Property

Off the Plan vs Brand New vs 2nd Hand – Which Should I Choose

By May 20, 2019 No Comments

You’re an investor looking for your first, second or even your third investment property. Do you buy an off the plan property, a property that has just completed or an established property? Like many investors you may not be sure of the pros and cons. Lets look a little closer at this decision.

In reality there is no right or wrong here, its not a black and white decision.  The only consideration I want you to think about is, ‘What’s best for me’?  some questions to ask yourself might be.

  • What deposit funds do I have?
  • What incentives are available?
  • What stage of life am I in?
  • How much risk am I comfortable with?
  • Will my involvement be high or low level?

Each investor will have a different need and requires a personalised strategy, it is important that you don’t just do what a friend has done.  There are some standard advantages and risks associated with each type of purchase, but not all are applicable to each and every investor.

For example, a young investor, may simply want the property to out-perform their savings ability with a resale in 5 years, taking the capital growth, the desired outcome. In this case an Off the Plan purchase would not be suitable as the majority of time would be consumed during construction.  So established or brand new options would be suitable.

Alternatively, a seasoned investor with an established portfolio getting close to retirement may simply be chasing income, with minimal expenses, so rental yield above capital growth is a key requirement. A brand new dwelling in a high demand area would be suitable.

Let’s look at the pros and cons of each.

Established Property

Pros

  • Period character
  • Historical growth and yield data available
  • You can personally inspect and compare with others
  • May already have a tenant on good rent
  • Your suburb of choice or knowledge
  • Value add opportunity via renovation or rebuild

Cons

  • No depreciation benefit
  • No warranties
  • Unknown renovation history
  • Upcoming expenses, A/C, HWS, roof etc
  • Missing desirable elements: ensuite/ study/large balcony
  • Competing with other buyers who may have deeper pockets

Brand New Property

Pros

  • Modern style and amenity
  • You can personally inspect
  • Building inspection will be clear
  • Warranty on PC items
  • Warranty on structure – refer to state legislation
  • Situated in demand are
  • Depreciation benefits apply
  • Potential Stamp Duty savings
  • Negotiate directly with supplier

Cons

  • May not be best in block
  • Generally smaller land size
  • Possible premium price
  • No choice in finishes
  • Upcoming Supply may hinder capital growth

OTP Property

Pros

  • Best choice within location
  • Provides time to save additional funds for settlement
  • Capitalise on rise in market
  • Current style and amenity
  • Preferred option for rental pool
  • Depreciation benefits apply
  • Potential Stamp Duty savings
  • Negotiate directly with supplier

Cons

  • Settlement date is out of your control
  • Market metrics may move against you
  • Competing products for rental pool
  • Render vs reality shock
  • Valuation at settlement risk
  • Lender may pull out of the market
  • Life circumstances may change your focus

Whilst all the above may appeal to you, one will provide superior wealth growth potential for you.

The lists above only touch on the major items with several more to be considered as you narrow down your options.

At Launch Properties we recommend all investors engage a financial consultant/Planner to help them determine the best option for them.  The team at CXC Financial Partners work closely with us to help an investor determine the best option by modelling results into the future. We work closely with the tax experts and financial planners to ensure that you consider the cash flow and tax implications of each investment and combine this with independent statistics and information, gathered using our own due diligence from public and private data sources.

Steve Purcell is located at our Head office and is the licensee of Launch Properties. He holds a PSBA License, is a licensed Auctioneer and holds a Master’s Degree in Business. Steve brings an extraordinary depth of hands on experience to the role, including twenty years in commercial and residential construction, followed by ten years in residential Real Estate sales and property development. This unique blend enables Steve to provide advice on selected developers, to ensure they are providing functional, quality assets with high quality finishes to mitigate potential sector risks to our clients. Become a client of Steve’s and get access to RP Data suburb reports, market valuations and advocacy options.

To speak with a property expert, call our team on (02) 9009 2428 or email: info@launchproperties.com.au