New VS Old Properties

In Australia today there is a package of allowances and tax deductions that make it possible to own a new investment property without outlaying any cash. This depends on how much tax you pay.

One of the most common questions that are asked when people are starting to invest is whether to buy a brand new property or an older property that is slightly cheaper.

I suppose the correct question to ask is, what am I buying this property for.  If you are buying a property to add value to it immediately, you are better off buying an old property and add value by changing carpets and applying a coat of paint and perhaps some basic landscaping.

Naturally, this will allow you to immediately increase the value of your property, which you can leverage into other investments or perhaps pay off your other debts.  One of the drawbacks   is that you do not have a very high depreciation of fixtures and fittings, where an old property is concerned.  The depreciations are still there-they are much lower when compared to a brand new property.  This will make the holding cost of the particular property are higher than the new property.

On the other hand are brand new property has several distinct advantages as far as tax benefits are concerned.  Apart from the obvious advantage, where there is very little mid-term maintenance, as a majority of the appliances are covered by manufacturers warranty for the first two years, and the building itself is covered by builders warranty for seven to 10 years, the other advantage is the higher depreciation of the fixtures and fittings, as well as the building.

This in turn leads to a much lower holding cost.  The other advantage of a brand new property is the quality of tenant that you are likely to attract in opposition to an old property, at a higher rental, and they are likely to stay longer because of the fact that they have a brand new property to live in.

So if you are looking for a tax break and a much lower holding cost  when buying an investment property, a brand new property is the way to go.

It's preferred that individuals buy a new or fully refurbished property rather than an established property as the Federal Government provides a package of depreciation allowances and tax deductions exclusively on new investment homes, as it wants to encourage more private investors to build rental properties. You may not get these deductions if you buy an established home and rent it out.

The benefits individuals can receive from building compared to buying an old home is as follows:

Comparison of New Properties To Established Properties

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