'New v Old' property

To buy new or old? This is a frequently asked question.

The TLDR summary is that both approaches have their advantages.. however at our Buyers’ Agency we overwhelmingly favour the ‘old or established’ profile as we are mainly targeting out performance with capital growth and believe this is where the opportunity is in most cases.

Starting with brand new properties and listing the pros and cons.

Pros of brand new:

• More depreciaton for investors to help with cash flow
• Builder warranties
• More attractive to tenants
• Prospects of initially lower maintenance
• Buying OTP (off the plan) in a rising market can allow capital gains to be captured before having to pay holding costs

Cons of brand new:

• Can be built on smaller blocks Newer parts of a council and can be further from infrastructure
• Higher entry costs compared with established (older)
• Often sold with misleading marketing with hidden fees and disguised incentives.. ‘Brand new’ is where a majority of the sharks swim in the Australian property ocean.
• Additional areas of buyer risk can be masked in well worded contracts Buying OTP carries market risk, prices don’t always go up

Two stories of brand new purchases to follow:

Brand new purchase 1: A case of shark bite

This is an impressive looking new unit block (circa 2014) located in an excellent lifestyle location in Brisbane. Ticking the boxes of close to the train, airport, shops and numerous cafes and restaurants in a growing hub <10k from the CBD.

Let’s have a look at how an OTP buyer in this block performed.

Purchased 2013: $367,500 (1 bed apartment, buyer paid too much)

Sold 2024: $385,000 (buyer paid a reasonable amount)

CAGR (Compound annual growth): 0.43% over 11 years

Inital rent price 2014: $365/wk

Rental price 2023: $380/wk Strata fees: 5k per year (circa 25% of gross rental income!)

In case these numbers are a mystery, there are a few moving parts to consider.

The Brisbane apartment market underperfomed for a long time to be fair, though has bounced back strongly in recent years. The first buyer paid far too much for the wrong type of property in this example, the marketing group that was ‘helping the buyer’ for free (but getting paid by the developer) have some interesting strategies.

* They are getting paid fees to sell property to buyers and don’t care what they sell, time covers ‘most’ wounds. Fees can be in the order of 6.6% or 50k+ per property, incentives are just to sell and sell more as the marketing machine can be impressive in delivering a stream of new prospects.

* The fees gained for selling are substantial and the incentive for more trusted channels such as mortgage brokers, accountants, financial planners to also offer such deals are considerable. Usually these properties are sold directly though marketing groups.

* Initial rental prices are inflated in a clever way, the new rental opportunity is offered to a number of rental agencies who compete fiercely for the listing and valuable asset for their business – this leads to incentives to help a tenant into the property including significant rent free periods covered by the property manager. Rents revert back to reality in the following years.

I could go on.. the examples are everywhere. Perhaps the most interesting thing about these situations are that the buyers are often highly qualified professionals and intelligent people.

Brand new purchase 2: Solid buy and hold

Purchased 2007: $410,000

Sold 2022: $960,000

CAGR: 5.83% over 15 years

Rental price 2022: circa $700/wk

This was a relatively small infill development 11k from the Brisbane CBD, so the supply of similar properties was restricted, hence the solid growth over 15 years.

The initial price was not cheap, however the buyer captured all of the inital high depreciation and achieved healthy rental yields with guaranteed rental demand due to buying the right type of property in a quality location.

The case for established:

We buy a lot of established, read older, houses at our Buyers’ Agency. We like the extra depreciation and potentially higher yield and lower maintenance with brand new property, however these benefits are not as desirable as achieving stronger capital growth over the long run, which is the primary goal for almost all of our buyers.

A typical house we buy: In the same suburb as the previous example.

Purchased 2012: $347,000

Sold 2022: $735,000

CAGR: 7.79% over 10 years

Chasing out performance with capital growth requires a number of elements mixed together in the recipe, however one of the main ingredients is a well located and valuable parcel of land underneath your dwelling on the land.

The maxim that ‘Land appreciates and dwellings depreciate’ is directionally correct. The money is in the detail and fine print.

• Not all land is equal Larger land size does not necessarily equate with more valuable land
• The location of the land is critical. Ideally you are in an area where future increase in the dwelling supply will be primarily from infill development and higher density zoning changes rather than greenfield developments.
• If the land is useable it will be more valuable, flat block, regular shape, good frontage, services such as sewer and water all well located. Elevated and views can be a bonus.

Targeting these criteria means that a tradeoff can often be the house on top of the land can be a tad ‘tired’.

This means that there will be money needed to be invested into the condition of the property, ideally on items that add value and increase the rental income and valuation. Items such as paint, carpets, blinds, air-conditioning, minor maintenance. Avoiding money spent on items which will soak up funds but not add value such as, rooves and gutters, retaining walls, structural issues.

We vote often for the ‘established property’ with our dollars.