The 6 big mistakes to avoid when buying property. Mistake No.3 Buying an Old Property
Welcome back, hope you are enjoying the 6 big mistakes to avoid when buying property?
Mistake number three is buying an old property.
The government is required to increase the housing stock to keep up with the growing population. As a result, all of the government incentives are geared towards newly built properties.
The main reason to buy new is for risk management. New properties come with a builder’s warranty and structural guarantee so you aren’t caught unaware of repair costs at the start. If you are buying a second-hand home, you don’t know what you are getting. Consumer law is “buyer beware”. You can have a building and pest inspection done but there is still the risk that you could be buying a lemon.
New properties are also significantly better for cash flow. Older properties naturally cost more in maintenance. After 5 years, a typical house starts to need more maintenance. Once a house is 20 years old, you need to start budgeting about $5,000 per year in maintenance so you can give it a paint, replace the air conditioning, and so on as needed.
The other benefit of a new property is depreciation.
Theoretically, a building will continually be going down in value. Not the land but the structure. Think of things like your carpets and curtains that you won’t be able to take out and sell for the same price as what they cost to install. The government acknowledges this depreciation on investment properties and allows you to claim the theoretical depreciation on your tax.
A brand new house will get at least $15,000 depreciation and depending on which tax bracket you’re in, you’ll get about a third of that back. That’s about $5,000 a year in your tax return or about $100 per week. Once the property reaches about 20 years of age, the depreciation is negligible or completely finished. When we compare the two: the new house is giving you about $5,000 a year while the old one is giving you nothing. Most people who buy old houses don’t realise this and don’t know what they’re missing! New properties are about $10,000 per year cheaper to hold (you’ll earn an extra $5,000 on your tax return and you won’t lose $5,000 for maintenance costs).
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