Blog

Property investment is one of Australia’s most popular vehicles for building wealth. However, like every investment strategy, the decisions you must make will shape its success. And one of those decisions is choosing between a new property, or an existing one.

In this article, I’ll compare the pros and cons of buying new and existing properties, helping you determine which approach aligns with your investment strategy and long-term goals.

Here’s what I’ll cover:

1. Pros of buying a new property
2. Cons of buying a new property
3. Pros of buying an existing property
4. Cons of buying an existing property
5. Factors to consider based on your situation and goals
6. How to make your next step a whole lot easier

Pros of buying a new property

Investing in new property comes with several advantages, particularly for those looking for a hassle-free investment. One of the main benefits is the modern amenities and standards that come with new builds. New properties are often equipped with the latest technology, energy-efficient appliances, and updated safety features, making them more appealing to tenants seeking convenience and lower utility costs.

Another key advantage is lower maintenance costs. Since new properties are freshly constructed, they are less likely to need repairs or replacements in the short term. In addition, many new builds come with warranties that cover major systems, providing peace of mind and reducing unexpected expenses during the early years of ownership.

Tax benefits are another strong incentive for buying new. Investors may be able to claim depreciation on the building, fixtures, and fittings, providing significant tax deductions that can improve cash flow. This can be a particularly attractive option for investors seeking to maximise their returns.

New properties also tend to have higher rental appeal. Modern designs, open layouts, and updated features make them attractive to tenants who are willing to pay a premium for contemporary living. As a result, vacancy rates may be lower, and rental income higher, in comparison to older properties in the same area.

Finally, energy efficiency is a major draw. Newer properties are often built to meet stricter energy standards, reducing overall energy consumption and lowering utility bills. This not only benefits the environment but also makes the property more attractive to eco-conscious tenants.

Cons of buying a new property

But it’s not all good stuff. While new properties offer several advantages, they also come with certain drawbacks that investors should consider. One of the primary concerns is the higher purchase price. New builds often come at a premium compared to existing properties, and this higher upfront cost can impact cash flow, especially for those who are borrowing a significant portion of the purchase price.

Another potential issue is the limited scope for capital growth in the short term. New properties, especially in areas with significant development, may take longer to appreciate in value. In some cases, the market may even see a temporary drop in value as the area becomes saturated with similar properties, leading to slower growth compared to more established suburbs.

Oversupply risk is another consideration when buying new. In high-growth areas with a lot of development, the sheer volume of new properties can lead to oversupply, increasing competition among landlords. This can result in higher vacancy rates and pressure to lower rents, potentially reducing overall returns.

Lastly, less room for personalisation can be a disadvantage for some investors. Unlike older properties, where you might have the opportunity to add value through renovations or customisation, new properties typically come with standardised designs and features. This can limit the potential to make improvements that could increase the property’s value or rental appeal over time.

New properties have their pros and cons. But what about existing residences?

Pros of buying an existing property

Existing properties have their own set of benefits, making them an appealing option for many. One of the key advantages is their location in established neighbourhoods. These areas often have mature infrastructure, such as schools, transport links, and shopping centres, which can make the property more attractive to renters.

Another major benefit is the potential for capital growth. Older properties in desirable locations often appreciate in value over time, especially if the surrounding area is limited in terms of further development. This can lead to higher returns for investors who buy in at the right time.

Character and charm can also make existing properties more attractive to certain tenants. Many older homes have unique architectural features that appeal to those looking for something different from the modern, uniform designs found in new builds. This can give an investor a competitive edge in attracting tenants who value individuality in their living spaces.

Furthermore, existing properties often offer renovation potential. Investors can add value through updates or improvements, increasing both the property’s market value and rental yield. This ability to modify or renovate gives more control over enhancing the property’s performance over time.

Lastly, lower purchase prices are generally often associated with existing properties, particularly those that need some work. This lower entry cost can make it easier for investors to enter the market, and any subsequent renovation or improvements can lead to increased equity in the property, offering a potentially higher return on investment.

Cons of buying an existing property

The first significant downside to buying an existing property is the comparatively higher maintenance cost. Older properties typically require more upkeep, including repairs and replacements for aging systems such as plumbing, electrical, and roofing. Over time, these expenses can add up and reduce the property’s profitability.

Another drawback is that existing properties are often less energy-efficient compared to newer builds. Older homes may have outdated insulation, windows, and heating systems, leading to higher utility bills for tenants. This could make the property less attractive to renters looking for cost-effective and environmentally friendly living options.

There is also the potential for hidden issues with older properties. Structural problems, outdated wiring, or plumbing issues might not be immediately apparent during an inspection. These hidden defects can lead to costly repairs down the line, especially if they were not properly identified before the purchase.

Additionally, limited depreciation benefits can affect an investor’s tax strategy. New properties offer greater depreciation deductions on buildings and fixtures, which may not be available to the same extent with older properties. This could mean a lower tax refund for investors focusing on existing homes. Please note, this is not taxation advice. Please speak with your tax professional for more information about this.

Lastly, older properties may lack modern appeal, which could affect their attractiveness to renters. Many tenants prefer contemporary layouts, modern appliances, and open spaces, which older properties often do not provide without significant renovations. This could limit rental demand or require further investment to update the property to meet current tenant expectations.

Factors to consider based on your situation and goals

When deciding between a new or existing property, it’s important to reflect on your personal circumstances and investment strategy. Your choice should align with your financial goals, risk tolerance, and time horizon.

Investment strategy is a key consideration. If your goal is to generate strong rental returns, a new property with modern features may attract higher-paying tenants and reduce vacancy rates. On the other hand, if you’re focusing on capital growth, an existing property in an established area with strong market demand may offer better potential for long-term appreciation.

Considering your financial position is also important. New properties typically require a higher initial outlay, but they often come with lower maintenance costs in the early years. Existing properties may be more affordable to buy, but they might demand more frequent repairs and renovations, which can increase ongoing expenses.

Risk tolerance also plays a significant role in your decision. New properties come with fewer unknowns, such as hidden structural issues, but they might be located in newer developments that carry a risk of oversupply. On the other hand, existing properties may pose more immediate risks, such as aging infrastructure, but they are often in stable, well-established markets.

The time horizon of your investment should also be factored in. If you’re planning to hold the property long term, an existing property in a growing area might yield better returns over time. Conversely, a new property might be more suitable for investors seeking steady rental income with minimal maintenance in the short term.

However…

When it comes to choosing between a new or existing property for investment, there is no one-size-fits-all answer. Both options offer distinct advantages and disadvantages, and the best choice will ultimately depend on your individual financial goals, risk appetite, and investment strategy.

How to make your next step a whole lot easier

If you’d like help with this decision, you might be interested in a Free 30-Minute Finance Strategy Session during which you will…

• Get a better understanding of the lending options available to you, which dictates how you may be able to proceed with your next investment
• Get an up-to-date picture of the lending landscape including rates, conditions, and how to structure your loans
• Learn about our process to find you a loan that you’re eligible for, using the help of a family member or friend
• And more

This no-obligation free session will be held with one of our experienced mortgage brokers.

Please be assured this will not be a thinly disguised sales presentation. On the contrary, you’ll receive our best strategic advice, specific to your situation, so you too can accumulate multiple properties without sacrificing your current lifestyle and accelerate your progress towards wealth.

Schedule Your FREE 30-Minute Finance Strategy Session Today

———

Please note, the numbers and assumptions listed in this article are for educational purposes only. Individuals should seek specific advice pertaining to their unique situation and the real estate market before making any decisions.

Trilogy Funding Two is a corporate credit representative (Representative Number 506131) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237)