Should you buy an established or off-the-plan investment property?
Deciding whether to buy an established or off-the-plan property as an investment takes a lot of consideration. Like any investment, there are upsides and downsides to both options. We're taking a look at some of the factors to consider when deciding between established or off the plan investment properties.
With established properties, investors can value-add by making changes to the property and often have strong equity building potential compared to new properties. In contrast, off-the-plan properties can offer higher tax incentives and could attract better quality tenants.
Buying off-the-plan
There are several benefits of buying an investment property off the plan. These benefits include depreciation benefits, attracting quality tenants, building protection, lower maintenance and tax incentives. Here's an overview of the benefits:
Depreciation benefits - the newer the investment property, the higher amount of depreciation you can claim in the financial year. Investors can deduct 2.5% of the property value for 40 years, providing attractive tax deductions.
Attracting quality tenants - new properties are typically in mint condition and include modern features such as reverse cycle air conditioning and new appliances. These features often attract quality tenants.
Building protection - developers who build new properties have to take out home warranty insurance. This will protect investors in the event of major building defects.
Low maintenance - given the property is new, many of the typical maintenance and repair needs associated with established properties aren't necessary in new properties.
Tax incentives - Governments around Australia allow incentives such as stamp duty concessions on new properties which could reduce the cost of the property.
The downsides of buying an off-the-plan investment property are that these properties can be less affordable than established properties, have limited value-adding potential for capital growth and carry the risk of declining value following construction.
Buying an established property
The benefits of buying an established property include its renovation potential, affordability, the ability to negotiate and capital growth. Here's an overview of these benefits:
Renovation potential - with established properties, there is more freedom to add to and change the property to add value and attract specific demographics.
Affordability - established properties are generally more affordable than off-the-plan properties. This could also make it easier to finance the investment.
Ability to negotiate - with established properties, there is often more room for negotiating on price especially if the vendor needs to sell quickly.
Capital growth - an investment in established property can provide better capital growth.
The cons of buying an established property include maintenance requirements, lower rental returns on older properties and less appeal. These factors can lead to higher vacancy rates, making it difficult to attract and retain quality tenants.
As always, everyone's individual circumstances and investing needs are different. Make sure you seek the advice of a legal and finance professional before you begin investing in property or adding to your portfolio.