When looking to purchase an investment property the choice is not only about deciding to buy a unit or a house. You also have to decide between new or old. There are advantages for both styles of properties, and it really comes down to your short and long-term objectives. Where you intend to purchase your investment will also influence the type of properties that are available.
New investment property
Purchasing a property off-the-plan, which allows you to lock in today’s prices for a property that may be finished in a year or two in the future, can be an effective investment strategy as you will not have to make any mortgage repayments until the property is ready for occupation. The only cost will be the deposit.
Other plusses to buying new are:
- Quality construction
- Modern design with better energy efficiency and sustainability features
- Attract quality tenants willing to pay a premium
- Lower vacancy rates
- Lower maintenance costs
- Higher claimable depreciation value
- Generally a better resale value
- Structural guarantees and warranties apply
The key potential pitfall with an off-the-plan purchase is that there is no guarantee that the property you buy today will have grown or even maintained its value. The downside of this is that your lender may not be willing to fund the entire purchase price, which will leave you with a shortfall.
There are also pros and cons associated with the purchase of an existing property.
One of the key benefits is that during a slower market you might have greater scope to negotiate on price. In addition, you may be able to add value through renovation, which will modernise the investment property and possibly help you achieve a higher rental return.
Other plusses to buying old are:
- Opportunity to ‘pick up a bargain’
- Stronger performers in slower markets
- Established historical sales data
- You pay a premium for new properties
On the down side, older properties may require more maintenance or have serious structural issues, which can be expensive to fix. It might also be more difficult to attract tenants to an older investment property.