Hi All,
My 1st post so pls be gentle! I'm not completely new to the board however, have been here before & have done some reading, including steves books. But now like some people before me, I have an idea which seems to suit my current circumstances although I'm unsure if my idea is actually a good one or bad one considering that I am <ahem> inexperienced and feel I cant confidently make that call on my own. So….I am hoping someone here will be able to give me some advice given my circumstances & my idea which is outlined below….a case study if you will, sorry if I'm missing any relevant details.
Details as follows….
1. Am 27 years old & single, living at home rent free & bill free with no IPs as yet, not looking to move out anytime too soon.
2. Willing to use approx $30k of savings (not alot I know!) to start with.
3. Live south of sydney where the average price of a decently located house is approx $320-350k. Average for a half decent2br STRATA unit is approx $240-260k, alternatively approx price for a 2-3 br TORENS titled townhouse is $300k
3. Father invested in land on the south coast near the water just over 3-4 years ago and paid $200k including fees for a vacant corner block 750m2, unfortunately he bought the land at the height of the last boom.4. The area my father invested in at the time was booming like most places and the idea was to either a) sell the block and make a small profit later or b) build on it & sell for a greater profit later.
5. To date my father has paid approx $50k in interest on the block alone.
6. Given todays property market, my father would be lucky to get $180k for that block!!!!!! the area has over 200 properties for sale but only 20 properties for rent. Buying & holding for 7-10 years wont guarantee dad any profit, interest will eat all of the likely profit on that block.
7. A friend of mine who is a builder, & considering building in the same street as dads vacant block, spoke with local real estate agent there and was told to forget selling an IP but renting an IP would be no prob at all, practically guaranteed rentals with tenants secured on long term leases. Likely tenants being retirees & semi retirees. Expected rent for a 2-3 br villa/townhouse is approx $220 – $260 per week.
ok…now my idea….
8. I would like to build 2 villas on dads block and am told it would cost me approx $220k inc landscaping to have both completed (250k if I want to be really conservative), upon completion I would like to GIVE dad 1 of my villas, as he paid full price for the block, which would then be approx $250k ea total spend for me & dad.
Now before I get flamed I would like to say that I am making appointments with an advisor & our tax man to discuss this further, for now I would just like to hear from any of you as to whether my idea is a foolish one or not? I feel that this is a great idea in THEORY as it means that a) i get dad out of a pickle by giving him an IP which he can rent immediately upon completion and (hopefully) look at claiming tax on interest paid for block etc etc & hopefully recoup some of his losses and b) I would get an IP which I would rent upon completion and wouldnt have to worry about paying strata fees.
c) both my father & i are looking to invest and investing in this idea would suit us both…or so it seems to us.*alternatively I would consider selling my dad 1 of my villas but for a really small amount if 'giving' it to him had greater, and far worse, implications.
So…a good idea or a bad one? Should I take my idea to the advisor & tax man?
Happy to receive any thoughts/opinions.
Thanks in advance.
Dee
So you want to build on your Dad's land which means any building improvements automatically become his. You need to sort out ownership structure earlier rather than later.
If you build and ownrship of one is transferred will that mean there is a GST liability? Something you will need to check.
Is the land zoned for multiple dwellings?
Your friend has been told there is no market for IPs so what is the value going to be when built? If noone is interested in buying it's a buyer's market.
If this is such a good idea is there any reason why your father can't do this by himself? One of his ideas apparently was to build.
I wouldn't be surprised at 200+ properties being for sale. Most realestate.com.au searches show that for many locations
If there is a desperation to sell by others maybe you personally would be better off to lowball offer on existing properties.
While your desire to help your Dad is creditable there seems to be more work you need to do before you become committed to just one solution. Keep an open mind.
thanks for the reply crj.
Apologies for the delay with mine, been out of town.
Dad not bothered if improvemnets become his, afterall, any investment he has in mind would require improvements on his part anyway.I agree, ownership transferred could result in a GST liability and I must seek professional advice regarding this.
The land is zoned for multiple dwellings.
You are right. Currently it is a buyers market in the area and a lowball offer on a property is something I should defintely consider. The estimated value of my villas after completion in that area given todays market is somewhere between 250k & 300k each, I expect building to take approx 1.5yrs for completion so cant comment on the market at that time, although predictions are such that prices will rise again but slowly and not as much as the last boom. i would be looking to build/buy & rent in that area and only sell if market changes to a sellers market obviously.
My father has long considered to build on his block himself, but he has a wife who works 2 jobs & is EXTREMELY reluctant to proceed (because she doesnt want the added debt, factoring in the interest rate hikes & such also) & since he works most days & long hours it would be up to me to manage. Since I want to invest anyway i thought this was an opportunity for us both, and the least expensive one for me in my region in my opinion. I have considered buying an IP in another state but I dont have the time to take off work to go to these places and check out selected areas. Instead I am hoping to invest locally for my 1st IP (on the south coast). After that I'm hoping to look elsewhere. Shoudl also add I'm too afraid to buy sight unseen.
Thanks for the advice, you have given me more food for thought, will definitely keep an open mind :o)
Buy a copy of HomePriceguide (better than RPdata, I think) of the last year's sales for the area to see what actual price you can get for a sale. Don't just take what the agent(s) tell u. Once u have the report (cost about $50), map out the kind of townhouses (eg 3bed, 2 bath) that you are thinking of building and go and take a look at them from the outside. Imagine u could build it and sell it in a week. Would u make a profit from the real sales figures of the area?
1.5 yrs for completeion? Average good builder is about 16 weeks per property, or are u building yourself as owner builder??
Don't forget to factor in selling costs like tax on any cap gain and agents selling fees etc. They are not insignificant sums.
It's great that u r trying to redeem the situation, but do the sums first….
Cheers,
JBDee Bee
Sounds like a situation I am in too.
Sounds like a good plan to me. Hopefully things will pick up again in the area by the time you are finished building.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
If only I could get a builder to build in 16 weeks!!!!!!
Standard here is 30-32 week contracts plus 4 weeks lead in time and also add at least 4 weeks for Christmas. And that is their "quick" contract time.
Add in planning and council approval time and I always work on a project time of 14 – 18 months.
Tammy
Hi Dee
Just an expansion on something crj mentioned. An excellent way going forward is to develop at least five solutions BEFORE you evaluate any of them. The question you have asked about "is it good or bad" is not a bad question but really a better question is " Is it the best solution you can come up with?" Why not think up some others to compare it with?
EG 1 Is the land more valuable to a builder if it has approval to build?- If so your Dad may be able to just obtain building approval and recoup his losses while you look to invest in the most profitable straightforward way for yourself.
EG2 Can your Dad partner with a builder for no outlay ie he puts in land- builder puts in building- they each own half and you invest elsewhere without the complications of family ties?
Congratulations on your progress so far.
Cheers
Alan
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