It’s a New Property, It Must Be a Good Investment. WRONG!

It’s a New Property, It Must Be a Good Investment. WRONG!
June 13, 2016 Bryan Loughnan

old-houses-500h

I’m contacted weekly and read information online daily about why people believe investing in new, rather than existing or established homes is better.

It’s probably no surprise that a lot of people making such claims are residential sales agents who specialise in the sale of new homes or builders/developers trying to offload ‘stock’.  Motive!

Increased sales volumes of new properties has certainly been good for Australia’s economy.  Taxes paid on the construction and the purchase of properties is the single biggest source of income for our government.

By all means, if you are looking to purchase a property to live in and like the idea of everything being new and shiny, or like the thought of building something from scratch to suit your exact specifications, then build or buy new.

If however, you are looking to make an astute investment decision, then I believe you can do a lot better with your hard earned money than buying a new or off the plan property as an investment.

 

 

New properties do look pretty.  Is looking pretty what makes a good investment though?  Does a share investor buy a certain stock because they like the company logo?  I hope not.  They buy shares because the fundamentals of that company are sound and they believe the outlook for the associated industry is positive.  Similarly, a property investor should be seeking out a property that is structurally sound, low maintenance, appeals overall to the local tenant demographic and is in a location which has good economic, infrastructure and employment outlooks.

Another key property growth driver is affordability.  New properties are more expensive than existing properties.  As an example, with all things being equal, a brand new 4 bedroom home will cost more than an existing 4 bedroom home in the same area.  This is partly because it is new and shiny, but you also need to look at how the price guide for a new property is selected.  Don’t kid yourself, developers of new and off the plan properties aren’t doing it for fun, they are doing it to make money.  They will look at what the land cost them, how much they spent on labour, construction materials, marketing, factor in a profit margin for themselves and voila – there is the sale price they want to achieve.  There is also the small issue of taxes the developer has paid throughout the process (land tax, GST, payroll tax, company tax etc).

The HIA (Housing Industry Association) suggest that up to 40% of a new house sale price can be paid taxes.  Who do you think really pays for that?

Now, can we understand why governments are often creating incentives for people to buy new property?

Compare this to a price guide on an existing property.  Generally the vendor has worked closely with a local real estate agent who appraises their property based on real market evidence – recent sales of comparable properties.

Another comment which I often hear is that you cannot obtain tax deductions through depreciation on an older or existing property; of course this is completely false.  Over the years renovations get carried out on properties.  Depreciation can be claimed on newly installed kitchen cupboards, doors and window fittings, fences, carpets, air conditioners and even clotheslines just to name a few.

A couple of years ago, I assisted an investor in purchasing a basic, 3-bedroom house for a mere $280,000.  The property was 104 years old and had depreciation deductions totalling $85,326 to be written off over time.  That’s not a typo!  Bradley Beer, the Managing Director of BMT Tax Depreciation believes “that 80% of property investors are failing to take advantage of property depreciate and are missing out on thousands of dollars in their pockets.”

Others claim that “new is better because there’s less maintenance”.  Perhaps those same people should speak with the owners of properties which were purchased brand new only 5-6 years ago and have subsequently been disappointed by quality of workmanship that isn’t discovered until the shine wears off.  It’s an epidemic.  I know some people reading this will be thinking “but a new property comes with a builders warranty”, which is correct, but what’s the real cost of getting a developer to rectify major defects years later?

Property and property investing, are topics in which everyone has an opinion.  After reading a related article or hearing a comment, you often need to take a step back, look at who wrote the article or made the comment and ask yourself “What do they have to achieve from saying this?”.  For example, are they a residential sales agent who specialises on the sale of new properties or a developer who focuses on new house and land packages?  If so, just take a minute to consider why might they be suggesting buying new properties are better investments than existing properties…?

My name is Bryan Loughnan.  I am a Buyers Agent with Propertyology, an award winning property market analyst and buyer’s agency.  We work exclusively with property investors and assist in locating and negotiating the purchase of high performing investment properties, Australia wide.  We do not have a stock list.  We do not get paid any more or less for recommending one property over another.  We do not receive ANY kick-backs.

Our focus is simply the best interests of our clients… Our Research… Our Skills… Your Results.

Propertyology are Australia’s most respected Buyer’s Agents, not just analysts.


Want more insights?

Get them delivered!

Want more Free reports?


Sign up today!

Want more insights?


Sign up today!