Have you ever been tempted to buy a new house? Maybe you're like me and love the excitement of new things. Surely, there's nothing wrong with buying a new house for investment, right? WRONG. Buying established properties is the only way to go when investing in property. Building a new house is a huge financial gamble, no matter how good the economy is.
There are so many things that can go wrong when you're building a new house. The land may not be level, there could be hidden rocks or trees that need to be removed, the weather could delay construction, and the list goes on. Not to mention, it can take years to build a new house from scratch. And during that time, you'll be paying interest on your construction loan, as well as property taxes on the land.
It's no secret that real estate is a sound investment. However, many people don't realize that there is a big difference between purchasing an established property and buying a brand new one. When you buy a new property, you are essentially paying for the land, the materials, and the labour involved in putting up the house. However, as soon as the property is finished, it begins to depreciate in value. The same is not true of the land itself, which will usually appreciate over time. As a result, new properties tend to grow slower in value than established ones. This is something to keep in mind when you are considering your options for investing in real estate. Established properties may cost more upfront, but they are likely to provide a greater return on investment over time.
It's no secret that land appreciates in value over time while buildings depreciate. But why is this the case? Let's take a closer look at the reasons behind these two trends.
The most obvious reason why land appreciates in value is because there is a finite amount of it. As the population grows and more people want to own property, the demand for land increases. This, in turn, drives up prices. In contrast, there is an unlimited supply of building materials, which keeps prices relatively low. In addition, buildings are subject to wear and tear over time, which further reduces their value.
Another factor that contributes to the appreciation of land is its location. A piece of property that is situated in a desirable neighbourhood is likely to increase in value more quickly than one that is located in a less desirable area. This is because people are willing to pay more for a property that is conveniently located and has easy access to amenities. Buildings, on the other hand, are not as affected by their location. Even if a building is situated in a prime location, it will still depreciate over time due to the factors mentioned above.
There are many reasons why buildings depreciate in value over time. One is simply the physical wear and tear that occur as a result of everyday use. Over time, the paint will fade, the carpet will wear thin, and fixtures will become outdated. In addition, the materials used to construct the building will also degrade, resulting in the deterioration of the structure itself. Another reason for depreciation is obsolescence; as new technology and design trends emerge, older buildings become less desirable. Finally, external factors such as changes in the local economy can also lead to a decrease in the value of a building. Despite these reasons for depreciation, however, many buildings continue to appreciate in value over the long term. This is due to the limited supply of land and the increasing demand for commercial space. As a result, even though buildings may depreciate in value over time, they still offer a sound investment for those looking to purchase a property.
From an investment perspective, it's clear that land is a more valuable commodity than buildings. Not only does it appreciate in value over time, but it is also less risky since there are fewer things that can go wrong. If you're thinking of investing in real estate, be sure to consider the long-term prospects of the property before making a decision. Established properties may require more upfront, but they are likely to provide greater returns in the long run.
But wait, you have been told to buy a property due to the depreciation you would get from purchasing a new property. So which should you do?
Depreciation is an important concept to understand when it comes to tax time, especially if you own a house. The Australian Taxation Office (ATO) defines depreciation as "the gradual reduction in the value of an asset due to wear and tear or obsolescence". In other words, it's the amount by which an asset declines in value over time. Depreciation is a non-cash deduction, which means it doesn't involve any actual cash outlay on your part. However, it can be a significant saving, particularly if you own a rental property. Depreciation is considered to be a capital expense, which means it can be used to reduce your capital gain (or increase your capital loss) when you sell an investment property. This makes it an important consideration for investors, as it can help to minimise their capital gains tax (CGT) liability.
Investors often mistakenly believe that they should purchase property solely for the depreciation deductions. However, this is not the case. Depreciation is a non-cash tax deduction that can only be used to offset income from the property. When an investor sells their property, they may be required to pay back some or all of the depreciation deductions that they have claimed. This is known as Capital Gains Tax (CGT). CGT is calculated on the difference between the sale price and the original purchase price, less any depreciation deductions that have been claimed. As such, it is important to remember that depreciation is not a reason to buy property. Instead, investors should focus on purchasing properties that will generate positive cash flow. Only then will they be able to minimise their tax liability and maximise their returns.
When it comes to investing in property, many people focus solely on the potential financial returns. However, it's important to remember that buying a property is a business decision, and you should never run a business at a loss. That's why it's so important to do your research and only purchase a property if it meets your investment criteria. Many tax benefits come with owning a property, but these should never be the sole reason for your purchase. By treating buying a property like running a business, you can be sure that you're making a sound investment decision that will ultimately provide you with the best possible return on your investment.
When buying a new property, it's important to keep in mind that it will most likely be negatively geared. This means that the costs of owning and maintaining the property will exceed the rental income you receive from tenants.
For many years, negative gearing has been promoted as a way to make money from property investing. The idea is simple: by borrowing money to buy a house and then renting it out, the investor can hope to cover the costs of their mortgage and perhaps even make a profit. However, there are many problems with this approach. First of all, it is based on the assumption that house prices will always go up. This is not always the case, as we have seen in recent years. Secondly, it puts the investor at risk of being unable to meet their mortgage repayments if the house is vacant for any period. Finally, and perhaps most importantly, it creates an artificial demand for rental properties, driving up rents and making it difficult for ordinary people to find affordable accommodation. For these reasons, negative gearing is the wrong way to buy property.
If you're set on building a new house, there are some things you can do to minimize the risk. First, be sure to choose a reputable builder with a good track record. Second, get everything in writing so that you know exactly what you're paying for and when the house will be completed. Finally, make sure you have a loan in place that covers the cost of construction and gives you a buffer in case anything goes wrong.
Buying an established property is a much safer investment. You'll know exactly what you're getting, and you won't have to worry about any of the potential problems that come with building a new house. So, if you're thinking about buying a new house, think again. Established properties are the way to go!
Here's why Established is better the New:
1) You'll get more for your money. When you buy a brand-new home, it's likely that the developer has already marked up the price by quite a bit to account for their profits and development costs. With an established home, you're dealing with a pre-existing market value that has already been set.
2) There are many hidden costs with new houses. Brand-new homes often come with many hidden costs that can add up quickly, such as connection fees for gas, water and electricity. With an established home, these costs have already been incurred by the previous owner and you won't have to pay them yourself.
3) New houses may have defects. Even though new houses are supposed to be perfect, there's always the chance that something was missed during construction or that there are underlying issues with the property that you're not aware of. With an established home, you can have it inspected before you buy it so that you know exactly what you're getting into.
4) You'll save money on stamp duty. In most states in Australia, you'll have to pay stamp duty on both new and established properties. However, the amount of stamp duty you'll pay on an established property will usually be lower than what you'd pay on a new one.
5) You can move in right away. With a new house, you often have to wait months or even years for it to be built before you can move in. With an established home, you can usually move in much sooner.
Conclusion paragraph: So, if you’re in the market for a new property, take some time to consider established homes. You may be able to get more bang for your buck and avoid many of the headaches that come with being a homeowner. Have you ever bought an established home? What was your experience like? Let us know in the comments below!
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