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New v existing — which one should I choose?
David Shih

New v existing — which one should I choose?

buying
1 minute read

New v existing — which one should I choose?

March 26, 2018

As investors, the constant question is whether to buy new or existing. Should I buy new or existing, and what are pros and cons of each?

Disregard buying new or existing; buy a place with as much land component as possible

If you can, buy a house with a land component. Over time, land appreciates and building depreciates, so you would want to buy a place with as much land component as possible.

For example, if I’ve stretched myself earlier and bought two houses in Sydney, I probably would have gained another 400k easy equity (thanks to the latest Sydney boom!).

New house and land (H&L) v existing house

Here are a couple of pros and cons I can think of (not extensive):

Pros of new H&L:

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  • Minimise on outgoing maintenance cost as everything is shiny and new;
  • Able to claim lots of depreciation for the first couple of years to offset your taxable income and extra money to go against mortgage; and
  • Can usually achieve a higher rent which again helps cover the mortgage.

Cons of new H&L:

  • You’ll be paying a premium price as it’s a brand new finished product — so essentially, you’ll be paying for the developer’s profit;
  • Need to make sure there is rental demand as you could be up against hundreds (if not more!) of other new builds, especially if it’s a new estate that’s been released; and
  • Usually sits on a smaller/already divided block of land.

Pros of existing house:

  • Usually have more room to negotiate on price depending on the market and condition of the house — much easier to negotiate below market value;
  • Usually sits on a bigger land component and if the land has future subdivision potential; and
  • There is an opportunity to apply the technique of manufacturing equity via different methods — such as cosmetic reno like a lick of new paint, new carpets/floor boards to more major changes such as adding an additional bedroom or build out downstairs (if it’s two level). This can potentially improve the property value (and therefore potentially increase your equity if you get it re-valued), become more attractive to tenants and usually commands higher rent.

Cons of existing house:

  • May require more maintenance fund such as fixing broken taps, or even bigger items such as replacing hot water tanks or air conditioners;
  • Cannot claim as much depreciation in comparison with new build. For existing houses that are over 20 years there will be literally no depreciation; and
  • Less attractive to tenants in comparison with new build (but can do cosmetic reno to improve this).

What about new v existing apartments?

Apartments are generally okay, but it depends on where. For example, you wouldn’t want to buy an apartment in Brisbane as there simply isn’t that demand right now, whereas apartments in Sydney have been accepted as part of the city’s landscape; you do need to understand what type of dwelling is in demand for each city and go from there.

Finance permitting, I would choose a house with a land component over apartments any day.

Pros of new apartment:

  • Minimise on outgoing maintenance cost as everything is shiny and new;
  • Able to claim lots of depreciation for the first couple of years to offset your taxable income and extra money to go against mortgage; and
  • Can usually achieve a higher rent which again helps cover the mortgage.

Cons of new apartment:

  • You’ll be paying a premium price as it’s a brand new finished product – so essentially, you’ll be paying for the developer’s profit;
  • Need to make sure there is rental demand as you could be up against hundreds (if not more!) of other new builds, especially if it’s a new estate that’s been released. This is even worse for apartments as depending on the staged release they could come in as hundreds or even thousands around the neighbourhood area; and
  • Some high rises are built on main/busy roads, which means noise will definitely have an impact on how attractive your place will be for rent.

Pros of existing apartment:

  • Usually have more room to negotiate on price depending on the market and condition of the house – much easier to negotiate below market value; and
  • There is an opportunity to apply the technique of manufacturing equity via different methods though limited in comparison with what you can do with a house.
    • However, there are limits related to apartments to mostly cosmetic reno such as new paint, new carpets/floor boards, etc.; low cost but high impact. This can potentially improve the property value (and therefore potentially increase your equity if you get it re-valued), become more attractive to tenants and usually commands higher rent.

Cons of existing apartment:

  • May require more maintenance fund such as fixing broken taps, or even bigger items such as replacing hot water tanks or air conditioners;
  • Cannot claim as much depreciation in comparison with a new build. While apartments will still have building depreciation, as they age there will be literally very little depreciation after 20 to 30 years; and
  • Less attractive to tenants in comparison with a new build (but can do cosmetic renos to improve this).

So, all in all, the concept is quite similar to house. However, if I had the choice today, I will always pick something with a land component. Even townhouses and duplexes have more land component than apartments, so, in order of priority, I would go:

  1. House with the biggest land component,
  2. Duplex with as much land component as possible,
  3. Townhouse with as much land component as possible,
  4. Apartments as a last resort.
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About the author

David Shih

David Shih

David Shih is a Sydney-based investor who has built and amassed a property portfolio across NSW and QLD and is also the director of a mortgage broking business.

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