Buying Established Vs Building New

[Dugg_Bobcat]

Hi all,

just joined the forum after sneaking around for a while.

Wifey and I are looking at doing a little property investing.

Presently we are looking to buy land and build a new home ... however I notice that most of the discussion here is regarding buying established.

Apart from the obvious drawback of having to pay an interest only loan for about 9-12 months while we are securing land and building and not having any rental income coming in ... what are the other pros and cons of each scenario.

Thanks in advance

Dugg

 

[Tano]

New Properties advantages

1. Higher rents (more $$) and easier to rent (lower vacancy rates)
2. Greater depreciation allowance
3. minimise my maintenance & repair costs

New Properties Disadvantages

1. Cost more to purchase
2. Maybe harder to rent if located near an oversupply of other new properties
3. Cannot quickly increase value through renovation like you could with existing properties

 

[FelixL]

I am bias towards existing property because

- time poor and lazy, much less work involved
- limited supply in established suburbs and lower than replacement value
- easier to get finance

 

[A Jeremy]

Effort in = returns.

My first foray was a duplex build for $425k, which was valued at $610k, and has never rented for less than $700 per week. Compare that to buying any established property and see how the numbers stack up.

There might be less effort involved acquiring the established property you are talking about but compare the effort of working 9-5 for 45 years to retiring within 5. It's the buy now, 24 months interest free, negatively gearing is okay mentality that separates the truly successful people from everyone else who drags themselves to work daily to pay for their underperforming properties.

 

[impala67]

Newer:
High level of depreciation available, with the newer the property, the higher the depreciation. Appliances like dishwashers, heaters and air conditioners, carpet floor coverings and more have high rates of depreciation. Each property will have different rates of depreciation according to the size and inclusions.

Tenants often seek quality new homes, especially in or closer to the city and often you'll find a tenant prior to construction.

Builders of new homes are required to carry statutory home warranty insurance to protect the purchaser in the event of a major building defect.

Older:
Renovate and extend to create equity. Renovations can be achieved more quickly than rebuilding completely and if you do the sums right, you'll add instant equity.

Older homes hide great features that newer homes can't offer, i.e., hardwood flooring underneath old carpets, old classic fittings and glass that are no longer made. Art deco and California bungalows also fetch premium prices, as do established and aged manicured gardens, and aged trees in streets of older suburbs.

Many established suburbs have a charm and appeal that is not replicated in the new developments, including historic appeal, and this ensures continued demand from owner occupiers and tenants. You will never have the appeal in Pakenham as you do in Prahran for Victoria, or compare Peppermint Grove to a new suburb land release in your city...uncomparable.

 

[FelixL]

Effort in = returns.

My first foray was a duplex build for $425k, which was valued at $610k, and has never rented for less than $700 per week. Compare that to buying any established property and see how the numbers stack up.

There might be less effort involved acquiring the established property you are talking about but compare the effort of working 9-5 for 45 years to retiring within 5. It's the buy now, 24 months interest free, negatively gearing is okay mentality that separates the truly successful people from everyone else who drags themselves to work daily to pay for their underperforming properties.

I bought a crappy old unit in 2007 for 145k in Sydney, its generating positive cash day one. Its now worth 280k and 50% higher rent. All with little effort

The power of buying when others are fearful, inflation and compounding

 

[FelixL]

Morally speaking though, development wins hands down. It is creating real value in providing housing to the community, whereas my strategy is merely transferring hard earned wealth from the tennants to a greedy landlord

 

[spludgey]

Older for me. The return seems to be better. The rental yield is higher and the so are the capital gains. New buildings often depreciate in value for the first few years.
Plus blocks of land (I only buy houses) tend to be much bigger on existing stock.

 

[depreciator]

'Established' doesn't necessarily mean old. Consider the difference between building something and buying a two year old home.
Depreciation would be very similar and many of the issues all new houses have May have revealed themselves and been dealt with. The area might also be more established than building in a brand new estate surrounded by bare blocks.

 

[The Y-man]

... what are the other pros and cons of each scenario.

Thanks in advance

Dugg

Delays, getting a product that isn't what you thought you were getting, etc

The Y-man

 

[impala67]

Delays, getting a product that isn't what you thought you were getting, etc

The Y-man

Y-man raises a big point. Have a search on the forum about some of the stories about what was expected to be delivered and what was delivered/built, and/or how well overdue the construction was, or in some cases not constructed years later. A work colleague of mine went through the same above scenario (well over due, poor finished work, and lengthy rectification works) in Melbourne last year.