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Hi Nit,
Where are you looking at, because different councils have VERY different criteria. I have been in the process of subdividing my block for 3 years and it is a real pain. I was also under the impression that it would only cost around $30k – how wrong was I?
By the end of this month I will have council DA approval and I know that many others in my area have given up at this stage and sold out. I haven't given up yet and maybe this is because I am insane, but the thought has crossed my mind. If you can find something that is already DA approved then all the hard work has already been done. Some will have already gone as far as having civil engineering drawings, electrical and telecoms reticulation plans, survey plans, covenants, environmental plans and any other council requirements up and ready for execution. By execution, I mean paying for the contractors and getting these services in place.
When you buy a "DA Approved" property you must consider these additional costs, which may be considerable. In addition to the environmental end engineering costs there will be council "contributions" that need to be paid. This is really a money grabbing exercise but one that we can't avoid. However, the financial gains, are in many cases well worth the effort. As I mentioned, there are a lot of people that have given up by this stage and just want to get out of it. As I also said, all the hard has been done. All you need to do is put all the pieces in place, pay the contractors and reap the rewards.
For example: I have an acreage property in the Redlands Shire, Brisbane that is being divided into two half acre blocks. because they are both battle-axe blocks we need to put in our own fire hydrant, underground power and a proper driveway with passing bays. Also, because it is in a Koala Habitat area (haven't seen one in years) we have to pay $100 per metre of tree that will be removed. I am looking at costs of around $160K with around $50K of this going to the council. If I sell both blocks with "DA Approval" I will make very little but the prospective buyer could easily make $300K+ for maybe a years investment.
I hope this helps.
Terry is partially right. However, losses do not need to be quarantined – only if you use the wrong type of trust. Have a look at the Chan & Naylor web site. They are experts at setting up trust structures and specialise in property. I am sure they have the exact right structure for what you want.
Buying and selling will trigger capital gains and you may also be up for GST because it is obvious you are in it for a quick tranaction. This will probably wipe out any profits you were intending on making. Speculating in property is a risky business – but can be done if done properly and if you intend being in this game for the long term. Property is supposed to be a long term investment, which will level out the costs assicated with buying and selling. It is very difficult to make a quick buck in property. Let time make the money for you, hold and sell only when absolutely necessary. If you want a quick buck then I would suggest you look towards shares or something else.
Also, if you are serious about making money in property then I would suggest you read a lot more. There are merrits to buying project homes, but also downfalls. "You get what you pay" for is a very true saying. If you buy a cheap project home (based on price only) then you will pay for it in the long run. It most likely will require very expensive maintenance in the short term to fix up what has been hidden from you. If you get it custom built it may be very expensive because it is a "one off". You have to decide what is a happy medium and be prepared to be in it for the long term. The golden rule to property investing is "Never, Ever, Never sell"
I hope this helps.
Scott,
Thanks for your comments. I was fairly sure it could be done, just wasn't sure if the private loan needed to be in his name or not. I guess that if we have a signed loan agreement this should cover it.
Richard,
You are still supposed to be on leave? He managed to secure the loan with no problems. First home owners grant also made a big difference. As such, it will be a PPOR for the first 6 months. This will give him time to tidy the place up ready to get a good rental. He didn't have very much as a deposit and his mother has offered to cover the balance of the 20%. This way we avoid LMI. We will defer repayments of the private loan for the first 6 months just to ensure that all the repayments are related to an IP. Another reason for this is that the combined repayments would be a bit heavy for the young feller.
We will definitely keep all the records separate so that his mother will have no problems at tax time.
Richard, I need to set up death and trauma protection for him. Should I do this through the bank Financial Planner or should I do it through you?
Ivan
9ball,
I am no expert but I would say that you would be up for a lot of additional and unnecessary costs doing it that way. Also, in order to get the LOC on your new home you will need to provide security and that would be your PPOR, so you wouldn't own it outright anymore.
It would be best to use the additional equity in the IP to buy new properties. The interest is then fully tax deductible. Using the equity to pay off your PPOR is not tax deductible, nor is the costs in setting up a new loan. If you did set up the LOC then you can claim the interest on the LOC so long as it is used to buy IP's.
