new units or old units

Hi,
What are pros of cons of buying an older apartments vs a newish unit. I am noticing that newish units have huge body corp, if it is so high to start with I wonder where will it land as the unit ages e.g. today I saw an apartment in Canberra 2-2-1 rented for 420pw but has a body corp of 1600pq, and add Canberra taxes to that, and you are signing up for a negative asset.

However, the older style 2 storey (40+ year old buildings) yield less rent but are cheap to buy and maintain.

What strategy you use? If you support new builds, how do you offset huge outgoings and risks of modern builds (like flammable cladding, dodgy glass, other risky/flimsy material used, etc.) .

 

I'm a big fan and supporter of the older style units as investment. The positives for me are:

- Cheaper strata
- Generally well built, you can see the good ones as they have proven through time
- Cheaper rent which is easier to fill and less vacancy
- Land value is greater (3 storey red brick vs 12 story new concrete block)
- Tenants less picky and you can get away without having to have the newest / latest

The only downside on this is you may have poor quality tenants. This can be minimised of cause.

TB

 

Older apartments in smaller unit blocks over new apartments any day of the week. Preferably no lifts or pools = cheaper body corp.
With a small renovation some of these can come up great and get good tenants.
Less supply, usually bigger than new apartments, larger land area so capital growth potential is better, there's also the chance developer might come knocking one day and want to buy the whole apartment block to knock down and build new - not guaranteed but can and does happen.

 

I wonder what is the motivation of the investors who go buying these newer apartments then? Only thing I can think of is the capital gain works deduction, any other thing I'm missing? There are hell lots of them coming, so there are buyers out there - what are they thinking?

 

The new apartments has depreciation value. So it helps with negative gearing.

It may be good where the cashflow is neutral or positive but add on depreciation, there is a further tax refund.

To me, this is already built into the price.

 

They are sold by pretty slick salesman, lots are interstate investors, for negative gearing most likely.

 

Less slick now....... there is 2 developments on the same street (different builders) near me. The display units and sale teams has been sitting around twirling their thumbs for 3 months now.

 

Both have their pros and cons but there will be common elements for both that will help with the budget. Look for:

- small complexes under 3 storeys
- little or no communal facilities
- good land component
- good maintenance records
- healthy sinking fund (mainly for older ones)
- buildings with a difference - the heritage/art deco units will become more and more unique as time goes by

With older units be prepared that in the future there might be items which need to be bought up to code - wiring, balconies, windows, cladding etc this is where a good sinking fund will be of assistance.

 

If they're sitting around waiting for the sales to come to them I'd say they're not the slickest salesman out there
Often for medium to large high rise projects they need x amount of sales before they can be successfully funded and construction can even begin -
There have been instances recently where deposit has been paid and finance approved PRIOR to APRA lending changes, say two years ago, and the buildings have only now been registered, this means people can no longer qualify for the finance they could 2 years ago therefore stuck with deposit paid but unable to complete.

 

Well I read in the paper that the developer bought the land for $35m 18 months ago (before the credit tightening) and the block of houses have been fenced up for the last 6 months. The nearby display suite is all lit up and ready!! I walk past it everyday and on weekends..... nothing!!

The developer is known around the area and I'm sure they will be ok... still not great timing.

 

Yikes, not a great outcome! What area is this development in, inner Sydney ?

 

Its in the St George area.

 

The St George area is very good for investing.

Older apartments generally make better investments.

When a unit is appreciating in value, in economic terms what is happening is that the land is appreciating, and the building is depreciating - and that these two factors are competing. For older apartments, the building is typically already depreciated, so your return is the appreciation of the land, plus your rental return.

Conversely, newer apartments have the competing land appreciation vs building depreciation.

OTP typically is sold at a premium to cover developer marketing costs etc.

Finally, with older apartments, you can renovate and manufacture your own equity.

Older apartments, purchased at a discount, make excellent investments with limited downside and are particularly resilient during softer markets.

 

The first auction on 'Your Money', a 2+1+2 apartment, https://www.realestate.com.au/property/unit-1203-180-ocean-st-edgecliff-nsw-2027 , delivered a healthy $2.4m, previous sales 2009, $1.25m, 1985, $225K, a 7.5% increase on both time periods.