Should I invest in an old property or a new one? Finding the balance
01 Sep 19
Making the decision to invest in an established property or going for a new build can be tough. But considering the pros and cons, as well as factors like finding a good balance between the lot size and property improvements can make the decision easier.
In this blog, we’ll look at how to find a balance and make a smart investment decision when it comes to answering the question where to invest, old property or new?
On the go? Here’s 30 seconds of take outs:
- Considering rentability, land value and long term goals can help you decide whether to invest in an established property or buy a new build .
- New developments tend to have bigger houses on smaller blocks and attract better tenants. While established properties can provide better land value for longer term investment strategies.
- There are pros and cons to both new builds and established properties, consider all the factors to make a decision that is right for you.
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Design and layout vs size and poor rentability
To a large extent, the design and layout of a home will determine the type of tenants you’ll attract. And we know that if your property can attract good tenants, half the battle is won.
Think about it; an older property, even 7 – 15 years old (or even older) can feel dated and need general repairs and improvements. But it might be located on a large parcel of land.
But this property may be the same price as a newer, bigger property in a newer area with a smaller block. New developments generally have smaller blocks. While the footprint of the build tends to be larger. So, you get you a good-sized house needing no improvements on a smaller parcel of land.
The investment in the older property is in the ‘land value’ vs the ‘building value’.
The other half of the battle is getting the right location (yup, location, location, location). Small block or large, the location and its desirability is the very foundation of supply and demand. The location of land is also inherently linked to the future value of the land. People will always pay a premium for a well-located block of land, no matter the size.
There's a general idea that bigger blocks are better. But my challenge to you is that you find a balance between where you spend your money - land or improvement.
Thus, begins and ends the great contention between investors.
Busy tenants want convenience
Depending what you want to do with your investment property, there is an argument to both sides of the story.
In the modern world, tenants seem to be busier than ever. And for most families where both Mum and Dad work, the property needs to be convenient and easy to maintain.
Generally, when doing your research, you might come across a suburb with bigger blocks, these can be in urban areas where it is typically well-established. Areas where the house may have been constructed some time ago.
What is the ultimate goal? Cash flow or redevelopment
There are two factors to consider in any investment. There's the capital growth aspect = location and there is the cashflow aspect = accommodation. Finding a balance between the two is the challenge.
You could invest in an area where there are larger parcels of land, but the accommodation could be smaller. Investing in ‘land value’ is a great strategy if you plan to redevelop at a later stage. Keep in mind that rental cash flow could be challenging due to the tenants attracted to this type of property.
Lots of the newer type developments have smaller blocks hence the land size is more affordable. But generally, you're able to build a bigger house with the estate covenants and land coverage ratios.
It's always a better situation if you can control the process with your property investment decisions; controlling the design process and building good accommodation to cater for your target tenants in the specific area that you're investing. That’s why house and land packages can work quite well for long-term investments.
There are many ways to skin the cat (honestly, who came up with this saying!?) when it comes to investing your money in real estate. I am down with any strategy that is simple and that will achieve your goals.
Things to think about when it comes to new / off the plan vs established.
- Cash flow is typically better
- Tax deductions are higher
- Maintenance cost lower
- Easier to manage when overseas
- Control the design process
- Attract the ideal tenant
- Build in the best location can afford
- Can be a smoother investment
- Fix price build contract
- Guaranteed build timeline
- Interest during construction is tax deductable
- Turnkey / rent ready once construction is completed
- Reduction in stamp duty (Land only)
- Initial deposit and cost outlay less
- Building can be expensive
- Delays can happen
- Interest during construction
- No rent straight away
- Not all builds are turnkey / rent ready
- Extra / hidden costs if not fixed price
- Builder goes into liquidation
- Maintenance costs can be higher
- Unexpected expenses typical of older buildings
- May need to budget for renovations
- Tax benefits may be less than new property
- May be dated
- Structural issues may pop up
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