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Currently, considering purchasing an investment property.

We want it to be a passive investment so don't want to buy anything too old which may need to be fixed up etc.

So we are thinking of either building our own house (though a land and house package) or buying something that's maybe 5-10 years old? They'll both be in around the same area and we won't be qualified for any first home buyers type things.

What are the advantages and disadvantages of either option?

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    Real estate is not a passive investment, unless you significantly cut into your profits by hiring a management company. Otherwise, you will need to respond to tenant needs, and either repair problems yourself [even if it's a new house, there will be problems], or pay someone to repair them. Even finding tenants can be a significant amount of time involved. – Grade 'Eh' Bacon Sep 15 '16 at 13:00
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    @Grade'Eh'Bacon - even if you do everything yourself it is still more passive than working a 9 to 5 job 5 days per week. And many investors in Australia do use real estate agents to manage their property. Looking for a tenant does not take a significant amount of time - you advertise the property, screen calls, when you get someone who meets your criteria you make an appointment with them to show the property. You might spend less than 5 hours per week, and that is if you have many inspections (as you would usually schedule 2 or 3 prospective tenants per inspection). – Victor Sep 16 '16 at 0:29
  • @Victor It's not fair to compare real estate to a full time job. Compare it to an index fund - would you ever spend 5 hours in a week to manage your actually passive investments? As I said, it may be passive if you hire a management company, but that can be expensive. Even just using a real estate agent for getting a tenant can cost you >1 month's rent in fees. – Grade 'Eh' Bacon Sep 16 '16 at 12:24
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    @Grade'Eh'Bacon - can you and your partner start investing in ETFs or Index Funds and both semi-retire (if you call an average of less than 1 hour work per week for my wife and less than 5 hours on average per week for me semi) 5 to 6 years later. Well we did that with property, now that is passive income, and we look after everything ourselves, including 90% of the repairs and maintenance. So yes I compare it to having a day job, because property investing has replaced my day job, and I still invest in the stock market as well. – Victor Sep 18 '16 at 0:37
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    @Grade'Eh'Bacon - also Real Estate Agents in Australia typically charge 1 weeks rent to find a new tenant, most of them are negotiable and many will offer you up to the first 3 months free management to get your business. – Victor Sep 18 '16 at 9:19
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When buying investment properties there are different levels of passive investment involved.

At one end you have those that will buy an investment property and give it to a real estate agent to manage and don't want to think of it again (apart from watching the rent come in every week). At the other end there are those that will do everything themselves including knocking on the door to collect the rent.

Where is the best place to be - well somewhere in the middle. The most successful property investors treat their investment properties like a business. They handle the overall management of the properties and then have a team taking care of the day-to-day nitty gritty of the properties.

Regarding the brand new or 5 to 10 year old property, you are going to pay a premium for the brand new. A property that is 5 years old will be like new but without the premium. I once bought a unit which was 2 to 3 years old for less than the original buyer bought it at brand new. Also you will still get the majority of the depreciation benefits on a 5 year old property. You also should not expect too much maintenance on a 5 to 10 year old property.

Another option you may want to look at is Defence Housing. They are managed by the Department of Defence and you can be guaranteed rent for 10 years or more, whether they have a tenant in the property or not. They also carry out all the maintenance on the property and restore it to original condition once their contract is over. The pitfall is that you will pay a lot more for the management of these properties (up to 15% or more).

Personally, I would not go for a Defence Housing property as I consider the fees too high and would not agree with some of their terms and conditions. However, considering your emphasis on a passive investment, this may be an option for you.

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