Maximising capital growth should be the main objective for any property investor. However, the best path to get there is rife for debate.
If you’re searching for the next investment, you’ll be faced with a choice between new or old property. While both options have their advantages, they are also several drawbacks to consider.
Everyone in the property industry has their own opinion and advice can differ wildly depending on who you talk to.
In this article, we’ll distil the arguments from both sides of the debate to help you determine which property type is better suited to your investment strategy.
Investing in New Property
- Low maintenance overheads: Newly-built homes should offer lower maintenance costs as things take longer to break down. Older properties are at higher risk of requiring repairs and will usually get more expensive to manage over time.
- Tax benefits: There are several tax benefits available for property investors, including tax deductions for costs such as furnishing. Additionally, the newer the property, the better the tax depreciation benefits are for investors.
- Availability of government incentives: Government incentives like First Home Owners Grant are only available when purchasing a new property.
- Equipped with the latest technology: A new house will often be fully equipped with the latest technology and features, meaning you may have access to solar panels, smart appliances and app-controlled security systems. Newer homes are also typically built with better insulation and lighting, which can help reduce your energy bills.
- Looks attractive to tenants: Newly-built properties are appealing to tenants and create increased demand for the home. A larger rental pool will draw higher rental prices and allow you to be more selective when choosing high-quality tenants.
- Expensive: New properties come at a premium and can be unaffordable for some buyers. A higher purchase price can also subdue the long-term capital gains of your asset.
- Greater market risk: New properties are the first to get affected when property prices start to dip. Prices for older properties tend to be sturdier and are less vulnerable to external market factors.
- Limited value-adding opportunity: Renovations or improvements to new properties add far less in value and will take longer to return any capital growth benefits.
- Limited land component: The land-to-asset ratio is weaker in new properties due to the physical costs of the asset itself. As land historically grows in value and the building itself depreciates, a smaller land component will often lead to comparatively smaller capital gains.
Investing in an old property
- Relative affordability: Compared to buying a new property, an established home will usually help you enter the market at a cheaper price point.
- More land value: An old property will have a high land value in comparison with the building value. Older properties also tend to be in areas closer to the city, which can lead to the land becoming increasingly sought after over time.
- Character: Character is a vital factor that draws the attention of many buyers. Old properties may have a historic value consisting of distinct architectural features and are often situated in attractive and desirable areas.
- Potential to add value: Older properties can present plenty of opportunities for investors who are willing to rebuild or renovate. This can add enormous value to the property, particularly for run-down or less desirable homes.
- Capital growth: Due to a greater land-to-asset ratio, established properties tend to draw higher capital growth appreciation when compared to new properties.
- Established infrastructure areas: Old properties are generally located in established areas with easy access to schools, hospitals, shops and the CBD.
- Higher maintenance costs: Holding onto an old property will inevitably come with the burden of ongoing maintenance and repairs. Buildings progressively break down over time, and servicing these problems can prove time-consuming and costly.
- Less appealing to tenants: Old properties aren’t usually equipped with the latest technology, amenities or designs, which can lead to weaker demand from tenants.
- Lower rental return: Old properties tend to have lower rental returns compared to newer units, in part due to lower rental appeal and higher land value.
- Lower depreciation write-offs: Changes made to the tax legislation in 2017 have added greater restrictions on the tax benefits available for second-hand properties.
So which one is better?
Ultimately, the choice between new and old property for your next investment will come down to your individual circumstances.
If you want a competitive rental yield or don’t want the burden of ongoing maintenance, new properties can be a good option for investors.
However, when it comes to long-term capital growth, established properties have historically been a much better alternative. The location of your property will be the biggest factor in performance, so extensively analyse the potential areas for your investment.
If you are opting for a new build, do your due diligence on the builder to ensure the quality of your purchase.
Always do the appropriate research before making any property decision and consult professional advice when necessary.