Why don't you talk about buying new house

Hi investors,

I'm a new investor and am exploring different options for my next IP. This forum is very very informative. However being a naive, I have a basic issue.
After reading this forum for about 3 months, I noticed that almost nobody here talks about buying a new house (0 to 2 yrs old) or a house & Land package. From my limited understanding, buying a new property can easily provide +CF by negative gearing thru' depreciation atleast for the first few years (I'm in 38% tax bracket). And in those few years this property increases in value, giving you the equity for your subsequent purchase. Is it an outdated strategy? If yes, what is the current one and what is the logic?
Pls keep in mind that I stay in a regional area (Whyalla) with a full time job and am investing in Adelaide, so I don't have time (and also skills) for the renovation, negotiation, feel of the area etc.
Thanks
 
I am buying a 'new' house. So new it hasn't been built yet and won't be settled until mid 2010. :D

I think you will find there are lots of threads on OTP and H&L, etc, etc.

Other then that, most thing mentioned/ discussed in alot of threads is relevant to many properties new or old.
 
Old properties can have good depreciation as well. ;)

Newer will generally speaking have more, but for example in the current financial year I can give you the following example from two of my properties:

3yo property - $5.2k depreciation
60yo property - $3.5k depreciation
 
Wonderful?

Thanks for the replies.

Steve, I came to know that a new house worth 300k can give you the depreciation of upto 15k in the first year (diminishing value). How come you getting only 3.5K?
 
I noticed that almost nobody here talks about buying a new house (0 to 2 yrs old) or a house & Land package. From my limited understanding, buying a new property can easily provide +CF by negative gearing thru' depreciation atleast for the first few years (I'm in 38% tax bracket). And in those few years this property increases in value, giving you the equity for your subsequent purchase.

I have bought several brand new properties.

There are various additonal advantages in states such as Melbourne with regards to stamp duty savings etc.

You may also get a higher rent with a new property than an older one.

Unfortunately, you will find that the cash flow will still be borderline, and equity growth may NOT be as much as an older property, because you PAY A PREMIUM when buying.

Think about the price difference between a 10 year old property today and a brand new one (same area, similar features etc). Does the same differential exist between a 10 year old house and a 20 year old house?

Again, due to the higher purchase price, you will have higher borrowing costs etc. - so this to an extent kills the benefits from depreciation (keep in mind you can still get significant depreciation benefits from old properties!).

As for reno's: Every time a tenant trashes a place, you need to renovate anyway.... and it always seems to hurt more when a brand new place gets trashed than some older joint...

If you don't have the time to investigate etc, it could be time to pay a good Buyer's Agent to do that function for you.


Cheers,

The Y-man
 
?? Asking the wrong guy mate, that's what I pay a quantity surveyor for.

The $3.5k this year is for the 60 year old house though. The new house in it's first year (a small 3/1/1) spun off over $7k dep. in it's first 11 months. Remember it's the building size and fittings that matter with the dep. report, doesn't matter if the land is worth $100k more or less than another property to make it $300k vs $500k if the buildings are the same.
 
Sanjay, also bare in mind newer properties generally sell at a premium to older places. So whilst you may get higher tax deductions, you're in effect paying for them anyway. ;)
 
Thanks for the replies.

Steve, I came to know that a new house worth 300k can give you the depreciation of upto 15k in the first year (diminishing value). How come you getting only 3.5K?

Probably because everything in it has depreciated.... (eg fittings, fixtures, etc). Steve's property might only have been worth $70k when he bought it too....

Cheers,

The Y-man
 
Probably because everything in it has depreciated.... (eg fittings, fixtures, etc). Steve's property might only have been worth $70k when he bought it too....

Cheers,

The Y-man

Plus remember that's for fittings only, no capital deduction with a property that old.
 
I have built, and am building, new houses, (all regional Victoria).

Have been able to buy blocks of land before they go up in price, (kind of snared good value blocks to build upon). Strong demand for well presented, executive type new rentals also means premium rental returns.

I guess in some instances I am building new houses for aboutish cheaper than what I can negotiate similar-already builts.

I do this by keeping a very close eye on the regionals I buy in...following closely, sales, time on market, auctions, who, what, where, why, how, when...I am a regional house and land block stalker?

I have a mix of new builts and already establisheds. Also a pocketful of land blocks to keep building on because I consider I got them at good value (for me).
 
So....howz my purchase

Thanks again for more insight. With all your experiences, can you pls tell whether the case below is worth or not:

I bought a house in Elizabeth East in Adelaide (contract date: 22nd Jun'09, Settlement date: 28th Aug'09) for $236K. I was not having enough cash to buy, so took a 95% LVR from CBA, and thus have approx $4K extra loan added for LMI. In total, the cost of purchase (including stamp duty etc) came out to $253K. I had to pay $24.5K cash and bank loan is $228.5K with 5.11% variable P&I (since it was 95%LVR, they refused to give interest only loan). If you look at the property, it is a 1972 built house (3/1/1) on a corner block of 785 sqm. (i didn't know the subdivision process, but friends told me it is good to buy corner big block with a potential, off course stcc). The house itself is nicely renovated in 2007 and has tenants paying $260pw. The PM is charging approx. 9% (including inspection etc). Quantity surveyor gave the dep schedule for $4700 in the first year and $3100 second year and so on. I don't have any spreadsheet which tells me whether this is a good buy after putting all the above numbers in it.
can you guys pls tell me about it? I'm in the 38% tax bracket.
Thanks
 
I couldn't afford a new house. They start at $220k bare minimum, usually over $300k.

But I can build one for $100k (if I had $100k lying around, but I don't, but that's not the point). I know which one I'd rather do.
 
Also, from a cashflow perspective, when buying established you are able to receive rent from day one, however when building it can take up to 18 months to start receiving income.

Boods
 
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Thru the Front Door

Rent................................13,520


Out the Back Door

Mortgage 228K @ 5.36%.....12,248
Council Rates.........................800
Water Rates..........................700
Insurances............................400
Land Tax..............................500
Repairs & Maintenance..........1,000
PM Fees.............................1,216

Total Expenses..................16,864


Shortfall.............................3,344 or $ 64 per week.


Due to the costs being incremental, I reckon if you could raise the rent $ 80 p.w. from $ 260 up to $ 340 p.w. you might just break even and make no money.


P.S. When I lived in Adelaide back in 1997, these houses were selling for 41K. If you bought for $ 236K.....do you expect them to do them same in the next 12 years ?? If so, you'll have a 1.4M asset on your hands.


All comes down to your expectations really.....:)
 
horses for courses.

H&L packages require you to settle the land and pay outgoings with no incomings. not exactly "money smart".

i'd rather buy something just completed personally.
 
[Due to the costs being incremental, I reckon if you could raise the rent $ 80 p.w. from $ 260 up to $ 340 p.w. you might just break even and make no money.


breakign even woul dbe better than doing nothing tho, as at least debt is deflating i.e. some other bunny is taking the hit on the deflation of your debt

CF+ of course is much better, where you get a return AND you have a bunny paying off your debt
 
horses for courses.

H&L packages require you to settle the land and pay outgoings with no incomings. not exactly "money smart".

i'd rather buy something just completed personally.

unless you negotiate payment/settlement on completion like us smart cookies. :p
 
breakign even woul dbe better than doing nothing tho

Indeed Ausprop, but I gather that the original poster was hoping for at least a result "better than nothing".

I bet if you ask him, he'll say his goal is to do a bit better than nothing.
 
Indeed Ausprop, but I gather that the original poster was hoping for at least a result "better than nothing".

I bet if you ask him, he'll say his goal is to do a bit better than nothing.

Your figures are pretty good Daz, though I think you over budgeted a bit for land tax and repairs (but then probably under budget for letting fee on PM fees).

Then he gets a tax deduction on his $3,664 loss at the 38% tax rate which brings it down to $2,271 (give or take), and this is without depreciation. $4,700 dep. in first year will give him back another $1,700 odd of his j.o.b. tax back, which leaves the property only costing him cash out of around $500 for the year or $10pw.

$500 to hold an asset that is increasing in value in it's first year by say $13k (5% growth) aint all that bad. :)
 
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