As a property investor, one of the questions you’ll no doubt be asking yourself is “should I buy new build property, or should I buy a second-hand property?”
PROS AND CONS WHILE BUYING PROPERTY
The reality is, there are good reasons to buy new build property and good reasons to buy second hand, the most suited to you will likely be dictated by your personal scenario and the point in the market cycle at which you are purchasing.
Only you can make the decision as to what makes the most sense for you. However, for most first-time investors and those buying overseas property for investment, buying a new build makes more sense.
TOP 5 REASONS TO BUY NEW BUILD PROPERTY
1. Maintenance and running costs are cheaper for property investors
This is one of the major reasons most buyers purchase new build property. Because everything is new, it could be several years before any significant maintenance or replacement of items is required.
Older properties can have significant costs associated with maintenance. They can have dated electrics and plumbing and bathrooms, boilers, kitchens, even roofs that can need replacing. Replacing or maintaining these items can be very costly (and difficult to manage if you’re an offshore investor).
2. New Build’s are more energy efficiency
New build properties are far more energy-efficient and this will appeal to potential tenants as their running costs are lower. However more importantly. energy efficiency is likely to be an area of focus for governments in the future and you are less likely to have to retrofit your property in the future. This is likely to become an area of increased government focus in the future.
3. Legal compliance
With new build property, you are most likely buying a property where a huge amount of legal due diligence has taken place when purchasing the land and obtaining planning permission. It is also likely to have a modern long-leasehold agreement in place together with a professional management regime for the way in which the service charge is administered.
4. There can be tax advantages for property investors
In some countries, such as Australia, you have the ability to depreciate the building. Whereas you cannot do this with second-hand property. These tax advantages can be highly significant if you intend to hold the property for a long period of time. In Australia, you can depreciate the value of a building over 40 years old. This is very powerful from an investment perspective.
5. New build property can be more lettable
The new build is typically more attractive to potential tenants, simply because it is newer. It is unlikely to achieve a significantly greater rental relative to other similar properties. However, it should be quicker to let, and shorter vacancy periods will help maintain your returns.
TOP 5 REASONS TO BUY SECOND-HAND PROPERTY
1. The replacement value of a second-hand property
One of the best reasons for you to purchase second-hand property is if the replacement value is more than the potential purchase cost, meaning it would cost more to build a new property than to buy it at today’s price. This typically happens with older houses when the market is soft or if a particular type of property is very unpopular or difficult to purchase.
2. When the new build premium is too high
It makes sense that there is a premium to pay for new build property. However, there will be points in the market cycle when it does not make sense to buy new-build property because the new build premium is too high and the pricing is just too steep. At this point in the cycle, it can make sense to buy second-hand property if you are desperate to purchase, but my advice is advice simple – do not buy at this time.
3. There’s the ability to add value to second-hand property
There will be situations where you can add value to the property by extending the property or buying subdividing the land on which it sits. In these, scenarios, it certainly makes sense to buy second-hand, assuming that you are not overpaying for the future ability to do this. Additionally, the great thing about this situation is there is no reason why you need to do this straight away. You can wait until some point in the future and do the work then.
However, this will only be practical in some circumstances. For overseas property investors, it will be much harder to coordinate these works from a distance.
4. Second-hand property is cheaper
Second-hand property is cheaper, so if your budget is very tight and you just want to get on the property ladder, a second-hand property can be a good option. However, just remember there is the potential for the benefit to be quickly eroded through maintenance costs.
5. There’s less unknown information about the second-hand property
There is obviously, far less unknown information about an existing property, you’ll be able to apply for a mortgage straight away and have a far better idea of what it will rent for.
It’s for these reasons, that for many offshore property investors, purchasing new build property makes the most sense, but before you make any property investment decision, make sure you analyse the opportunity in full, including depreciating the asset (if you’re able to).
We hope you have found this article useful. Feel free to comment or ask any questions. For more information on overseas investment property, check out our other articles and request your copy of our Buyers Guides from [email protected]
Important notice: Proptech Pioneer and its associated companies seek to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect. You use the information at your own risk and accept no liability if you rely on this information. Proptech Pioneer is not a tax advisor, accountant, conveyancer, lawyer, financial advisor or mortgage advisor. You should seek independent advice from independent professionals before making any investment decision.