All Topics / Help Needed! / Which is better? Old or New?

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  • Profile photo of kong71286kong71286
    Participant
    @kong71286
    Join Date: 2009
    Post Count: 261

    Hi guys,

    Just wondering what your thoughts are about whether it is better to buy an older property with more land, or a newer property with less land but yielding much higher rent. Both of these properties are located in Ballarat and are around $250,000.

    1. Old house (3 bedroom, 1 bathroom, 3 garage space, 1066m2)
    2. New house (3 bedroom, 2 bathroom, 1 garage, 388m2)

    Right now I'm still a bit unsure about which one to go for.

    From what I understand, land is the main component that appreciates, and the more the merrier, so in terms of potential to add value and subdivide, the older house is the winner.

    However, the rent from the older property is around $240 compared to $270 for the newer property, and first home owner grant is only $7,000 for the older property compared to $26,500 for the newer property.

    Right now I'm leaning more towards the newer home because of access to higher grant, higher cashflow, and higher depreciation (although I'm not sure how much can be claimed).

    Any comments, thoughts, ideas and/or advice is much appreciated,

    Thank you

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    I'd generally go the older with larger land content – especially if there's an opporunity to sub-divide and add value.

    With the new property – you're getting a very small parcel of land and  there's obvisouly no scope for value add. However, the big kicker here is the $26k incentive.

    The $30 difference in rent between the two isn't that much.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    You are looking at the wrong factors.

    If in anything you want to look at the ongoing potential. Given roughly the same position and location .. both can be good investments. The lower liability on the half block may mean lower rates and overall expenses such as heating and garden are minimised. The investment potential on the land component of the older block depends on what the councils will allow you to do with that land for subdivision.

    So the correct weighing up of the investment should be in the expected ongoing potential weighed up against existing expenses and liabilities. Eventually with property you reach a point where the unit of land cant be divided up or extended any further. At that point you end up riding inflation to make your ongoing gains.

    The two things you must do when purchasing property is forget sentiment and just judge the property on its current existing potential. What might have been a fabulous investment in 1980 may not be a great buy in 2012. And vice versa.

    Profile photo of mattstamattsta
    Participant
    @mattsta
    Join Date: 2011
    Post Count: 604

    I'd suggest you figure out what your ultimate priority outcomes are.

    If it's rent – go for the new one.

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    It would be a worthwhile exercise comparing the council rates and such.  I recently had the opportunity to see the council rates, body corporate fees and such for a new "house" for 2011 and also 2009.  I was able to see how rapidly the bills had risen and it was disturbing.  Basically what had occurred is that a developer had bought the street, and turned the whole street into a body corporate.  The council rates were wayyyy higher than those of an older house on a plot of land of twice the size just around the corner (a location of equal stature) and the body corporate fees had gone up astronomically.  The body corporate is covering the upkeep of the naturestrips, the street lighting (that's right – it's not council's problem), the roads and pavements, and buiding insurance.  A couple of years ago I observed that a new subdivision (ie new suburb) near my home has been developed as a body corporate.  The whole suburb is a body corporate.   It's poor residents are even forking out for the local leisure centre… whether they use it or not.  Be wary of the holding costs in such new subdivisions.  I would imagine that it's the way of the future – state government squirming out of maintaining the streetscape by having entire suburbs declared body corporates responsible for the upkeep of their own roads and street lighting (and remember street lighting attracts an electricity bill, and that electricity goes up each year).  In this regard I'm very wary of new areas and prefer older areas.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of lila77lila77
    Member
    @lila77
    Join Date: 2012
    Post Count: 65

    I'm a bit intrigued as to why you are talking about FHOG and rent at the same time as I don't believe you can have both unless you live in the house (?for 6months within the first year). If you plan to live in the house and rent it out  at a later date then forget my comment but otherwise some more research may be necesssary. There was a forum topic about this issue recently so it may be worth doing a search.

    Profile photo of RyanJDRyanJD
    Member
    @ryanjd
    Join Date: 2011
    Post Count: 77

    I always look at older houses only if it has a potential to either subdivide or renovate and add more value. Make sure you check how much it will cost for repairs/maintenance as well. 
    As your a FHO you'll have to live in the house for the specified time until you can rent it out. In this time if you get the older house you can do reno's and claim depreciation over time AFTER its rented out. Don't think you can not claim repairs after while your living in the house though. Older houses still have depreciation for some things but not near what you'll get for a new house.

    The 26K for the new house sounds nice but if the rent or land value doesn't increase then you only have rent and depreciation as income. New houses have the most depreciation at the start and get lower and lower, how long do you plan to have the property?

    Check difference in insurance costs for the new and old house as they could differ.
    Have you checked with the council to see if you can subdivide the old property now or in the future and if the market wants new houses on sub divided properties? Maybe buy the old house subdivide and sell the land?

    The difference in rent is bugger all.

    Profile photo of ananddanandd
    Participant
    @anandd
    Join Date: 2012
    Post Count: 58

    Location, location, location !!!. And this is what matters most. The FHOG in Victoria may give you $20K extra for a new home plus land arrangement but you need to ensure the property has future (capital) growth potential. Some people prefer old houses with bigger land as it presents opportunity to re-develop in future but this depends upon your future plans, finances and your wife ( my wife hates living in older properties).

    Profile photo of kong71286kong71286
    Participant
    @kong71286
    Join Date: 2009
    Post Count: 261

    Thanks for all your insights and opinions.

    Greatly appreciate it.

    Location

    In terms of location it seems like Ballarat has a lot of potential for future growth.

    • Close to Melbourne for those that love to shop, dine at fine restaurant, or enjoy the night life
    • Close to Geelong if you want to relax at beach
    • Appears to be an employment hub with many people from surrounding suburbs and even overseas coming to work here
    • Has a lot of money flowing into infrastructure, improving transport links, and various industries such as health and education
    • Houses are still affordable to first home buyers with median house price is almost half that of Melbourne

    Rent

    • Was under the impression that the newer property would rent out faster, with less vacancy period
    • And that if it were to be rented out by bedroom i.e. for $100-$130 per week resulting in difference of $60-$150 per week, it would be easier to do so with the newer property

    Body Corporate Fees

    • Glad you brought this up JacM, as this had never crossed my mind
    • I'll be sure to double check this if I decide to purchase a new property
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