Old vs New

[KrisK]

Hi Guys,

First time investor, still looking for a place to buy. I'm a bit confused about what type of place I should be looking at

Do I buy a new(er) apartment, thats smaller to maximise depreciation?

Or do I buy a old apartment, that needs some TLC to gain value in renovations but meaning my depreciation would pretty much be no existent..

Thoughts please? This will be a negatively geared property

Thanks

 

[alexlee]

Hi Guys,

First time investor, still looking for a place to buy. I'm a bit confused about what type of place I should be looking at

Do I buy a new(er) apartment, thats smaller to maximise depreciation?

Or do I buy a old apartment, that needs some TLC to gain value in renovations but meaning my depreciation would pretty much be no existent..

Thoughts please? This will be a negatively geared property

Depends. Higher depreciation is good, but you're paying for new too. So the higher depreciation would be offset by the fact that a new apartment is most likely more expensive (higher loan, more interest) than an equivalent old apartment.

i.e. if you buy a new place for $350k, that might have more depreciation, but an old equivalent place might be $300k. So you don't get as much depreciation but you also pay $4k less in interest. Obviously these are just numbers out of thin air and there are many other moving parts such as rents, maintenance, etc. Don't assume new places have less maintenance, though.
Alex

 

[KrisK]

thanks as always alex, am I right in saying you cant claim depreication on fittings/fixtures over 5 years of age?

 

[Humphrey]

IMHO, If you have a high income then negative gearing is more of a positive

Depreciation is certainly a consideration but it's not the only factor. You also need to consider capital growth and yield.

Perhaps think a little more about your longer term plan - you might find that this makes your decision clearer.

EC

 

[casper007]

Krisk ... through my experience, I have made more money from new (homes not apartments) than I have through old homes.

As I enjoy tax benefits ... every dollar of depreciation helps.

Maintenance has been non existent on all of my new home investments for over 4 years from when they were built.

But I do agree that the right property be it old or new is the one you have done your research on.

 

[KrisK]

Krisk ... through my experience, I have made more money from new (homes not apartments) than I have through old homes.

As I enjoy tax benefits ... every dollar of depreciation helps.

Maintenance has been non existent on all of my new home investments for over 4 years from when they were built.

But I do agree that the right property be it old or new is the one you have done your research on.

thanks casper, new seems like a good option but all the new apartment blocks have lots of facilities which drives up strata ie 700+ pq - outrageous and just eats far too much into my yeild.

having difficulties finding something thats for sure!

 

[casper007]

Have you looked at single story display homes in Mleb? The builders there are offering pretty good lease back which covers the interest repayments and Melb prop is on an upswing ... and no strata fees... and they are pretty good tenants

 

[KrisK]

Have you looked at single story display homes in Mleb? The builders there are offering pretty good lease back which covers the interest repayments and Melb prop is on an upswing ... and no strata fees... and they are pretty good tenants

Sydney is my only option

 

[Ms Jade]

I would never buy a property for the tax benefits, but that's just me (and I have a decent income). My reason for investing in propery is capital growth. Remember that the builder's premium is included in the first sale price and IMO much of that price is the building rather than the land. I know this is a generality and that many people have done very well with new property.
It may well be that a new property comes in a highly sought-after location and is still a good buy.

When buying older property, you can depreciate just about everything. Get a depreciation schedule done as soon as you settle. If you renovate, get another schedule done. Not only can you depreciate all the new stuff, but you can write off some of the chattels you threw away (This is slightly over-simplified but still sound. Just get the quantity surveyors in & don't try & save money by doing it yourself).

 

[KrisK]

I would never buy a property for the tax benefits, but that's just me (and I have a decent income). My reason for investing in propery is capital growth. Remember that the builder's premium is included in the first sale price and IMO much of that price is the building rather than the land. I know this is a generality and that many people have done very well with new property.
It may well be that a new property comes in a highly sought-after location and is still a good buy.

When buying older property, you can depreciate just about everything. Get a depreciation schedule done as soon as you settle. If you renovate, get another schedule done. Not only can you depreciate all the new stuff, but you can write off some of the chattels you threw away (This is slightly over-simplified but still sound. Just get the quantity surveyors in & don't try & save money by doing it yourself).

ms Jade, my reason is both tax benefits and also capital growth. Tax is a big consideration for me and I too have decent income.

