Why Is A New Home Investment Better Than An Existing Home Investment?
When looking to invest in property, your primary aims are to get the best possible return and to keep your money safe. This is exactly why new property is such a great investment strategy. Let’s look more closely at why that is the case.
Capital Growth
If you invest in a property in an area that is still up-and-coming, rather than an area that is already well-established, then you can benefit from much greater levels of capital growth. Buying a property in an area that is already very popular means that long-term capital growth may be reaching its peak.
One way to look at it is to consider yourself a pioneer. Think about the people who bought land when Australia was first being colonised. They were the visionaries who saw what the country could become.
Investment is all about getting in at the right time to take full advantage of what's happening. Take Parramatta, for example. When it was first built, Parramatta was a long way from Sydney. Now it has become a second central business district for the city.
The same applies to Newcastle. Twenty years ago, who wanted to live in the Newcastle area? It was miles from Sydney. Now it is the second largest city in NSW, has been completely revitalised and is still growing.
When you invest in an area where people will move to in the early stages, before it has become popular, you can have a lot of growth. Growth means profit, and that money is better off in your pocket than in someone else's!
Depreciation
When you buy a new property, you can claim depreciation on everything over a longer period of time. With existing properties, there is very little to claim, unless you pay for new items to replace those that have run their course. If this is the case, then you will have already incurred extra expenses.
In July 2017 the rules changed. Before that date, if you bought an existing house as an investment and that house was five years old, you would be able to keep claiming the depreciation from when it was new. This covered everything from hot water systems to carpets to swimming pool pumps. However, what happens now is that, unless you have paid for whatever that item is, you don't get to claim much depreciation at all.
With a new home, you can claim depreciation on everything, including the building itself, all the fixtures, all the fittings and all the furnishings such as the floor and window coverings. That's a really big saving.
In fact, you can actually get lots of tax benefits by claiming that depreciation because it comes off the taxable income that you get from the property. So, it means you may well be able to reduce your taxable income substantially.
Gross Return
With a new property, the gross return will be almost equal to the net return, whereas with an existing property you will always be dipping into your pocket to carry out repairs and maintenance, which pushes your net return way below your gross return.
Maintenance And Repairs
With a new home, you automatically receive six years’ structural warranty, as well as a three-month repair period after the property has been completed. As everything is new, the repairs are likely to be extremely minimal.
Older homes start to cost you money as things wear out and need repairing or replacing. These expenses can easily spiral into thousands of dollars and include everything from fixtures, roofing, plumbing and electrics, as well as the basics such as painting and decorating.
Tenant Choice
It is far easier to secure good tenants in a sparkling new home. Most people prefer things to look fresh and new, and even well-maintained older homes can look tired and unloved. Research shows that better tenants look after your property with greater care.
To your success,
Tony Myers
Australia’s Authority On Real Estate Investment For Busy Professionals