Newish Units vs Older Units - Any advice appreciated

mrmonopoly

mrmonopoly

Hi All,

Desperately needing someone to help unjumble my brain and give me some good arguments for and against newish units (i.e. not brand new or Off the Plan) vs older (70's block) as I see strengths and weaknesses in both but can only buy one.

So for the newish units I really like the areas of Alexandria and Erskineville, I would prefer to buy an older unit in one of these suburbs to manufacture some capital growth, but as they are like gold dust in my $300-425K budget, I think the newer one beds are realistically my only option at this stage, with the additional benefit of being able to get some reasonable depreciation benefits since they are post 1985.

As for the older units I have so far been targeting 2 beds in the 70's blocks of Kogarah, Ryde and Marrickville, although I cant help but feel the value is very quickly disappearing out of Kogarah.

Obviously as an investor my goals are primarily CG, however I also feel a reasonable 5.5-6% gross yield as a minimum is probably wise as I think the next 2-3 years will be fairly slow CG wise, and so want to hedge my bets a bit and not overly expose myself to too much risk.

Anyway the point of all this is I would love to here advice from some of the many experts on these forums as to what they would recommend and why given my goals, and also if anyone thinks I am barking up the wrong tree with regards to my choice of areas or property types.

Really looking forward to some feedback.

Mr M
 
If I was deciding between a new and old unit next door to each other I would take the new place however more often than not this comparison boils down to buying an older place in a different location to the new one and IMHO location rules.
 
OK, I'll chip in...

Old
Pros
  • May be able to renovate cosmetically to add value and increase yield
  • Could be in a smaller (hence less competitive) block
  • May have period/stylish features

Cons
  • Likely to have little depreciation
  • May have a poor floor plan (eg, market might like extra toilet - an older place probably won't have one)

New
Pros
  • Shiny! Appeals to broad range of tenant
  • Little to no maintenance
  • No need to paint, etc, on purchase
  • (Generally) higher depreciation

Cons
  • Unable to add value with a cosmetic renovation
  • May have (relatively) expensive BC fees if including lift/pool/gym, etc.
  • May have less 'character'

Hope that helps.
 
Something I've noticed browsing units is that new units and apartments are really tiny! Many have kitchenettes instead of full size kitchens and they have really tiny bedrooms or they're a studio.

So I guess a pro of older apartments and units is that you can find one with a proper sized kitchen and larger bedrooms which might appeal more to renters. I guess that could also be a con as well as a larger kitchen would require more maintenance than a small kitchenette and costs like tiling and carpeting would be higher for larger spaces.
 
I would steer away from new units....they are unlikely to increase in value substantially in the first 10 years of ownership. This is because there is usually a 50-60% premium on these.

Buying a tired old 2 brm brick concrete 2-3 story walk is gold.

Why?

1. The construction is solid and very little maintenance issues unlike the newer ones which have shocking build quality.

2. Strata fees are usually substantially cheaper....usually under $450pq vs $700-$1500 for new units.

3. A quick comestic reno could yield rent close to newer unit.

4. They are easier to sell...as they are in demand.

5. Easier to rent as they are in smaller complexes...as opposed to huge complexes of over 100 units.
 
stay clear off new units - there're been known. i know a few sellers recently of a new development in melbourne selling like 100K below purchase price.
 
I tend to agree with staying away from newer units. Just make sure you get the solicitor to do thorough checks on the BC first.
 
sash said:
Why?

1. The construction is solid and very little maintenance issues unlike the newer ones which have shocking build quality.

2. Strata fees are usually substantially cheaper....usually under $450pq vs $700-$1500 for new units.

3. A quick comestic reno could yield rent close to newer unit.

4. They are easier to sell...as they are in demand.

5. Easier to rent as they are in smaller complexes...as opposed to huge complexes of over 100 units.
Click to expand...

totally agree with sash - and that's why i buy 70's units in small blocks. another positive is that they are cheaper to buy so yield is higher from day one, and they are generally situated near good transport links.

trouble is -i am ready to buy but i'm having problems finding my next one ... not much around atm.
 
lizzie said:
trouble is -i am ready to buy but i'm having problems finding my next one ... not much around atm.
Click to expand...
Maybe you need a good Buyers Agent? :p

But seriously there is a shortage of well located stock at present. I see this slowly being resolved as February goes on (people don't list much for sale in Dec/Jan).

