My Property Investment Tip #8
Never Buy An Old Property!
Again this one is often a difficult one for people to accept, but after analysing thousands of property deals over the years from both a cashflow and a risk perspective, I have come to the conclusion you would simply be mad to buy an old property in the majority of cases.
Why?…
Well there’s several reasons why. The first is cashflow.
You could have two properties side by side in the same suburb. Both of the same value (say $500K) and both receiving the same rent (say $500pw), but one is brand new and the other 25 years old.
The old one will cost you $200 per week more to hang on to. Why?… Well there’s two reasons that can’t be ignored. 1/ Maintenance, and 2/ Depreciation.
Firstly maintenance. As a house gets older the cost of maintenance starts going up. The older it is, the more that starts to break and cost you money.
Think about it… how much does it cost to replace a water heater, the air conditioning units, the carpets, the blinds, the kitchen, the bathrooms, repaint the inside, repaint the outside, re-do the gardens, fix the leaking roof. Bottom line old houses cost at least $5000 a year to maintain (or $100pw). New houses cost next to nothing.
Then there’s depreciation. The government allows us to claim the depreciating value of the property on tax, but the BEST claims are in the earlier years.
A brand new 4 bedroom house might get you $15K in depreciation claims in the first year, but it drops off significantly as time goes by because different parts of the property are written off at different speeds. The first 7 years are generally the best for depreciation.
Now a $15K tax deduction ends up equaling about a $5000 tax return (when you get back 32.5 or 37%). That’s about $100 per week in tax return. Or an extra 20% return on top of our $500 per rent. That’s not to be sneezed at!
So add the two together. We’re saving $100pw/$5000pa on maintenance, and we’re earning an extra $100pw/$5000pa in tax return!
It’s a no-brainer.
But then!… on top of better cashflow, there’s additional securities when you buy a property brand new.
You get a Builders Warranty (usually 6-12m)
You get a Structural Guarantee (6 years in Qld for example)
And you get the piece of mind knowing that it was built by a professional builder to the latest building code standard.
What do you get when you buy an old house? Well you don’t really know do you? You don’t know if it was built by the dodgy brothers 20 years ago or not.
So in summary. Buy NEW.
Unless you have a thirst for danger and losing money ?
I hope these tips are valuable to you. I appreciate any feedback.
– Daimo
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Daimien Patterson is the CEO of Integrity Property Investment, a property investment company based in Australia. He regularly produces books, blogs and videos on the topic of property investing, helping thousands of people create financial security and freedom through education and property investment. Get started today.
