For those with an interest in this topic here's an exerpt from this month's Money Magazine: New vs old Money Magazine, August 2006 All property buyers should surely consider older homes instead of new ones – the price difference can be as much as 40%. The cost of providing a new house-and-land package is considerably more than the market value of equivalent “used” homes in the same area. The difference is commonly $100,000 – and sometimes much more. Market research shows that buyers are prepared to pay up to 20% more for a new dwelling, but there is strong resistance once the differential becomes greater than that. And current research by market analyst Matusik Property Insights found that, on average, a new house costs 36% more than an established house in the same suburb. The differential is even greater for apartments: a new one costs 40% more than an equivalent second-hand apartment. This is creating a disincentive for families to buy new dwellings. In some areas, a new house-and-land package costs $200,000 more than established housing, while a second-hand apartment provides much better value than off-the-plan product. “You’re better off looking for a resale apartment,” Matusik says. “Many of them are only a year or two old, you have plenty of depreciation benefits left and they are 40% cheaper.” -------------------------------------------------------------------------- I don't necessarily agree with the 40% part- after all, depending on the part of the cycle that we're in, buyers can pay up to 90% of new places, when purchasing established properties. However, I've always been a fan of established properties over new, simply because you can both value add to them and they tend to be in more desirable locations. New does have it's advantages (depreciation being a major drawcard for investors) and there are many homebuyers who simply abhor the thought of living in "someone else's home". Strange, but true. What are others' thoughts here?
As an Ip definitely used - purely price based. As a PPOR, perfect world = new - that way I can get what I want. However it doesnt have to be new but more of a case of a more modern design than the 60s built joint I live in now. I like the kitchen with the casual eating area as well as the dining room setup, ensuites and walk in 'robes. i don't have a hangup about living in someone else's house, as long as the design is along the lines of what I would like I'd be happy with a used joint.
" What are others' thoughts here?" Well....With the old house is like with the old car.... the older it gets the more you invest in it. Can you imagine how your old IP may look 20 years from now ? How much money you need to spend on 40 years old house now and in the future? Once I lived in the 28 years old house.... I sold it just before disaster striked ( new water system, new gutters, new roof, new ect, ect ....). But again....some people like antiques and others do not. It is personal choice. I am for new houses (or almost new).
Hey Jacque, I am currently hunting for a PPOR and have had the same debate internally. In the areas i have been looking; Old home = Larger blocks, usually made of fibro/wood, need work to make them a pleasant environment, have been designed for a different decade where there were different priorities, no strata. New townhouse/villa = Smaller block of land, brick veneer, no work required, design is suitable for todays living conditions, strata These two options are about the same price where i have been looking around west ryde, ermington, dundas. At the end of the day, it probably comes down to your personal taste for a PPOR. At present, im leaning towards the newer home which is more pleasant to live in and is better designed for how we live today, and i won't need to spend any further money or time repairing things. Now is also a really good time, to bargain down those requested sale prices. Of course this may mean reduced capital growth due to the smaller land content, but you never know. As a side point, if i moved out and made a newer home an IP, it would be easier to rent i think, and yes you would have the depreciation benefits.
Hi Leandro Actually, I was making more a statement on IP's, as PPOR's are a different kettle of fish altogether. We are naturally more fussy when buying our own abode and so if a new property arises that ticks all the boxes, then I would consider new as well. Especially if it had room to house all my shoes When you are limited by housing style/size/type within a particular area but still desire to live there, knockdown and rebuilds can often be the answer. This especially applies when land value is roughly equal to the cost of both building and land (as in some places in the Hills right now) as the finished product is going to be superior to other homes in the same street. It may be known as building the best house in the worst street, but is often a sign of future gentrification to come. Houses age, just like we do, and require ongoing maintenance and upgrades to keep them looking good. Some owners elect to knock down and begin again, whilst others elect to extend/beautify/remodel instead.
You raise valid points here, Tropo, and particularly with maintenance issues. I've just shelled out $2000 this week for new guttering on a regional fibro hosue of mine because the original 1960's guttering has had it. However, don't make the mistake of ignoring established properties simply because of maintenance issues. Units, for example, require much less spent on them and exterior spending comes out of the strata fees and sinking funds, so are not felt as much. Also keeping a close eye on your properties can reduce the need for unforseen big bills. Items like water systems are small fry and these really only have a life of about 10 years anyway, so the chances of you having to replace at least one in your life as a long term investor landlord are going to be high regardless.
