When taking their first steps into the investment property market, many people buy older property that's been lived in before. This is an option you should carefully examine yourself before making the plunge.
Furthermore, the Australian Prudential Regulation Authority has declared it would crack down on investment lending by enforcing a 10 per cent limit on investor credit growth. In these conditions, you'll want the help of mortgage broking experts to really make your home loan count.
That's why it's important to take note of both the advantages and disadvantages of choosing established homes as investment properties. These pros and cons can be observed over a wide range of different factors.
When comparing a newly-built property to an equivalent home that has been lived in, the latter will almost always have the lower price tag.
Unless you're looking at a heritage home, older properties will generally be cheaper than new builds. Of course, there are many factors that influence this such as location, design and so on. But when comparing a newly-built property to an equivalent home that has been lived in, the latter will almost always have the lower price tag.
Furthermore, George Raptis mentioned in an article by Your Investment Property that investors have the potential to negotiate down the price on established homes. Whether it's worn paint, a cracked window or just general wear and tear, you have the power to leverage this and attempt to snatch a great deal.
This makes older properties a more affordable option in some cases and a great choice for first-timers in the investment property market.
Investors should be looking to up a home's perceived value, which is ideally three times the actual cost of the renovation.
Lived-in homes often hold immense potential for investors, and it seems people are recognising this more and more.
According to the 2014 Westpac Renovation Report, the amount of money spent on renovations increased by 147 per cent in the four years to November 2014. Clearly, it's becoming more popular for house owners to add value to their real estate.
As brand new properties are more or less a complete product, they've already ticked all the boxes, from fresh paint to new kitchens and bathrooms. You can see why salespeople of these homes can demand a premium from buyers.
With older property however, you can find ways to make renovations and increase its market worth. Cherie Barber, director of Renovating for Profit, advises that investors should be looking to up a home's perceived value, which is ideally three times the actual cost of the renovation.
Seek out any features that aren't up to scratch, like an outdated kitchen that needs a new sink or a deck that requires reworking. You could even go the extra mile and look out for extra, unnecessary space in the property and use it to build a new bedroom.
All of these are opportunities for you to buy an investment property at a good price and make upgrades, before putting it back on the market for capital gain – either immediately or later down the road.
Repair and maintenance costs are something to always keep in mind. The Australian Bureau of Statistics notes that in 2012, couples aged under 35 spent $360 a week on housing costs. Maintenance expenses make up part of this hefty total, and should be factored into your budget.
When it comes to maintenance, however, the cost of older homes can go up. With more worn-down plumbing, electricity and framing, maintenance costs can be significantly higher than with a brand new property
The advantage of established homes is that they're often built in areas that have already been developed. This means that local amenities like recreational areas, schools, supermarkets and retail shopping may be within easy reach of the property.
This is something that tenants will also be looking out for, which will give your investment property that edge over new builds that have been constructed on land that's still being slowly populated and developed.
For more information about investing in established homes, come to one of The REIN Group's free property investment seminars.