Is it more financially beneficial to buy or build a new house, or buy an existing property and renovate? With many house and land packages in Australia being offered at appealing prices, it is worthwhile to consider the financial implications of building/buying new, or deciding to just buy a home.
As always, there is no right or wrong here. I believe there are 3 main issues with building or buying new. They are:
1. The location is usually less desirable.
When you buy or build new it usually means that you are about to live in an area that is further away from the CBD of your city. As it has taken much longer to build homes in this area, it is usually in a less desirable location. As such, there is less potential for your home to appreciate in value.
2. There is limited potential to add value.
Because the property is new, you can hardly at add any value to it. This means that you pay a premium. It also means that you cannot force any equity into the property. You essentially restrict how much your property can appreciate. On the contrary, if you buy an older property, you can usually buy at a discount and then force appreciation and equity through renovation.
3. You suffer the most depreciation.
Buildings depreciate while it is the LAND that appreciates. When you buy new, your property experiences the bulk of the depreciation in just the first few years. This means you have paid more for a property that is going to lose value quickly due to depreciation.
It is the same with cars, when you drive it home, it immediately loses a great deal of value. With older homes however, most of the depreciation has already occurred as the building is older.
This doesn’t necessarily mean that building a home is ALWAYS bad, it just means that there is usually a cost associated with living in a new home.
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A Random Walk Down Wall Street by Burton Malkiel:
Rich Dad’s Guide to Investing:
Rich Dad’s Retire Young and Retire Rich:
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The Richest Man in Babylon: