Some investors wouldn’t even consider buying a brand new apartment off the plan, while others would swear by it. So, what do you think?
Just like there are different property investment strategies, there are other considerations when investing in property. City or country? House or apartment? New or established? The list goes on.
Here I examine the pros and cons of both to help you work out what might be best for you.
Pros – New
- Tax deductions from depreciation are hugely attractive, and the benefits are greater the newer a property is. This is because depreciation benefits apply not only from fittings and fixtures but also from capital works;
- For time-poor investors, a new property should present fewer maintenance issues once the property is tenanted;
- Defects or problems with the property should be covered by the builder warranty or builder’s insurance for a period of time;
- Newer property is likely to attract a higher rental return from tenants willing to pay a premium for modern accommodation; and
- There may be stamp duty savings or first home owner grants (if you’re able to live there for a period of time) for new builds or purchasing off the plan.
Cons – New
- Brand new apartments are likely to be more expensive to purchase, especially if they are sold by developers who are essentially professional vendors that have designed the apartments to be on-sold at a premium;
- It may take longer to realise capital growth because the initial cost of the property may have been at a premium;
- There is little to no opportunity to add value through renovation or improvements in the foreseeable future;
- If the market dips or there’s an oversupply of stock through other developments in the area, you could find your property value flattens or is worth less than you’ve agreed to pay even before you take ownership; and
- Beware of higher strata levies in new or more modern apartment buildings. Although they are tax deductible they could have a big impact on your cash flow.
Pros – Established
- Price fluctuations are likely to be less than new properties in the same area;
- There is more opportunity to add value through renovations or improvements which may also be tax deductible;
- They may be more affordable to purchase and therefore suitable for beginner investors; and
- Established historical data will give an indication of how the property has performed previously and its value over time.
Cons – Established
- There may be higher maintenance costs as wear and tear and general age of the property requires greater maintenance;
- Potential for loss of rental income if major work or improvements need to be carried out;
- The rental return may be lower if the property is run-down or outdated; and
- Tax benefits from depreciation will be lower on an older property.
Have you recently bought an investment unit? Tell me if you went for old or new, and why, in the comments below.
If you found this article useful please share it using the buttons below.