What’s best for an investment property - new-build or existing property?
September 22, 2021
When you’re looking for a property to start or add to an investment property portfolio, the pros and cons for existing vs new-build are a bit different. It’s all about practicality and getting the numbers to work. It’s important to remember that the 10-year bright line test applies to both new-builds and existing homes. Also, from 1 October 2021 you can no longer claim interest on loans used for residential rental properties.
Pros and cons of an existing house as an investment property
The price you arrive at by auction or negotiation won’t change, which makes yield calculations more accurate.
Homes are usually within communities that have transport, schools, shops and essential services. This makes them desirable to tenants.
Landscaping (gardens, trees and outdoor living areas) may already exist, adding to property appeal.
The repairs and maintenance you may need to do can be claimed as an expense.
The property may have a sub-dividable site.
Homes can cost more, because they are often in more established parts of a town or city.
You need at least a 40% deposit.
Existing properties with large amounts of land attract higher rates.
Depending on the age of the property, you may need to renovate to meet Healthy Homes standards, however some expenses may be tax deductible.
You can’t claim for renovations that substantially improve the value of the property.
Pros and cons of a new-build as an investment property
You only need a 20% deposit.
The home is likely to be low-maintenance. And because it’s new, repairs for wear and tear will be few.
It will meet the new Healthy Homes standards for insulation and ventilation.
You might be able to attract better tenants who will take good care of the property.
Rent could be higher than for an equivalent existing house.
A new-build could be cheaper than an existing property, because it’s in a new subdivision further out of town.
If you have a turnkey construction contract, you can tailor the cost of building to fit your yield calculations.
If you don’t have a fixed price contract with your builder, costs can spiral upwards and have a negative impact on your yield calculations.
The location of your new-build might not be a desirable part of town, because it’s further out and the neighbourhood lacks amenities.
The section is likely to be bare; it will take a while to establish trees and a garden that make the home look attractive.
Keep an open mind and do your homework
Whether you’re looking for a home to live in or an investment property to rent out, considering both strategies – existing property or new build – can help you to understand the local property market from every angle. Talk to group builders who are active in your area, keep a close eye on online property listings, monitor sale prices and discuss potential home loan requirements with a lender. Whatever you eventually decide, you’ll feel better about your choice because you fully-explored all the opportunities.
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