Brand new or renovators delight? What is a better investment strategy – buying a new house or buying an old house that needs a renovation?
The commonly asked question from potential investors is should I buy something new or something old and renovate. The answer is really simple. It depends. In this video I share with you how YOU can work out which strategy is better for YOU!
Let’s start with old properties that need renovation. Older properties can be fantastic investments if you are investing in the right area. The old cliché the worst house in the best street is a great example of this. Done correctly a property renovation can add instant equity to a property by increasing the appeal, aesthetics or function of the property. Renovations are a complex topic but here are a few simple guidelines we recommend.
Never undertake a structural renovation
Sure if you are an engineer this might be right up your ally but in our experience as soon as you amend structure you open yourself up to time and cost blow outs that can easily be bigger than 50% of your original budget and time-frame. A simple rule I follow is never undertake a renovation that your property manager can’t organize. And remember in renovation speak a new coat of paint and a garden tidy are the most under estimated commodities. The best renovation I have ever done was mowing the front lawn, tidy the garden and repaint the front of the house. That first impression made a huge impact on value.
It’s often said that old properties aren’t eligible for depreciation but this is a myth. A handy rule of thumb we give our investors is buy properties build after 1990. Also remember that any renovations undertaken may be eligible for depreciation claims but the timing and extend of these can play a factor. So talk to your property manager, accountant and a depreciation expert to understand this BEFORE you pick up your hammer.
New properties rent for more
New properties are like new cars. There is nothing quite like driving one for the first time. New properties, like cars, sell for more, they rent for more, but the new car smell only last so long. And that first scratch or dent hurts the most.
A new property attracts a larger share of tenants, achieves higher rental returns and provides the most attractive gearing and taxation benefits through generous depreciation allowances. Also the maintenance requirements of new properties are expected to be significantly lower than old properties.
The location of new properties is often in new housing estates at a time when hundreds of homes are added to that particular postcode. So sometimes you need to factor in a lower growth on rent and value in the initial period because after all property is a supply and demand game.
The question is never as simple as OLD or NEW. There are many near new properties that don’t necessary require renovation that can be as attractive as a brand new shiny house and land package or an old tired renovators delight. There is no golden rule but the key question here is what do you want? What are your skills? Are you handy with the paint brush and hammer? Do you have the time and the money because renovations don’t do themselves.
If not, don’t renovate and keep your hair !
As always we have done the work for you and created a cheat sheet with the pros and cons old versus new. Click the link below and receive the sheet in your mailbox within minutes.