Existing v new property = the truth
Congratulations. You’re ready to make your property purchase. So what’s it going to be – an existing property or will you buy new? If it’s existing, are you organised for a renovation and do you know how to check you’re not buying a lemon? If new, are you buying off the plan, a house and land package, or just recently built? Lucky you . .so many options.
The ‘existing v new’ issue is one of the key decisions we help our clients make, and there’s a few aspects to consider before you can settle on a choice.
Positives and negatives
Outlined below is a summary of the positives and negatives for both cases.
It seems the key issue many people consider in relation to the ‘existing v new’ argument is depreciation. Depreciation is the amount an investor can deduct from their income to determine their total taxable income. Many new investors get suckered into purchasing new property by bad advisers who spruik the benefits of depreciation. However, ultimate caution should be used if depreciation is the only reason for the purchase, as all depreciation benefits are required to be repaid when the property is sold – and you’ll never hear this advice during the purchase process.
Like anything relating to finances and taxation, the issue is quite detailed and will be tied to your personal situation as well as the specifics of each property. However, for the purposes of weighing up the benefits of ‘existing v new’ properties, the following basic example highlights some key aspects.
There are two main classes of depreciation – Division 43 (relates to building costs), and Division 40 (relates to fixtures and fittings). New property can qualify for depreciation of the building costs over a 40 year period, with higher amounts depreciated in the first few years. This is demonstrated in the example below by comparing an existing property without building depreciation, against a new property that qualifies for depreciation.
Of course, comparisons like the one above leave out the fact that you can depreciate fixtures, fittings and renovations including renovations made by previous owners. So older properties can be depreciated and this includes items ‘scrapped’ during renovation.
However – the key point is that finding a direct comparison between an existing and new property is almost impossible to achieve. The existing property will usually have a lower purchase price, bigger block size, potential to freshen up / renovate / add granny flat / develop. Some infill developments are fabulous, but new property – even if it offers dual income – located in a new estate may not deliver on capital growth in the first few years (or ever).
The truth is that your choice between existing or new property will depend on what you need in your next purchase, as well as what suits your interests, budget, style and skills. Can you afford a new property, or is your budget better suited to an existing property with existing tenants? Do you want to design your own home, rather than re-model an existing property?
Both existing and new property can boost your overall income. An existing property purchased at or below market rate with good rental return can deliver a similar income return as a new dual occupancy property. Again, the decision factors lay within your preferences – do you prefer something new or are you a fan of existing properties?
If you aren’t sure what works best for you, we’re happy to discuss the possibilities. After your preferences are clear, this should clarify the best location for you. In this way, you will be the master of your own selections instead of what someone else wants to sell you.
Buy smarter = limitless ways to build lifetime income
Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.
Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.