New or old unit?????

I reckon I'll be steve here and comment.

if your buying a brand new unit, your buying a solution. By buying a older, Unrenovated unit you are buying a problem and by renovating it your are Turning a problem into a solution and the excess is equity or cash upon resale . 

And honestly gutting the whole thing or just tidying up is completely based on the property and location.

if you bought a ugly unit on top storey in Bondi. Then you would prob gut it and start again. Units can be profitable in renovations. But from my experience if your only buying a single unit and not a block of units ( which means its a internal renovation only) then you should buy the ugliest, smelliest, unit internally you can find. 

I prefer old all the way. Especially old properties that can be cosmetically renovated for a quick equity gain. That's how I got started with investing and is a strategy I continue to employ.

I agree with the other guys about paying a premium for new – the same concept applies to almost all goods.

Cheers

Jamie

I'd take that advice with a grain of salt on the surface it sounds pretty. But in actuality sometimes it is not practical. If the unit you buy is completly trashed. Stained floors, no kitchen, smashed tiles in the bathroom, broken windows, bad smells etc. I don't think it's reasonable to consider that a person would live in such conditions.

plus a lot of early investors benefit from completly the renovation before the tenant moves in for several reasons some which you stated

– a higher rent 

– change in depreciation schedule 

– and most importantly, I think is the creation of equity/value of the property. Which combined with the increase in rent you could find you could draw out the etc equity and the extra rent you are receiving covers the cost of that. Assuming at least a cashflow neutral position. 

enabling you to use the same amount of money to go out and do it all again.  You cannot do that if you buy a Unrenovated bomb and sit on it for 10 years. (Money pit) 

Hi Kurt,

The numbers will tell you. e.g. if you can spend $2000 or so, and it lifts the rent by just $10 a week, then you are receiving a 25% pa return on your money.  It also (may) lift the value of the unit for finance, allowing you to buy another IP a bit sooner… 

Also, think laterally  – once tenants are in place, ask what would they like to see in the unit.   e.g. would they accept paying an extra $10 a week to have air conditioning?  This could generate more income even as they enjoy living there.   That might create another 25% return or better.    As Steve says (and WIlko reminded us in another thread today) "Buy a problem and create a solution and you will be paid for it".  Not verbatim, but you get the idea…..

And, as you said, the Depreciation benefits add a little something too.   Then, when you come to sell, another quick reno may be in order, or maybe a full reno – that choice will depend on "What is happening in the area in 10 years time".    Cross that bridge later I say……

Benny

I bought an older 2 bedder within 10kms from the CBD in October 2012, and spent a little bit doing basic cosmetics (it needed it) before i moved in (it was originally my PPOR). Fortunately for me, the complex is relatively well looked after, so the exterior isn't going to alter the value of the property too much.

Scott

Richard, I'd also love to read the article if you could please send me a copy to [email protected].

No problems guys email sent.

Hi Kurtuk,

I agree that north of the Brisbane CBD is the area, but not too far if you are looking at units.

OLD vs. NEW?

This is a decision each investor needs to consider based on their own tolerance for risk and how they see the upside.

Overview:

Owning investment property is a business, and at the end of the day it needs to make a profit for its owner. Like running a business, the owner needs to balance managing risk vs. creating wealth. The risks with NEW are manageable and mostly known vs. those of OLD which have many unknowns, and can’t be fully known prior to taking ownership.

Pros:

Old Property

• Possible to add value by renovating.

• Lower purchase price for OLD compared to NEW of the same size, location, etc.

New Property

• Rent demand for NEW property is far greater. NEW is more likely to have less vacancy.

• NEW is more sort-after by tenants. On a square metre by square metre comparison, NEW rents for more.

• Depreciation credits for NEW far outweighs the price premium NEW has over OLD.

• Repairs and maintenance expenses are low and predicable for the first 10 years.

• NEW property attracts better tenant due to the higher rent than the OLD property.

• Lower stamp duty on NEW House & Land investments.

Cons:

Old Property

• OLD has many potential unknown maintenance issues. Extensive due diligence, building reports are required prior to purchase.

• With apartments special levies can be sprung on owners without any notice. Major repairs may have potentially been overlooked and not yet recorded at body corporate meetings. Once a special levy is called, owners have no option, but to pay the levy as directed.

• No depreciation credits for property built prior to 18 July 1985.

• OLD properties rent for less, and tend to have a higher vacancy rate than NEW.

New Property

• 3% – 5% more expensive than an OLD comparable.

• With apartments there can be many similar properties on the market for rent at the same time at completion.

FOLLOW this link to view a comparison depreciation table between OLD & NEW.

We create a 20 year cash flow for each IP for our clients, they can then see the "what if" options they have going forward.

“You’ve got to think about big things while you’re doing small things, so that all the small things go in the right direction.”

― Alvin Toffler

The more active strategy would be to either buy renovate straight away and revalue. Or buy renovate and sell , release your profi, pay your tax and leverage into a bigger deal or 2 seperate deals of the same size. But each to their own. In the end it's your decision and only by action can you figure out if that was the correct action or if you get a reaction you don't like that option was not for you. But if you do nothing you will get nothing 

Yep that would be a tough question to answer and you won't get a answer besides examples.

but you should at the very least look for $1 for 1$ return that means spending one dollar is adding 2 dollars of value.

if you did nothing to a house but paint a new colour scheme on the outside and paint internally. This prob adds around 10:1 

i actually used to buy my renovations based on if I could get out my 20 % deposit stamp duty and renovation costs.

for example I would buy a property for 160k stamps is prob 10k I would spend 30k renovation (this is a house with no kitchen no bathroom etc) and I would revalue at close to 250k –  take a loan out for 80 percent of the new value which is around 200k (get all my cash back out) Rent has increased from $0 to $280-300 a week ( as it was unrentable previously) and now with new depreciation schedule. My mortgage, insurance, sewage, rates costs are being covered.

The thing I dislike about new properties is that the vast majority of the time there's middle men making large profits – and it's the buyer that's paying for it…..and if it's an off the plan property, that comes with a whole other set of risks to consider, especially if the development isn't due for completion for quite some time.

Cheers

Jamie