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Tuesday, July 14 2015

Buying an older property can be like buying an older car. Sure you might get it at a cheaper price but that doesn't't mean you will get a better return over the long term. There's a number of factors that could turn your bargain buy into an expensive lesson.

Generally when you are starting out as a property investor your budget can be a little bit tighter. Which means you don't really want to be putting your hand in your pocket in the initial stages of holding a property. But like an older car things are going to wear out over time and need replacing and if the property is 10 years plus then there is a good chance a lot of things will require repair. None of them necessarily major but a few visits from a sparky and a plumber over a year can add up. Although add to that a hot water system and an air-con and we are staring to get up there.

Yes you can claim a deduction but you don't get all of that outlay back. If your income is $80,000 only 32.5% so you still have to front up with rest.

Structural issues
Of course with an older property your issues could stretch beyond just minor repairs. Unless you have really done your homework your investment could be hiding some substantial structural issues. Even a building inspection has limitations - they don't pull out walls to check the frame work, or rip up floor to look at plumbing. They can only check what they see.

With a new property it is certified at various critical stages to ensure it meets current building codes and standards. PLus new properties come with a 6 year structural warranty.

Depreciation is one of the big cashflow drivers that many investors and even accountants miss. The higher the level of depreciation the more cash coming back into your pocket courtesy of the tax man. But buying older properties means you will generally get little or no depreciation benefit.

Tenants and rent
Unless we are talking uninterrupted views on Sydney Harbour an older property with comparable features and location is generally going to rent for less that a new one. A new clean home with modern fixtures and fitting is going to appeal to quality tenants as they know they are not going to be renting a property that is going to be hassle free.

So cheap does not equate to good. And a cheaper price does not mean the house will be cheaper to run.

Contact us to discuss your property investment strategy.

Posted by: Greg Carroll AT 11:48 pm   |  Permalink   |  Email