Im just considering which is the best way, but it appears both are similar.

The search contuines, and ill ensure I do the depreciation schedule as you suggested before/after any renovations and upon settling.

Thanks

 

[alexlee]

Kris, I seriously suggest you think about this from a long term point of view. As in, think about how many properties you're going to buy over the next 20 years. Don't overanalyse: you don't need to buy the 'perfect' property if you have time.
Alex

 

[KrisK]

Kris, I seriously suggest you think about this from a long term point of view. As in, think about how many properties you're going to buy over the next 20 years. Don't overanalyse: you don't need to buy the 'perfect' property if you have time.
Alex

Alex, i always look for the perfect property thats my issue - i research too much sometimes!

I am thinking long term though..

 

[alexlee]

Alex, i always look for the perfect property thats my issue - i research too much sometimes!

I am thinking long term though..

Personally, I would rather buy a lot of 'average' properties than wait for the perfect property. Though that's because I don't believe there are such things as perfect properties.
Alex

 

[KrisK]

Personally, I would rather buy a lot of 'average' properties than wait for the perfect property. Though that's because I don't believe there are such things as perfect properties.
Alex

I'm starting to believe the same thing, for a inner west apartment, what would you try and hit for rental yield - including management/vacancy/fees/rates and so on..

Cheers
kris

 

[The Y-man]

For some reason, the new properties we have bought always seem to have bigger problems than established ones. My only theory is that things have been "bedded down" in established ones....

Cheers,

The Y-man

 

[BayView]

Why does it have to be a neg geared property? Broaden your views. You can buy properties that are POS CASHFLOW AFTER TAX.

Try to maximise all the factors of the investment as well;

If you buy near new, but not new; say less than 5 years old, you still get virtually all the depreciation, and you pay what is the correct market price for the property, not something that will have a developer's profit built in.

If you buy a little older, say between 5 and 10 years old, it will be a little cheaper, you still get the depreciation, the correct market price as it is established and selling in amongst other established properties, and there is a good chance that it needs a reno of some sort being out in the sun a few years, so there is a chance to add value through cosmetic renos, and you may be able to increase the rent as well. The renos are also depreciable.

Look for properties with land content as this is what appreciates, and preferably something that can be subdivided in the future. If you can't afford a house with land in your area, either look at different areas where it can be done, or at the very least look for free-standing UNITS with courtyards and garages rather than apartments.

Look for better rental yields. Again, this may involve looking outside the area you live.

 

[Lukey13]

Would you be of the belief that units with a courtyard in the same complex as units with only balconies would fare better in terms of CG? Surely there wouldn't be much difference and the only fair comparison would be a set of units ALL with courtyards versus a large complex with a mix.

 

[BV]

Hi Guys,

First time investor, still looking for a place to buy. I'm a bit confused about what type of place I should be looking at

Do I buy a new(er) apartment, thats smaller to maximise depreciation?

Or do I buy a old apartment, that needs some TLC to gain value in renovations but meaning my depreciation would pretty much be no existent..

Thoughts please? This will be a negatively geared property

Thanks

Krisk,
I suggest you go for a newer place.
With a newer place you will also benefit from a higher rent.
If you don't want to pay premium price, another possibility would be to buy something that needs fixing, paint, carpets, light fittings etc so you add value and increase your rent that way.
Cheers

 

[casper007]

If you buy near new, but not new; say less than 5 years old, you still get virtually all the depreciation, and you pay what is the correct market price for the property, not something that will have a developer's profit built in.

I don't agree with the above scenario ... whenever I have looked (on new housing estates) the 2 - 3 yr old homes were more expensive than building yourself ...

I do however agree with LAAussie if you buy a 'just finished being built home' then you are paying the developers profit.

The other advantage of building new is you generally get less maintenance ... better depreciation and the builders structural warranty ... most here in perth offer 10 years to lifetime warranty ... it is mandatory for at least 6 years even if the property is on-sold.

I just sold my PPOR which is 4 years old and has another 6 years of warranty from the builder ... which was transferable.

This made the sale much easier.

 

[sparky23]

Hi Krisk

What price range are you looking at and when you say you will only invest in Sydney do you mean only Sydney or NSW, also why are you not looking interstate?

I am also in the build something new camp.