Why do we only recommend new property?
There are a number of compelling reasons why investing in new property is the best option for our busy investor clients. A new property is one that has not been previously sold, not even for one day.
The key reasons for investing in a new property is:
In 2017 the Australian Tax Office changed its legislation to reduce the tax deductibility of investment property. Depreciation on your investment is a significant reason to invest. It is for wear and tear on the property including the structure and fixtures and fittings. Since this change, Australian investors can now only take full advantage of the depreciability of the entire property, if it’s new. On second-hand property, even if only owned for a single day prior, the depreciation on fixtures and fittings, is no longer deductible. This has a significant impact on an investor’s after-tax cash flow.
On a new property, there are no surprises. It is possible to conduct extensive due diligence on the builder and materials that are used to build your house, townhouse or apartment. There are also warranties that come with the structure of the build and all of the appliances used within. Without this certainty it’s difficult to assess whether a second-hand property is good quality or not.
You think you can rely on a building an inspection report? Think again. These inspectors often don’t move furniture, wall hangings or lift carpets and rugs to inspect the property. Some are reluctant to adequately inspect the roof space or crawl space under the house and unfortunately, being at the coal face of property and hearing many client stories, we’ve heard the worst.
Susan bought an investment property when she was 23 – a two-bedroom, hardwood weatherboard cottage with a terracotta tiled roof. She had a building and pest inspection done and there was nothing alarming in the reports. However, 30 days after settlement, she was advised by her insurance company that she wouldn’t be able to insure her property as the electrical wiring was too old. It cost her $12 000 to re-wire the house. She was just 23 years old, in 1995, didn’t have family or friends with that kind of money available to lend to her. She couldn’t sell the property as it would have been worth less than what she paid for it, with this known problem. Luckily, her bank manager believed in her and added the cost to her loan and she was able to proceed with the new wiring and comply with the wishes of her insurance company.
Of course, this took time to organise. The property was located in the Blue Mountains, so it took time to find a qualified electrician who was able to manage the job. Of course, during this time, Susan wasn’t able to get tenants and without tenants, she wasn’t earning any rent.
Three months after settlement, Susan found a tenant, but her problems didn’t end there. 2 weeks after the tenant moved in, the hot water system blew up which cost $1500, there were problems with the plumbing in the bathroom, the neighbours weren’t happy about the noxious weeds cropping up in their garden that stemmed from Susan’s property and the fence soon became a problem that needed fixing. All very expensive issues and ones that impacted her rental return and cashflow.
If the holding costs of a property adversely affect your ability to hold onto a property, there is danger that the capital growth won’t be realised so understanding what the costs are going to be is critical to assessing whether the property will be a good investment or not. A successful investment property must take into account the potential growth and the holding costs.
Before building a new house, there are many areas of the design you’re able to influence. Some key areas worth insisting upon are high ceilings, 2590 to 2700 as opposed to 2400 as standard, stone benchtops, floor to ceiling cabinetry in the kitchen, cabinetry in the laundry and ensuring that the property you invest in is fully turn-key, meaning it also includes the driveway, landscaping, fencing, letterbox and clothesline. It may come as a surprise to many investors, that these are not standard inclusions when a house is quoted on.
Who will your tenant be? It is your tenant who will be paying for the majority of your property through their rent. How does the age of the property impact your ability to easily and steadily rent your property? The majority of tenants in Australia are under the age of 35. There is a direct correlation between the age of the tenant/buyer and the property they prefer with young people wanting new property and older people preferring older property. So, there is a distinct advantage to investing in new property as an investor.
There are many different strategies when it comes to property investment but if you are looking for property in high-growth areas in Australia with solid cashflow, Calla Property has plenty to recommend. Most importantly, we work with you to understand your investment strategy first, then find the property to match.