Pros and cons of second-hand investment properties

New, old, off-the-plan, residential, commercial. There are many options available when it comes to deciding what type of property to invest in. 

Second-hand residential properties are a popular choice, especially to those that are looking to get their foot into the market. Here are some negatives and positives of investing in an established house. 

The negatives

1. Repairs and maintenance 

As a property gets older the need for repairs and maintenance is higher. When investing in second-hand property you will need to factor higher maintenance and repair costs within your budget. 

Putting safeguards in place prior to purchasing and leasing out the property is key to minimising repair and maintenance costs. Some examples of this include a comprehensive building inspection prior to the purchase, up-to-date condition reports and timely inspections during a tenancy.

2. Potentially lower rental rates

When compared to new properties in the same area, older second-hand properties can sometimes have lower rental rates. 

However, this isn’t always the case. Areas that are in high demand can mean all types of rental properties can charge a premium. Second-hand properties that are renovated or unique to others in the area can also hold a higher rate. 

3. Lower depreciation deductions

Second-hand properties sometimes hold much lower depreciation deductions compared to their brand-new counterparts. 

There are a number of reasons for this. The first being changes made to legislation in 2017 that result in second-hand plant and equipment assets being ineligible for depreciation. The second reason is that capital works deductions are only available for buildings constructed after 15 September 1987. 

The positives

1. Affordability 

Older, second-hand properties usually hold more affordable price-points than new properties in their area. 

This can make second-hand properties a very useful entry point to the market. More experienced investors can also benefit from purchasing a second-hand property to diversify their portfolio. 

2. Higher supply

It largely depends on the location, but established properties are usually in higher supply than brand-new.
A higher supply can give you more options for your budget. This can also be beneficial if you have a concentrated investment strategy, with the aim to buy properties within close proximity to each other. 

3. Flexibility to add value

A second-hand property can provide the type of opportunity to add value that new properties simply can’t. 

New properties have all the shiny and new features, and don’t give you much flexibility when it comes to renovating or making the property fit-for-purpose. Making improvements can also help you boost the long-term capital gain of the property, while also increasing the likely depreciation deductions available. 

So, what’s the bottom line?

There’s no right or wrong answer when it comes to deciding what type of investment property to purchase. 

The fundamental step is to stay aligned with your own investment strategy and make your portfolio as diverse as it can be. Discussing your options with your investment property team can help you establish your strategy and plan.