Case against buying new property

From: Paul Zagoridis


In Sydney I generally buy units in older buildings. This is in contradiction to conventional wisdom to buy new for the depreciation and maintenance benefits. The deals I like tend to be in older buildings.

Anyway two years ago, a friend asked me to run the numbers on some new buildings (<3yrs old). The numbers looked good (not great). He liked the depreciation these newer buildings gave him.

Fast forward to today. Both buildings have major structural problems. The builders in each case have wound up the shelf company that did the development. You guessed it, HIH is the insurer of both builders AND the building inspector. This means the owners corporation is up for repair costs AND the costs of action to recover these costs from anywhere they can. Very costly special levies are involved.

Now, older building do present maintenance problems. But once the building is 15-20 years old you know if it is collapsing. Building inspections are fairly straight-forward and generic. Plus you aren't paying a premium (or profit) to a builder's $2 shelf company.

There's a conversation starter for you.

Paul Zag
Dreamspinner
Oz Film Biz is at
http://www.healey.com.au/~paulz
 
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Reply: 1
From: Owen .


I've been thinking the same thing lately, Paul. You just have to look around to see the speed in which some of these new developments are being built to wonder at the quality of the engineering. If you watch a development you can also see the mess the brickies sometimes make before the renderer covers it all up and the painter paints it the latest fashionable colour. Problems waiting to happen.

As a result I have just bought in a 7 year old block that has just been through the nightmare. The body corporate (and owners) gave up on the legal battles (7 year warranty is up) and have paid for their own engineer reports and repairs through huge special levies, the last of which was 4 months ago. The repairs are will be finished in a month so I bought in at a very low price for the area. Lots of disgruntled, broke owners and landlords just hanging on so they can sell up but my vendor couldn't wait.

I did my due diligence and the only way is up. Tenants love the building to.
 
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Reply: 1.1
From: Douglas K


by golly investors just like me!!

i too have an IP in an old block. whilst there are maintenance issues there are not structural one's. That very fact is the key to it all.

Furthermore whilst there are tax benefits now for new properties it all generally comes out equally in the wash when ones sells up be it new or old.

there is alot to be said for purchasing old units. after all you are buying a business and you need to be confident that it will generate revenue for you constantly and consistently.

my two bobs worth!

cheers

Dougie

as my grandpa used to say "speculate and accumulate, but only buy where you wanna die"
 
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Reply: 1.1.1
From: The Wife


Doug,

Hi :eek:)

Its killen me, I cant understand your tag line, can you explain it to me, I wish I could blame it on being blonde, but I'm not :eek:(

Thanks,

TW
~Life is a daring adventure, or nothing at all~
 
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Reply: 2
From: Nigel W


Paul

I'm glad to hear that someone else is not bypassing units due to the accepted wisdom that it is land content which gives you cap growth.

The point with older units is that:

1) you generally get them at cheaper price than new ones;
2) they often need a facelift - an opportunity to fast-track your capital gain
3) the land content is, relative to new units, much higher anyway, so we're not disagreeing with the principle that it is land that is the commodity in limited supply
4) due to 1) above you can generally get a better rental yield because old units won't rent for much less than new ones and should be on a par with new ones once you've done a renovation (cost-effectively of course).
5) related to 4) above, the rent is often just as good or better because older units are often much larger, particularly the living area.

Another benefit is that the lower entry price may permit you to spread your investment into multiple units rather than one house - the yield will then beat any single dwelling with a huge land content hands down!

Sure, you don't get than nice depreciation on the building component, BUT there's a surprising amount of depreciation you can squeeze out of even an old place!

well that's my 2.2 cents worth anyhow.

thanks for prompting some discussion - the forum's been a bit dull lately.

N.
 
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Reply: 2.1
From: H T


TW

in relation to dougs tag, me thinks its about speculating, accumulating and then dieing or something.
hope that helps

HT
 
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Reply: 2.1.1
From: Douglas K


by golly i bet you guys wrote "jedi" in the religion question last night too!

my Pa used to tell his kids and his kids told their kids. "Buy and keep it but buy it only where you wish to spend your retirement years so that if you cash out it is worth the same money in relation to property you wish to live in".

I suppose he meant dont buy cheap property on the gold coast and then hope to retire to double bay in sydney on the profits. NO OFFENCE INTENDED TO GOLD COAST INVESTORS OK!!!!

cheers

Dougie


as my grandpa used to say "speculate and accummulate, but only buy where you wanna die"
 
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Reply: 2.1.1.1
From: Sergey Golovin



What I do like about new places are all sorts of new ideas and layouts, open plan living, etc.

But what I do not like (in fact hate) about new places is Gyprock...Hopefully with introduction of new standards in NSW it will change to better not to worse.

Serge.
 
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