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In this video:

0:25 What type of property to buy
0:47 4 Reasons why we should buy new property?
0:59 Depreciation, why it is very important
1:55 Builder’s warranty
2:18 Longevity of Portfolio
2:45 Tenancy
3:33 Why buy middle of the market property?
4:13 Why buy residential property?

Hi, Daimien here from Integrity, and today we’re going to talk about what to buy. Last video we talked about where to buy, now let’s talk about what to buy.

Once we’ve identified the booming town that we want to buy in, what do we want to buy there? And the answer is really simple. My answer is this: new, middle of the market, residential property. Why is that?

Well we’re going to talk about that. We’re going to talk about:

• Why we should get new
• Why we should be middle of the market
• Why we should be residential

So let’s go!

First point: why should we buy new property? Well there are four reasons why we should buy new property. Reason number one is depreciation, reason number two is builder’s warranty, number three is longevity in your portfolio, and number four is tenancy.

So let’s talk about each of those real quick.

Depreciation: a lot of people don’t understand how important depreciation is. The Australian government allows you to write-off the depreciating value of the structure of the property. And that makes a massive difference in your tax return. A lot of people don’t understand that you may have two properties side by side, both worth the same amount, let’s say $400,000, but one is 25 years old and one is brand new. The brand new one is probably going to save you anywhere from $100-$200 a week after tax. Amazing, isn’t it? Why would you buy anything else once you realise that fact. If you can go and claim $10,000-$20,000 a year as an on-paper tax deduction, and get $0.37 on the dollar back on that, and then you average that out over 52 weeks, you’ll find that it’s about $100-$200 a week in tax returns.

The next reason: builder’s warranty. When you buy property, you never really know what you’re buying. And buying a second hand property is a bit like buying a second hand car. You don’t know whether the person has thrashed it, you don’t know if it’s being looked after or not. When you buy new property at least you know that its being build the latest code and it’s got a builder’s warranty. So if there is anything wrong with it, the builder has to fix it, at least within the warranty period anyway.

Third reason for new property is longevity. Good property investors never sell. The only reason you would sell is because the property had something wrong with it that you could not foresee. The building code in Australia for most states is 25 years – the property must last. If you buy a brand new property, you’ve got 25 years before that thing’s going to start falling apart. If you buy a property that’s 25 years old don’t be surprised if it starts falling apart on you as soon as you buy.

The last reason is good tenants. Brand new property tends to attract a better tenant because it’s usually a little bit more expensive. Now I’m not saying that poor people are bad tenants. I’m saying that bad tenants are always poor people. If you stay away from the lower end of the market, you’ll stay away from the bad tenants. Why are they bad tenants? Well that’s the subject of another blog post, but real briefly: if they’re bad tenants they have a lack of respect for authority and a lack of respect for other people’s possessions, namely your investment property. So that sort of attitude will reflect in their working life and they’re probably not in a very highly paid job. So if you’ll stay away from the lower end of the market you’ll stay away from bad tenants. So that’s why we should buy new property.

Now let’s look at the middle of the market.

Middle of the market… good property investors want their property rented all of the time. So in a bell-shaped curve, on one end you have the one-bedroom little shack and on the other end you might have a multi-million-dollar mansion. Where you want to be is middle of the market, which is the four-bedroom standard home that will always be in demand. If you’ve got a niche property, you’re going to have rental vacancies between tenants and you have to pay the mortgage when there is no tenant. So middle of the market – very important.

Then the last thing i said was residential. Why buy residential? Well, let’s talk about that. The banks like residential property. There will always be a demand for residential property because people will always need somewhere to live. Commercial property, however, is not as much in demand and that’s the reason why banks will lend you 95% on a residential property but only up to 70%, if you’re doing well, normally 60% for a commercial property. Why is that so? Because the banks know that commercial is volatile and you have lots of vacancy periods and things like that. But also, why would you buy one commercial property and pay a 30-40% deposit when you can buy three or four residential properties. Both property markets tend to move capital growth-wise at the same rate. So what do you want? A $500,000 commercial property or four $500,000 residential properties – $2 million worth portfolio?

So that’s what to buy: new, middle of the market, residential property. Until next time, thanks for dropping by!

And remember, if you need help with property investment, education, coaching and mentoring go to www.propertyinvestmentmentor.com.au. Or if you just want a well-researched investment property that’s in a good location and has all the right, ticks all the boxes go to www.integrityproperty.com.au. That’s what we do there. See you later!

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