All Topics / General Property / Better to Build Units or Houses?

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  • Profile photo of chrisb123chrisb123
    Participant
    @chrisb123
    Join Date: 2009
    Post Count: 9

    I am looking at purchasing my second IP. I want to build due to factors such as higher depreciation, better rent (due to new dwelling), good chance of future Capital Gains if building costs are low.

    I want to maximise rental returns in order to service the loan as best as possible and get on with other ventures.

    From what i can gather, building costs could be around $200k in my area, whereas to build 2 units or a duplex (2 or 3 bedroom) can cost anywhere from $270k up to 500k. It seems like it can be a very messy and complicated process with units/duplex with subdivision and council permits, which i have been told can skyrocket expenses!

    Am i better off building houses or is there a distinct advantage in going down the unit/townhouse/duplex path?? Any advice welcome!!

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    Generally speaking, the more that you can get onto a site the better ie if you can get 2 t/hses for say $270k, you will be getting your return of say 5% rent on ($300K+land) whereas if you only built one house you'd only get your 5% on ($200k+land). You spread your risk over 2 (or more) houses etc. Sure, council will put their hand in your pocket for subdivision costs, development contributions etc but you can quantify all of that well before you commit to building and factor all of those costs into your development model. If subdivision is allowable, then you may be able to sell one or both separately.

    On the other hand, if you determine that you can get 3 onto the site, (and everyone else is working on 2 per site), then you have made the site that much more valuable.

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