salsa said:
Just my thoughts on the matter without a definite conclusion....
I like them!
Now I am a bit confused about whether I should stick to what I have been doing or if I should start buying new houses using gurus buying criteria.
I think you're on the right track sticking to what you're doing. Your existing approach seems to have more advantages than you mentioned, which I'll get to later.
Is a $1m portfolio consisting of poorly located new houses going to perform better than a $500k portfolio of well-located older houses? Especially if the land component of the smaller portfolio ($400k) exceeds that of the $1m portfolio ($300k).
Diversification. If you can buy a well-located older house for $200-250k and new houses in the next suburb out are $300-350k then with the latter you will need to borrow more to achieve the same amount of diversification and the same number of IPs.
Depreciation on the new properties may improve serviceability, but your basic yield might be lower. Houses in the new estates might get 4% yield, but 5% is obtainable in established working-class suburbs (which also tend to be closer to transport). Note also that improved serviceability through higher yields doesn't have the same tax issues as dollops of building depreciation, so all things being equal, yield beats depreciation (particularly if your job income is modest and/or you want more than 2 or 3 IPs where there's a risk of running out of tax deductions or getting only 17 or 30% back).
Three options, not two: Although we're discussing it as if it's a contest of new vs old, it might also be worth doing sums on a property built c1990. You still get building depreciation (improving serviceability) but can buy in an established area and probably pay less than for a new IP.
Losing gloss: A new house now looks nice. Today it might look quite different from a house built in 1995 and worth paying a premium for. But looking back from the year 2025, your 2005 house might not offer much more than the 1995 house. It's like now where a 1950s house will not necessarily be dearer than a 1940s house (many other factors are more important).
Neighbourhood character: With a new housing estate you don't know the character of the neighbourhood. If it's young families then there may be crime/delinquency issues as the children get older. This may reduce a suburb's reputation and thus future capital growth.
Another thing I'd be asking is 'when will the growth happen?'. The ideal is that you get a 25-50% increase within 2 or 3 years of buying. Then you've got heaps of equity to expand the portfolio sooner. After that it doesn't matter if growth tapers off for a while; even if it's low as a percentage it could still be similar in dollar terms as you've got more IPs.
I don't have the details to hand, but I understand that capital growth is initially slower in new areas, but it becomes closer to the metropolitan norm as the suburb becomes more established and there are no longer new land releases in the next suburb. This deferred growth pattern is precisely the opposite of what is needed (see above).
An exception may be in Perth where people have bought new properties (or even off the plan) and having immediate growth. But one could argue that this is due to the builders shortage, rising material prices and strong population growth in that market.
In the subdued low-growth markets elsewhere, your existing strategy of looking in established areas and avoiding new estates sounds the most sensible to me.
Rgds, Peter