New or Old?

When it comes time to consider investing in property, many discussions arise around the question of the benefits of purchasing new, as opposed to old.  Which is better, particularly from a depreciation point of view? Whilst there is no black or white answer, generally if you are focused on capital allowance deductions then new is the way to go.

Why new?  What are the benefits?

The main benefit of buying a new property is depreciation – this will provide a higher total base tax deduction entitlement, when considering the combined value of fixtures and fittings the building structure’s value.  You can deduct 2.5% off on the structure of the property itself over 40 years, which can add up to a significant tax deduction over time.  Appliances such as air-conditioners and dishwashers generally have a higher rate of depreciation.

Another benefit of buying a new (or newer) property is increased tenant appeal – new dwellings are generally more in demand from the rental market and tenants are willing to pay higher rents to live in a new property, thus yields are more attractive and occupancy rates higher.

New (or newer) properties tend to be more low maintenance than older properties; you should not need to expend any significant funds on repairs in the earlier years of ownership.   An increasing number of buyers and tenants are seeking easy-care living, so a low maintenance property will also heighten appeal in the rental market.

A new home may also have the added protection of a builder’s warranty that protects you for a period of time in the event of any major building defect.   In some instance’s insurance costs are also lower.

Advantages of older properties.  Are there any?

Yes, there can be – depending on the location and property type, new dwellings are generally less affordable than older dwellings, so affordability is a key advantage.

There is also less opportunity to value-add on a newer property via extension or renovation; so it may take longer to achieve capital growth.

Less risk-averse; generally new properties are the first to see price declines when the market softens, whilst established properties maintain their price value or experience a minimal adjustment.

Negotiating power – when you buy an established property you can generally negotiate a fair price.  Vendors of established properties are usually private sellers who have strong motivation to sell relatively quickly, as opposed to negotiating with major building/development groups who set a fixed price and are less emotionally invested in the situation.

In summary, when considering the above factors, the pendulum swings heavily towards the advantages of purchasing new (or newer) properties to add to your investment portfolio and maximum tax benefits and income generation.

Whether buying an old or new property, try not to be seduced by emotion or tempted by up-front savings; be focussed on selecting a low maintenance property in the right location with potential for future capital growth and increasing rental yields.