The pros + cons of buying brand new vs existing homes

Got your deposit together and ready to start searching for your home sweet home? One of the first things you’ll need to decide is whether you’re going to buy an existing home or something brand new.

But how do you know which option is right for you? Let’s take a look at some of the pros and cons.

Buying an existing place

What are the pros:

• You can add value - Older or established homes often offer much more potential to add value over time through renovations and improvements, so if DIY and renos are your thing, buying an existing property could be a good choice.
• Better land value - Existing homes usually have a better land to asset ratio (LAR), meaning the percentage of the property in terms of land is higher than the dwelling. Since land values generally increase over time but the value of dwellings may depreciate, having a higher Loan to Asset Ratio (LAR) means there’s more potential for capital growth.
• Known history - Because there’s generally a known history with existing homes, you have the benefit of seeing how much the property has appreciated in value based on previous sale prices which can help you to estimate what the likely future growth might be.
• Property + community infrastructure - Existing homes in established suburbs typically come with the added value of infrastructure such as fencing, established gardens or sheds, as well as community amenities like schools, pools, parks and shopping precincts.

What are the cons:

• Liveability + personal preference - Your personal preference and a property's liveability are important considerations too. Keen to live somewhere spic and span with all the mod cons? An older style property might not be for you.
• Property maintenance - Older and established properties will typically cost more to maintain than brand new homes so you’ll have to budget a little more for repair and maintenance costs. 
• Rental returns not as high - Newer homes may offer better rental returns and be more appealing to tenants, so if you’re thinking of renting out your home in the future, rent potential could be an important factor to weigh up.

Buying something new

So what about buying a brand new home? Let’s see how it compares.

What are the pros:

• Lower cost to maintain - In the shorter term at least, you’ll generally be up for lower costs to maintain and fewer repairs than you might be if you buy established.
• Stamp duty on land only - You’ll potentially only pay stamp duty on the land value of a brand new property, not the house or dwelling itself, depending on which state you live in.
• Investment benefits - Brand new homes can offer tax perks to those looking to rent their property out, including potentially being able to claim depreciation costs on things like furnishings. 
• Higher rent - You may expect a higher rental return for a new house or unit than you would for an older home so that’s definitely a plus if you’re looking to rent your property in the near future. 

What are the cons:

• Cost to purchase - Brand new homes may be less affordable when it comes to your up front purchase cost than an existing place of the same size. This is dependent on the location and which state you live in.
• Less potential for capital growth - There is often less potential for capital growth with new properties, because the land to asset ratio is lower. Since the value of the land component may appreciate over time, you might not benefit from the same gains as you could with an existing home.
• Less established infrastructure - In terms of the property itself as well as local amenity, you might not have the same infrastructure value (think established gardens, community facilities) as you would with an established home and suburb. 
• No sale history - With new properties, there’s generally a higher investment risk involved because you won’t have a resale history to help predict capital growth potential.
• Less room to improve - A brand new home typically won’t give you that ability to value add through renos or other improvements, so a new home might not be the best choice for those looking for room to improve, DIY or renovate. 

Time to explore your home loan options...

Got a better idea of how buying brand new vs existing stacks up? Now’s the time to explore some great home loan options¹.

Keen to talk to the experts? Our Lending Specialists can help you weigh up your options and find the best value home loan for your needs.

Talk to a lending specialist