24 Nov 2010

Should You Buy a New or Old Home

It’s the age-old debate: are you better off buying a new home that has few maintenance issues, or an older property that offers the opportunity to add value?

Property expert Chris Gray, author of The Effortless Empire, says there are pros and cons of each option whether you are a home buyer or property investor.

Buying second-hand

“Buying second-hand creates an opportunity for those who have the knowledge and ability, or are willing to delegate the buying process to someone who has, to add value through renovations. This opportunity doesn’t exist with brand new properties, as they have been designed to be on-sold at a premium,” Gray explains.

Older style properties are typically sold by ‘mum and dad’ owners, and because they are not professional sellers, they don’t “go to the extreme when styling the property ready for sale”, Gray explains. Benefits of styling your property for sale is to generate more interest from prospective buyers walking through the property as well as for the photos that appear in the real estate websites and offices.

“So, second-hand properties typically sell for a more realistic price than new ones,” he says.

“This provides buyers with opportunities to boost the property’s value, so an advantage of second hand properties over new ones is that you can add value to them by renovating.”

For instance, a simple paint and recarpeting job can cost as little as $5,000 and take less than a week to implement, but it can add $10-$20,000 to a property’s value. “The key is to ensure that the renovations will increase your profit and add value, without overcapitalising,” he cautions. “This can be difficult for inexperienced renovators to achieve, so you may want to consider delegating to a professional project manager.”

Buying brand new

There’s no denying that buying a new property “does make life easier”, Gray says, “especially if you’re not keen to renovate.”

From a maintenance perspective, you can expect few expensive repairs and replacements in the first years of home ownership, as all of the fittings and fixtures are freshly installed and are under warranty.

Newer homes also offer fantastic depreciation benefits that can substantially offset your annual tax bill, as a property investor.

But, all of these benefits do come at a price.

“Developers that sell brand new apartments are professional vendors, so the property is often highly priced. It may be without hassles, but you’re probably going to pay an escalated price,” Gray explains.

Also, while depreciation tax benefits can be very helpful to your cash flow, you should always “concentrate on the underlying investment”, he adds.

“This means you need to calculate what the investment is worth now, and how much it’s likely to grow in the future.”

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