Buying old property for investment

Your price point and your planned holding time are great strategies.

Here are a couple points to consider:

Target high capital growth areas (capital growth creates wealth)

Target high rental growth areas (high rental growth creates positive cash sooner)

Buy new or near new for maximum depreciation (reduces your taxable income and adds dollars to your portfolio's value)

Buy new or near new for reduced maintenance costs (reduces lost rent between tenants and reduces running costs)

Buy new or near new for increased rent-ability (In my experience new property rents first and old property rents second. So new can reduce lost rental income between tenants and that's money you can never get back)

Buy houses where possible for higher capital growth (there are only so many houses that can build in an area before they start getting pulled down to build apartments, how ever the number of apartments you can build in an area is almost limitless; think Melbourne's Docklands as an example)

7-10 years in the right area will get you through 1 property cycle. If the market is tracking on it's 30 year average you will have 6 times'ed your initial investment.

If you invested in an area with high rental growth and have claimed maximum depreciation you will have been able to buy again using the equity created. The combo of capital growth and positive cash flow could fund a further 2 investment property purchases during the one property cycle. Don't right off new property to quickly.

In fairness to Mark, the pointers are essentially his intellectual property which is his livelihood….

You buy new to reduce risk.

When it is all said and done, new costs about 3% more. You will get 3 times more then that back in depreciation in the first 5 years. If you are paying more then 3% extra, you are paying too much.

Old/Reno property searching is just too hit and miss. To say nothing of time consuming, while you are looking for one old property that ticks all the boxes, I can find 10 new properties that tick all the boxes too. 

Reno = Risk.

You don't know what you don't know. The longer you have been doing Reno's the more you understand what that really means. I know because I have reno'd over 100 properties since 1992. Working up to four houses at a time, blocks of 10+ units, industrial buildings as well. I gave up doing Reno's in 2008, they are just too hard to make make money on "UNLESS YOU ARE IN A RISING MARKET". At least in a rising market if you don't get the numbers right, capital growth will bail you out. There is one street in Balmain, NSW where I have Reno'd 7 terrace houses and I still wouldn't do another Reno in that street even if it looked good on paper. The thing I hate the most about Reno's is you are spending money like there is no tomorrow and there's no rent coming in. If something happens while you have the place ripped apart, it just sits there burning a hole in your pocket. The bank still has to be paid whilst your profit it going down the drain.

A good investment is a balance between RISK and RETURN.

You want to spread your RETURN between Capital Growth, Yield and Tax Credits. If one goes soft then the other two are still working for you. 

You can reduce your RISK by buying new. New = less lost rent over the life of the investment. 

• Banks like new
• New re-values well when the subdivision is fully sold out (if you know what you are doing)
• New gets rented faster
• New needs less maintenance between tenants
• New needs less spent on repairs
• New often has better features for the tenant
• New has less Stamp Duty to pay 
• New can be found in areas with excellent capital growth potential
• New can be found in areas with growing rental demand (new rail links/ new stations, new roads, urban renewal projects, etc etc will see to that)

In 5 years they won't be worth the same amount of money, the old Reno'd house will be a older house that was Reno'd 5 years ago and the new house will be a 5 year old house that needs a coat of paint and the garden freshened up. 

Hey Catalyst, I am sorry that I was condescending. Not intended at all.

My point is; the quote does apply to Reno's. I am saying after all I have done, I can still come unstuck and not make the profit I set out to on a Reno.

When I start a Reno project I start with a bunch assumptions about what I could potentially find and what it will potentially cost to fix those assumptions, When I finish a Reno project I walk away with the facts of what I did find and what it did cost to fix them. The Reno = Risk is that time in between and the not knowing of the actual cost of those assumptions until it's all done and dusted.

A coat of paint & carpet is one thing, a new bathroom or a roof is another.

I took the roof off one house to find 3 tons of slate and timber shingles sitting up in the roof trusses:

• 4 days labor and two skip bins later
• New roof delayed by two days
• Roof off and house exposed to the weather for two days
• Interest on mortgage for 2 days

Another house had a beautiful in ground pool in the backyard the garden needed a whole restoration, Budget $18,000 for the outdoor landscaping. I find out from the local pool shop owner that the pool has a leak and costs $1000's a year in water usage to keep filled. I blew the landscaping budget by $5000, never saw that one coming. 

The thing I have learnt over and over is: "You don't know what you don't know" until it jumps up and bites you. There is a book on this in my head, I am sure.

Hi Bacchu, have you consider the opportunities with old properties in western Sydney.

1) size of land

Looking a increasing rent return via granny flat to improve the value; http://www.planning.nsw.gov.au/plansforaction/pdf/Affordable%20Housing_Fact_Granny%20Flats.pdf

Or better yet work with some else to buy the land if your cashed up?