New vs old vs land/buildEach scenario has its merits, and it does depend on whether you are looking at a positively- or negatively-geared scenario.
OldOk, so here's the good points: You buy a house: it's built, with tenants (usually), you've got your LIM report, you know what you're getting (hopefully) and you're good to go: that is, the investment property scenario starts rolling straight away. Rent comes in, expenses go out, wealth grows. Done.
The bad points: You actually have to find that house, in the right street, in the right suburb, and then once you've done that, hope that you win the auction or get your offer accepted. Provided that the LIM report didn't show up anything nasty. Hope it's not leaky. The value of the chattels is usually low, so the depreciation isn't great. Also, as it is older, you have more repairs and maintenance. Potentially you have to spend some money on insulation, and sooner or later it'll need a new kitchen and bathroom. Those last three expenses very likely aren't tax-deductible either. NewWoh! So you've got a brand-new place. Awesome! That means you'll get maximum depreciation on your chattels - remember to get a chattels valuation. And, repair and maintenance will be low. Plus it is well-insulated, and might even come with a MBG.
On the other hand, you probably had to pay a lot more because it was brand new...and it is not likely in a Central City suburb. More likely it is on the outskirts, which is OK, but not as desirable as a suburb which is closer in. Land/BuildGood bits: all of the above under "NEW". Plus, there was no auction, no putting in offers and waiting anxiously to see if they'd be accepted. Look at all the stress you've saved!
The bad bits: The builder probably said it'd be 6 months, but that didn't include getting consent from Council. Then there were weather problems, and other problems, and so it has actually taken a year to build. So you are only just getting tenants in now. And you've been paying interest on the land and the progress payments all that time (unless you got a deal where the builder/developer agreed to reimburse your interest costs during the build phase!) |
Land/Build (cont.)However, returning to the plus side again: assuming you've got a good contract with penalty clauses for delays by the builder/developer (talk to your solicitor), and you paid a reasonable price for the land, it has been appreciating in value all that time. And it probably means you've come out with an asset that's worth more than what you paid for it. Some of the costs you've incurred may even be deductible. Plus, the weekly rent that the property can attract has doubtless increased, and so that just about covers the property management costs.
So... What Now?As you can see, there is no right or wrong per se. Just options. Make sure you've read about rental yield and how to get started in investment property.
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