I look past the house, new or old, and consider the irreplaceable land. If something was a steal and close to the city or overlooking water, I'd buy a garden shed over new or old house (as long as it was validly rentable for negative gearing purposes ) All the houses, whatever age, are gonna look pretty ordinary in 200 years (when my daughter passes them on as great-grandmother to some future generation, hopefully). But I bet people will still be salivating over the good land (nuclear holocaust excepted) ;-)
Haha, its the same for me TH, land content all the way. I aim for the highest land percentage, as close to the CBD as possible. My first IP is 947sqm zoned R40 within 10km of CBD, going well so far (despite the oldish 3x2)
As long as you can afford to service the costs of a dump on a prime piece of land and the benefits of holding outweigh these costs then all is well and good However, most investors don't have that luxury and so aim for at least a semi decent building to sustain them with some type of income through the holding period. Being aware of ongoing maintenance costs is also another cost that needs to be factored in (and realistically) as it's up to us as landlords to provide a safe environment for our tenants.
If I could afford a garden shed with an ocean view, I reckon I'd make it a safe haven for my tenants ;-) Seriously, no one wants to be a slum lord, and I don't mean I would expect anyone to rent a sh**box (quite the opposite, I think you should only ever offer a place for rent if you would live in it yourself), but the land is the vehicle we're gonna borrow against to give our next tenant a nice place to live ;-) We only have 2 IP's (till next month anyway), and one is an old removal fibro home on a piece of spectacular country, the other is a brand new home in a 'typical' suburban acreage area. The older one has needed much more upkeep and (initially) attracted higher maintenance tenants because of its own higher maintenance nature (despite an 'extreme makeover'). The other (new) one has had the same lovely people in there for 2 years since we first offered it for rent and we've hardly had to lift a finger. Both properties have good depreciation (no building allowance on the old one except it was a removal house and has some post-1987 bits that worked out ok). The older one on the nice land is going to be the equity building block for the next adventure - the land is irreplacable. The other has been a lazy investment that still freed up another lump of cash to put toward our current project, thanks to catching the end of the boom. They both have good and bad points. We're in the position of being able to now think a bit more mid-long term, and if I could afford it, I'd definitely buy another couple of the old ones if the land was the same quality/rarity. The lack of building allowance etc. is a drop in the ocean compared to the long term CG. When I was elbow deep in the rubbish removal and cleaning (to meet our duty of care to the tenants!), though, I don't remember being a huge fan of the 'old' place Cheers Carl
I just went through this new vs. old decision for my PPOR. The choice was NEW: 4x2, super modern fit out, stunning house -> 450m2 land OLD: Literally falling down, maintenance neglected for 40+ years, huge holes in walls, antique wiring, no heating, no functional kitchen. 950m2 land Prices were the same, position was effectively the same. I chose the old, because over time I can fix any aspect of a house and surrounds, I can never "fix" the position & amount of land and 450m2 is just too small. I think inner Melbourne is becoming a region devoid of backyards, but I was determined to own one.
This is a great example of the intrinsic value of land itself, Shake (It does sound odd calling you this but the entire name is way too long and the abbreviation a little inappropriate for this type of forum so Shake will have to suffice) and I'm with you on this one. After all, the house on 450sqm will eventually one day also become old and tarnished with the "used" tag and you can happily gloat whilst mowing your large block, enjoying the joys that decent backyards do bring Not to mention the possibility of subdvision down the track, if the zoning allows...... and when your need for such a large yard wanes...
Hmmm.."Shake" is better than the Acronym "STD" I prefer Old to New, and with a reno you can get almost the same depreciation benefits at a lower cost in many cases.. Every IP I've bought has been a struggle though with lots of work from us and our Broker, new wasn't really an option (one day as a PPoR maybe)
As a follow up to this post, after checking out some very nice 5 acre parcels out my way today, I realise the maintenance issues are enormous on these nicely manicured places. Practically every property had a ride on mower or tractor going, and I imagine such activity would be a regular occurrence. Then there's the gardens, the fencing, the watering.....
Can't you just get a couple of goats/horses/cows/sheep to keep the lawn trimmed? Surely there's some tax breaks involved?
Yes, and that's a situation that I'd be certainly willing to consider, Nigel. Lots of landowners in the Hills use such beasts to not only keep their grass trimmed but also as a side source of income. As far as tax breaks are concerned, I'm sure Nick would know
Only if you are running a viable business - you need to be careful about hobby farming ... especially if it is not a profit making venture, you may not be able to claim a deduction on expenses.
