If you’re new to property investments or you’re looking to add more to your current portfolio, then you’re probably wondering whether you should invest in new construction, which is anything constructed within the last decade, or an older building. Considering some of the pros and cons of each may help you to decide.
Newer buildings will be more in alignment with the current trends of upgraded kitchens, open floorplans, and a streamlined appearance. You won’t need to spend a considerable sum on upgrades and renovations because the property won’t need it.
Fewer hidden problems
Although a home inspection is always recommended when buying any home, it will be less likely to uncover hidden mold issues, outdated electrical wiring, termite damage, or an issue with the HVAC system as long as it was built by a reputable contractor. You’ll probably also spend less on maintenance with a newer home.
With newer construction, you’ll spend little to no time on renovations, which means that you’ll start to receive income from the property sooner rather than several months in the future. Since many renters prefer newer homes, you may reduce your vacancy rate.
More energy efficient
An energy-efficient home may be more appealing to renters who are painfully aware of high utility costs. If you pay the utilities, it will mean more money in your pocket.
If your investment is a brand new building, you may save on the property taxes for a year or two since tax bills are usually based on the assessed value for the previous year. If your investment property was a vacant lot, then the tax bill may be based on its value without the improvement.
Many insurance companies give a discount for new construction especially when there are amenities such as fire sprinklers, alarm systems, and so forth.
Although new homes appeal to a particular segment of the market, there are also those who prefer the vintage appeal of older homes. Also called character or charm, older homes have features that are lacking in most modern structures such as crown molding, wood-burning fireplaces, unique finishes, and the atmosphere that accumulates in a home after decades of habitation.
Many times, a newly constructed home will have newly installed sod and only a few plants in the front and back yards and will be lacking any shade trees. Older homes, however, will have established lawns and shade trees, and some may have fruit trees and gardens as well as play equipment for children. Research has indicated that mature trees in the landscaping can add as much as 20 percent to the value of the home.
Older homes were constructed when building costs were much lower, so the homeowner may have a significant amount of equity. A builder, however, may not be as motivated to negotiate on the price as a homeowner who is anxious to move to a new location. You can also tactfully point out to a motivated homeowner that there are areas that need repairs or replacements.
Depending on the age and location of the home and the type of construction, financing may be more difficult to obtain for homes that are quite old.
Many older homes in established areas have relatively quiet neighborhoods. With newer construction, you may have the sounds of new construction around you on a very regular basis.
It’s often been said that the best investment strategy is to buy the worst house in the best neighborhood. Whether that strategy is accurate or not, it has some validity, particularly if you can buy a home in a fashionable neighborhood or a historical area and renovate it cost-effectively. Bear in mind, however, that renovating a historic home may ultimately be very expensive, depending on local codes and prices for vintage replacements.
An older home is more likely to have curb appeal than a newly constructed one. You may not plan on selling right away, but if the need arose, curb appeal can be an important factor.
Better Historical Data
Buying an older home in an established neighborhood can provide you with better data to determine your breakeven point and ROI.
Basically, the decision to buy new construction or an older home becomes a matter of personal preference and the selection of available homes in the area. Sometimes, older homes are better built than newer ones and sometimes they aren’t. In some areas, newer homes may sell more quickly and in some areas, they may be the only ones available. Income tax ramifications are also an important factor since repairs may be deductible within the year whereas the cost of the house will not be.
Income property is usually a sound investment and a good source of passive income but talk to your realtor and your tax advisor so that you make the best decision for your unique circumstances.