I also agree with sash's strategy 100% - it is pure gold.
 
If choosing older also consider suburbs around Ryde for good value eg: Gladesville, West Ryde for high $300K's low $400K's. Plenty of room to add value at this level as well.
 
lizzie said:
totally agree with sash - and that's why i buy 70's units in small blocks. another positive is that they are cheaper to buy so yield is higher from day one, and they are generally situated near good transport links.

trouble is -i am ready to buy but i'm having problems finding my next one ... not much around atm.
Click to expand...

Depends where are you looking. In melbourne - there are plenty of good opportunities around - it's only a matter of finding the right one.
 
Thanks guys for the great feedback so far. Although I'd like to stoke the fire a little bit more as I think a few people were comparing old with new which is a little different from the actual scenario.

Essentially the 'newish' properties I am considering are not brand new at all, they are at least a few years old which I was under the impression was good for me and bad for the first buyer who would have paid the initial developers premium and sacrificed the CG of the past couple of years.

Also if the newish property was in a small block with no frills i.e. No Pools, Gyms etc, with strata rates below even that of the majority of 70's blocks does this make it more attractive? Can low strata rates ever be a bad thing?

Love to hear your opinions :)
 
mrmonopoly said:
Thanks guys for the great feedback so far. Although I'd like to stoke the fire a little bit more as I think a few people were comparing old with new which is a little different from the actual scenario.

Essentially the 'newish' properties I am considering are not brand new at all, they are at least a few years old which I was under the impression was good for me and bad for the first buyer who would have paid the initial developers premium and sacrificed the CG of the past couple of years.

Also if the newish property was in a small block with no frills i.e. No Pools, Gyms etc, with strata rates below even that of the majority of 70's blocks does this make it more attractive? Can low strata rates ever be a bad thing?

Love to hear your opinions :)
Click to expand...

Low strata fees could mean an disinterested or inactive body corporate/owners corporation? Ideally, you would want the committee to be planning for future maintenance and would therefore be collecting levies, even if small. However, it will depend on the property itself.

For the actual body corporate/owners corporation management fees, a bit like property management fees, cheap fees may not be better value.
 
mrmonopoly said:
Essentially the 'newish' properties I am considering are not brand new at all, they are at least a few years old which I was under the impression was good for me and bad for the first buyer who would have paid the initial developers premium and sacrificed the CG of the past couple of years.

Also if the newish property was in a small block with no frills i.e. No Pools, Gyms etc, with strata rates below even that of the majority of 70's blocks does this make it more attractive? Can low strata rates ever be a bad thing?

Love to hear your opinions :)
Click to expand...

Hi again Mr M

Sure, a "few" years old can make a difference, and there is still sufficient depreciation left even up to 15 yrs old if you want to minimize your cashflow initially.

The predominant difference usually comes down to size, in my experience. Newer units for the same money tend to be smaller than their older cousins, as has already been mentioned. If you can locate newer units in smaller blocks, without the expenses of lifts, pools and other expensive to maintain communal features (eg: concierges, gyms, fancy bbq/entertaining facilities) then you may be onto a winner. Also ensuring a high owner-occupier % can be more comforting, as owners tend to take a more proactive hand on the BC in ensuring the building is well-maintained over the long term.

In order to answer your question about strata fees, yes low fees can be a warning that there may not be sufficient monies in the sinking fund for future works- always check this out thoroughly via a strata search, with a good inspector to explain the report to you. Best of luck.
 
I usually favour character units, there is an increasing trend amongst developers to 'out modern' the last modern development whereas it is near impossible to replicate a nice Deco apartment.

Another point to consider is ceiling height, while many newer apartments have what appears to be an acceptable square footage, often the ceiling heights can be oppressive...whereas units from the Deco, Victorian, Georgian era have at least 10ft-12ft ceilings. These create a sense of space that cannot be shown on a floorplan.
 
art decos unit seem to not really in demand in melbourne - went to few failed auctions last year in melbourne. There are also certain segments that do not prefer them.

Personally i do like them in general.
 
there was 2 bedroom on Queens Rd - would say fair value 470K - but didn't sell. who knows -maybe it was a bit darkish and old with the surroundings?
 
I daresay it would be a bit noisy/busy. Queens road isn't exactly the most desirable place to live, plus it is hard to access via the main road.
 
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