The financial advantages of buying a New Build Rental

October 8, 2023

If you are thinking about buying a rental property, you might be wondering if it’s worth paying extra to buy a new build. Though they tend to be more expensive, there are several important financial advantages, including:

You can buy with a smaller deposit
You can claim the loan interest as a tax deductible expense
Maintenance and energy costs are lower.

You only need a 20% deposit

New builds aren’t bound by the same loan-to-value restrictions as existing properties, so you can buy one with a smaller deposit. Investors only need to put down 20%, rather than the 35% deposit typically required when buying a rental.

Interest deductibility for 20 years

In late 2021, the rules for property investors changed. Prior to that time, you could claim the interest from the mortgage as a tax-deductible expense. Under the new rules, you can no longer claim on loan interest payments for rentals, and it is in the process of being phased out for properties bought before 27 March 2021.

A new build is a residence that was completed on or after 27 March 2020. It gets an exemption from the interest deductibility limitation that lasts for 20 years – which can make a huge difference to the profitability of your rental. If you buy a property built after this date, the exemption remains in place, so you get the benefit of tax deductibility until the 20-year period expires.

Lower maintenance and energy costs

New builds are usually more expensive, but you will pay lower maintenance and energy costs compared to a similar older house. That can save you tens of thousands of dollars over the first few years of ownership.When you rent out a new house, you’ll usually find it’s easier to attract and retain high-quality tenants, which can take a lot of the stress out of owning a rental.

We can help you run the numbers

Considering buying a rental property? Not sure whether to buy an older house or a new one? We can help you calculate the various options, work out the cashflow, and think about whether a rental will help you achieve your financial goals. Get in touch, we’d love to hear from you.