Should You Invest In An Older Property or Newer Property For Rental Income?
One of the most significant decision real estate investors face is whether to purchase a newer or older property. Like most decisions, there are pros and cons, and understanding the trade-offs can help you choose the right investment for your goals.
Investing in an older property – Advantages
- Purchase price
- Appreciation potential
An obvious benefit of purchasing an older property is that it is less expensive than a newer one, and it’s typical for older properties to be sold for less than replacement value. So, you get a lower entry point and the potential for a better cash flow.
Many older properties are found in established neighborhoods and more desirable areas with larger lots and are closer to city centres where land values can appreciate strongly over time.
Older properties will require renovation, but this can be controlled. As an investor, you can choose on how extensive the renovation can be, with cosmetic renovations often yielding a higher ROI.
Investing in an older property – Drawbacks
While there may be an advantage in the lower purchase price, this can be offset by higher repair costs as aging plumbing, wiring or roofing can lead to frequent repairs and erode profit margins. A larger reserve budget may be required for maintenance and repair.
Compliance with building codes and regulations can be more challenging with older properties. This could make insurance more costlier and harder to get, especially if there are outdated electrical systems or materials like asbestos.
Older buildings have older windows and doors, older insulation and HVAC systems which often mean higher utility bills, adding more strain on the bottom line.
Investing in a newer property – Advantages
Expect lower repair and maintenance costs with newer construction. Newer builds are usually built with better materials and efficient designs that will not require attention for decades.
Lenders view newer properties as lower risk. It is easier to get financing for a newer property as lenders are not worried that the property
will get burdened with repairs or even fall into disrepair.Newer properties often include modern amenities and features that appeal to tenants. Tenants (especially younger ones) love modern layouts, energy efficient smart home technology and sleek stainless-steel appliances.
Newer properties tend to attract better (and younger) tenants, who may be willing to pay more which equates to a more predictable and stable cash flow.
Newer homes are often built with features that promote higher energy standards. The use of better insulation, LEED or similar green certification practices, and smart technology ensures better energy efficiency and lower costs.
Investing in a newer property – Disadvantages
Newer properties are more expensive requiring a higher upfront cost. This can limit initial cash flow and yield.
Newer properties tend to be located farther away from the urban core, due to the high cost of land. The infrastructure may not be as developed as that found in older neighborhoods, and there could be limitations on the amenities such as schools, shops, and public facilities.
Newer properties may experience depreciation in value over the initial years following construction, potentially impacting long-term investment returns.
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