If you’ve always thought that you might invest in property for an income when you retire, then you’ve may have had an old fixer upper in mind. Maybe you thought you’d make most of the cosmetic renovations yourself, and either sell it for a profit or rent it out for a good percentage yield.
However, run down properties have a tendency to need more than a makeover, and you could find yourself paying a small fortune to get trades in to take care of electricity and plumbing, not to mention replacing the roof, the windows, and the floorboards. Before you know it, you’ve got a money pit on your hands, swallowing not just your profit, but extra money you didn’t really have.
Of course, not old older homes are fixer uppers. And if you find an older home in an established neighborhood just a few minor cosmetic fixes could make the property much more enticing to potential renters and give you a bigger return on your investment.
If you’re in the market to buy an investment rental property which is the better choice?: New homes vs old homes? A newly-construction home or an older home in an established neighborhood? Here are a few of the pros and cons of each:
New Homes vs. Old Homes for Rental Property
Older Established Properties — The Pros
You might be lucky and find a gem that really does only need a coat of paint and a new bathroom suite, in which case you’re going to earn an impressive percentage per annum in rental payments. Another benefit of investing in an established neighborhood is that you have the history of the neighborhood sales and rental prices, which is information that can help you make good decisions about what kind of upgrades you make to the property, etc.
You may have to update furnishings if you’re renting the property out furnished, but otherwise, you’re golden — find your tenants, and enjoy your profit.
Older Established Properties — The Cons
Properties that need cosmetic attention for reasons of age or owner neglect generally have other issues too. At the very least, you’re looking at rewiring, and probably at new plumbing, some repairs to the roof, and perhaps even structural renovation. Plus, there are instances where renters prefer new, modern homes to older, traditional homes so it’s important to research the area you’re buying in and make your decision based on those local trends.
Shiny New Properties — The Pros
A new property is just that; fresh out of the box, it needs absolutely nothing done to it, and your tenants can move straight in. Like a company changing hands that would be ready to start trading as soon as the ink was dry on the contract, this kind of property is known as a turnkey property, i.e. it’s ready to rent out as soon as it’s yours. In fact, it may already have a long-standing and reliable tenant who will be paying you money from the very first month of ownership. Turnkey properties are either brand new builds, or very good refurbishments to a good living standard, and as a general rule they need very little doing to them, nor will they need much doing to them beyond surface maintenance for some time.
Shiny New Properties — The Cons
Turnkey properties aren’t always the fuss-free answer to your prayers. If you are buying out-of-state, where property prices are cheaper, you might not get to see your purchase before money changes hands, with all the problems that might entail. If your purchase is on the opposite coast, you need a good managing agent, who will do anything from mow the lawn to collect the rent.
Look for a turnkey property company who have a good reputation amongst investors and who will source suitable purchases for you. You could always buy that beaten up cottage if you like, but you would be best placed to put your serious investments into something relatively trouble-free.
Talk to one of our investment specialists to learn how JWB can help you earn passive income through long term real estate investing.