When you purchase a new versus old investment property, you can anticipate your cash flow more accurately. A new property gives you a few years allowance before you are required to conduct repair or maintenance projects. If something does go wrong in the first years in the life of the property it is still covered by a guarantee or a warranty.
If you buy an older property, there is always a risk of unanticipated maintenance projects, costs that some investors do not factor into their budget. Your hot water system could brake down for example, this is an unforeseeable cost but also an essential repair that will not necessarily add to the value of the property.
Another good reason to buy properties new is that the new layouts and design features are reflective of the current demand in the market. Older two bedroom units usually have a main bedroom, a smaller bedroom and a shared bathroom. Natural light and outdoor landscape might not even be maintained.
If you are buying the property for an invetsment it is important to understand that good tenants may be demanding and the cost of a new apartment may be steep, you can charge a higher rental fee to match the high value making for a higher return to match the cost. Also, new units are more appealing to potential tenants. New properties can satisfy the requirements of the present-day tenant more so than older style properties.
New properties can also be more valuable in your taxes. Its depreciation schedule can itemise historical building cost allowances which can generate deductions for 40 years and fixtures and fittings allowances which happen in the first five years. The depreciation schedule can generate tax rebates up to $100 or more per week depending on marginal tax rates.
What you perceive as a cheaper property can cost you more in the long run and give you less capital growth due to potential repair, renovation or construction projects. To determine your weekly holding costs, you can conduct a cash flow assessment to determine your weekly holding costs but you must consider possible depreciation allowances.
This way, you can the value of different properties with varying income and related expenses. The deposit for an older $250,000 unit and a new $400,000 property in a great suburb is not that different.
If you are borrowing 90% from the bank, an extra $15,000 will give you an extra budget of $150,000 for a property. If both properties appreciate annually by 10%, the new property gives you an extra $15,000 of capital growth during the first year and it could be cheaper to own depending on the trend of the cash flow.
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