors need to be aware of before making a choice!
New Property
Benefits:
- Cheaper, smarter and easier option if you have no time or inclination to renovate.
- Easy to invest and forget. Little to no investment of time and effort.
- Capital expenditure is small, particularly in the first 5-6 years. Looking at a property worth $500,000, you’ll likely only spend under $5,000 per year to keep it running.
- Ideal for those wanting to rent the property out as it’s in perfect condition to do so from the get-go, and usually have low vacancy rates.
- You’re buying a property that comes already equipped with quality structure, modern detailing, energy efficiency, and sustainability.
- Attracts high-quality tenants.
- Builders warranty.
Considerations:
- When the market slows, so does your rate of growth. New apartments and houses can potentially be the first to see prices drop.
- The initial purchase price is often higher than it’s perhaps worth, to take into consideration developer fees and hype around the property – particularly relevant for new apartment blocks. To make a profit, the demand for that property will need to be high at the time of sale.
Existing Property
Benefits:
- If you’re someone who has experience, time, knowledge, skills and the dedication to renovate, this is a great option for you as it plays to your strengths.
- Great way to add value to an established property and make profit.
- You can often pay significantly less than what it’s actually worth if the physical structure needs some work.
- More room to negotiate on price.
- Strong performers in slower markets.
Considerations:
- Do you have the time or desire to spend months on end renovating a property?
- Due to the extra tax benefits you can claim on a new property, the ongoing holding cost of owning an old property works out to be around 3x the cost it would be for a new property of the same value.
- Capital expenditure is much larger. Looking at a property worth $500,000, you’ll potentially spend over $5,000 a year to run an older style property.
- Larger investment of time and effort to maintain.
There you have it! While there are plenty of pros and cons of each, there’s obviously no clear cut answer that will work for everyone. It truly does come down to you and your personal game plan. Remember to think carefully about this! How much time and experience do you have to commit to your investment? Which choice truly suits your lifestyle and personal cash flow requirements best?
Have a question? Feel free to leave a comment below!
Until next time,
Sasha
