NEW VS OLD VS LAND/BUILD

Each scenario has its merits, and it does depend on whether you are looking at a positively- or negatively-geared scenario.

Old

Ok, 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.

New

Woh! 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 might have 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 & Build

Good 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 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 (although the interest is tax-deductible). Finally, you hope that the developer doesn't go bust during the process and you lose money (make sure you really do your due diligence re the developer/builder. See your lawyer about this).

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.  

However, you also need to consider what type of land and build package you'll choose...

Turn Key Vs Progress Payments

There are two types:

1. Turn Key. This is where you pay a small deposit, then nothing until the house is built ie you can "turn" the "key" in the door.
2. Progress Payments. Usually you pay for the land, then pay as the build progresses.

For a good description of the pros and cons, and the lending issues, please see this blog article.

So... now what?

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. 

Then give us a call. We're happy to chat and we are here to help: 0800 890 132 or support@epsomtax.com

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