The debate over whether to invest in new or old properties has been ongoing among experts, and the choice between the two often depends on individual preferences and financial goals.  

While there are solid arguments for both sides in the “new vs. old properties” debate, it’s essential to examine the pros and cons of each to make an informed investment decision. In this article, we’ll explore the advantages and disadvantages of both new and old investment properties and provide real-life case studies to offer a holistic view. 

NEW PROPERTY | A BREAKDOWN 

Pros of Buying a New Property 

Investing in a new property offers several distinct advantages:

1. Tax Write-Offs: New properties, especially off-the-plan ones, offer excellent depreciation benefits, especially in the first five years. Investors can claim tax deductions for fixtures and fittings in the first 5 years and depreciation for the building over 40 years. For instance, on a $369,900 new building, you could make a $9,248 tax claim (2.5% of the value per year).

2. Attractiveness to Tenants: Newer properties come equipped with modern amenities, smart home technology, energy-efficient appliances and contemporary design features that can attract tenants or buyers seeking modern comforts. This makes them appealing to tenants willing to pay a premium for such conveniences, reducing the risk of vacancy (which is many investors’ number one concern).

3. Security and Protection: Home Building Compensation (HBC) or builders’ warranty insurance is mandatory in most states for new properties. It provides protection against structural or major defects, offering investors peace of mind.

4. Low Maintenance Costs: New properties come with warranties, reducing the need for maintenance. In contrast, older properties may require more frequent repairs and replacements, leading to higher expenses.

5. Government Incentives: Government incentives, like the First-Home Owners Grant, are available for first-time buyers, reducing upfront costs. 

6. You are Exempt from Paying Stamp Duty: Stamp duty for house and land packages is typically based on the land value, further decreasing expenses. You are exempt from paying stamp duty on the building component since it doesn’t come into play when you purchase the land.

A significant number of our clients choose to invest in new properties as a strategy to lower their tax obligations, and I’ve outlined the reasons below. 

 Tax Benefits of Investing in New Properties in Australia:

1. Depreciation Deductions: New properties often have a higher cost basis, which can result in larger depreciation deductions. In Australia, you can claim depreciation on the building structure and eligible fixtures and fittings, which can provide significant tax advantages over time.

2. Capital Allowances: Certain new properties may qualify for capital allowances, allowing you to deduct the cost of plant and equipment, such as air conditioning units and appliances, over their effective life. 

3. Energy Efficiency Incentives: Australia offers various incentives and rebates for energy-efficient improvements, such as solar panels and insulation, in new properties, which can help reduce your overall tax liability. 

4. First-Home Owner Grant: If you are a first-time homebuyer and invest in a new property that you intend to live in, you may be eligible for the First-Home Owner Grant (FHOG), which provides a one-time financial benefit to eligible buyers. 

Cons of Buying a New Property 

However, there are drawbacks to consider when investing in new properties:

1. Limited Opportunity for Value Addition: New properties often come with modern finishes, leaving less room for value-adding renovations.

2. Limited Land Component: Newer properties often have a smaller land component, making it less viable to subdivide or add additional structures like a granny flat. 

OLD PROPERTY | A BREAKDOWN 

Pros of Buying an Old Property 

Investing in an old property also offers various advantages, which can be significant with the right choice: 

1. Ideal for Adding Value: Older properties provide ample opportunities to add value through renovations and improvements. These costs are often tax-deductible, and even cosmetic changes can enhance value, rentability, rental returns, and depreciation benefits.

2. More Land Value: Older properties typically retain more value in the land compared to the building. Over time, land tends to appreciate, while buildings may depreciate. You can claim depreciation on the building on your tax return and this is why many prefer buying new property over old properties.

3. Property History: Established properties have a proven resale value, as transactions typically involve willing buyers and sellers. Access to property history, including previous sale prices, is readily available.

4. Established Infrastructure: Older properties are often located in areas with well-developed infrastructure, including transportation, schools, hospitals, and more. These amenities drive property growth.

Tax Benefits of Investing in Old Properties in Australia: 

1. Renovation Deductions: Expenses related to renovating or improving an older property can be deducted over time, which can help reduce your taxable income. This is also valid on a new property but there will be less need to spend money renovating in the early days.  

2. Negative Gearing: Investing in older properties can sometimes result in negative gearing, where your rental expenses (e.g., mortgage interest, maintenance costs) exceed your rental income. This can create a tax benefit by offsetting other taxable income. This is also valid for a new property.  

3. Land Tax Thresholds: In some regions of Australia, land tax thresholds may be higher for older properties, allowing you to own multiple properties before exceeding the threshold and incurring land tax. 

Cons of Buying an Old Property 

However, there are also downsides to investing in old properties:

1. High Maintenance Costs: Older properties may require more frequent maintenance and repairs, potentially straining your cash flow, especially if the property is negatively geared.

2. Lower Rental Returns: Older properties generally generate lower rental returns compared to newer units, affecting your overall income from the investment.

3. Lower Tenant Appeal: Modern tenants often prefer new properties with modern amenities, leading to reduced tenant appeal for older properties and potentially longer vacancy periods.

4. Limited Depreciation Write-Offs: Tax legislation changes in 2017 may limit depreciation claims on used plants and equipment found in second-hand properties, affecting potential tax benefits.

Worth nothing, that whether you purchase new or old you may receive a Capital Gains Tax (CGT) Discount when selling an investment property. You may be eligible for a CGT discount on the capital gain if you have held the property for at least 12 months. This can reduce your overall tax liability on the profit. 

It is important to note that Australian tax laws are subject to change, and the specific tax benefits available to you can vary based on your location, property type (e.g., residential or commercial), and individual financial situation.  

To make informed decisions and maximise your tax benefits, it is advisable to consult with a qualified tax professional or accountant with expertise in Australian property taxation 

CONCLUSION 

The choice between new and old investment properties should align with your individual investment goals, risk tolerance, and financial situation. Both options offer unique opportunities and challenges, so carefully weighing the pros and cons is crucial for making informed decisions in the world of real estate investment.  

Reach out to me today at leonie@wealthology.com.au and explore our tailored investment strategies designed to maximise your wealth-building potential. Your journey to financial prosperity begins now.