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Hi, don't think I can help but can share your frustration. I built 4 houses with a very conservative end value of $285000 each. The bank gave me a partial construction loan & a business loan of $840000. The new houses are at handover stage & are discreetly on the market for $280-310 thousand.
I'm coming to the end of my resources & asked for an extension of $50000. They asked for financials & all kinds of documents. I'm telling to jump off a cliff.
Soon as community titles are issued, I REFINANCE WITH SOMEONE ELSE.
Thanks for reading me venting my frustration.
Kum YinHi, especially to Simon. There was a suggestion that we're over supply when I joined this forum 18 months ago & I wrote quite vehemently that what I saw on the ground suggested that it was NOT true. A few people scorned the idea that our property was under valued.
Now with rental vacancies at 1% approx, (it has been like that for months & months), there is still no evidence that there are enough houses for everyone who wants to rent. Property prices have also appreciated about $50000 in the last 12 months.
I am offering new houses at 5% yield not including depreciation. I bought an old house on 1 May 2007 for $223000 and receive $220 per week rent (could have got $230 but we did not want to rent to single gentlemen. My manager says, "One single man no good, two single men, even worse") We have cleared out a block of land down the side with 2 street frontages to build a new house about 140m2 with a value of $300000.00
Simon, 18 months ago, I saw 4 other properties with the same potential. How many people said at that time they expected Adelaide property to go backwards?
Having said all that, I'd add that even I did not expect top end properties to do so well.
I'd also be wary of apartments, especially beachside ones that ask high prices with no rents to back them up. City apartments are still a good buy, I think. But then again, I don't buy apartments so my comment is not to be taken as advice.
I'd be happy to talk to interstate investors. I've nothing better to do than yarn about property investing. Just send me an e-mail or something.
Mingling, Victor Harbour is NOT Adelaide.
I hope my words don't come back to bite me.
Good luck everyone,
Kum YinHi, it depends on the end value of your project. If your building cost does not exceed $850 per m2, then the initial cost is a bit too high.
The valuer used by my lender put my project in the "mid range" cost & I pay about $5000 all in for design, submission to council & LTO, surveys etc. This amount is only for paperwork. It doesn't include payments to council, connection of services.
I estimate that it's about 0.3% of eventual profit.
Maybe 1% of profit? I'm stabbing in the dark with this estimate.
FYI, I build houses under the median price.
Hope this helps.
Kum YinHi, I'm very interested in building but my interest & inclination leans towards design & I find that I read plans & understand building requirements fairly efficiently. I'm also able to tell by looking whether a tradesman has done the right thing by me.
Therefore, I'm not unhappy to be a "developer" & employ other people to do the work.
It would take far too long for me to get builder accreditation even if I'm capable of doing the building itself, which is extremely doubtful.
Have you considered going to a "spec home" builder? They're a good option if you're thinking of building homes to sell.
For further info for you to consider, I'm on the verge of finishing my first ever building project. I'm a lone female with NO HANDYMAN SKILLS.
However, I've since realised that the risks are very real. I'm fortunate to succeed in my first venture into building.
I wish you the same success. Don't give up. I'll share with you that success is largely due to my belligerence & of course the comfort of some money from earlier investments.
Good luck,
Kum YinHi Xenia, can I talk to you sometime regarding rent to own options? I'm looking to lease 4-5 courtyard homes. 4 are almost at lock-up. One has sub-division approval & building will probably commence in August.
Cheers,
Kum YinHi, interesting.
9 years ago, I was in the same position. I thought the minimum would be 1 house to live in, 2 houses to collect rent on. Subsistence living.
Then I was told someone on the Commonwealth pension would get $18K p.a. & I thought "Bugger, why don't I wait for the pension? I work like a dog just to get $12K p.a. after I pay off all my mortgages."
So I started reading all the retirement books ever written & hit pay dirt on 2 American ones.
There's something called "critical mass" & for a single person, that works out to be roughly $750000 in net worth, preferably not including PPOR!
When you think about it, it's very logical. Using the factor 20, $750000 will yield $37500 p.a. That's replacement income for an average wage earner.
Like L.A. Aussie, I suggest shoot higher. Don't depend on the pension. The pension is designed to keep everyone poor.
FYI, I decided that $750K is so close to the million, it makes sense to shoot for a million. It has more zing!! I'm now retired & building houses because I love them.
Good luck,
Kum YinHi, Battleships made a valid point. House price has a replacement cost. I feel the current price of housing is part of the inflationary situation & cost of money. It costs me $240000 now to build a house where pre GST in 2000 even 2002, it would have cost only $160000.
Unless everyone who needs a house has one, the demand will still mean we need to build some new houses.
The local population too needs new houses so just looking at migrant numbers may be missing something.
Cheers,
kum yinHi Kim, not a lot I can do to help except to reassure you you're OK & not alone. I almost told the St George bank manager to jump off a cliff.
Same thing, low end valuation & heaps of unhelpful obstructions. Yet, my houses are almost at completion & 2 more projects are due to begin, I may add at the same snail's pace!
I might also tell you that 12 months ago, I didn't even have a loan. I noticed that I had nothing under "do" when I finished reading Steve's 1st book. Everything was "done". Now I have "do, doing, done".
I also have a lot more white hair!
Good luck,
Kum YinHi, 6 months pass very quickly. You might not have to give up the grant. If I were you, I'd check these issues:
1) The date of ownership can backdate to the day building begins. You can consider that it's PPOR from that date esp if you can't claim tax deductions on expenses.
2) 6 months pass very quickly!
3) You won't need to pay CGT when you move back in after some years of rental.
4) Depreciation offsets will be very useful. [Can be a few thousand a year. I know someone who got $12K one year – it's an expensive apartment]
5) The SIX YEAR RULE may apply in your case. Check it out.Good luck,
Kum YinHi Dacium, good job locating an opportunity.
The concerns:
1) End value: if you build 2 new houses on 750m2 blocks, each house will have to be sold for $400K+ to turn in some profit.
2) If you can build 3 on 500m2 blocks, each house will have to sell for $350K or thereabouts.Your holding costs depend on the time it takes to complete.
These numbers apply to where I'm at. They may differ in your target suburb.
A good idea is to work backwards from the yield. That's what I do. My worst case scenario would be if my properties cannot sell then how much cash flow do I get from the rental? If I churn out numbers that suggest neutral gearing, then I'm OK.
The banks will fund a project that shows good profit on end value so once the numbers are OK, funding is not the biggest problem. The biggest problem is managing our own cashflow.
Hope this helps. Good luck,
Kum YinHi Alex, more 'stuff' for you to digest.
1) Minimum block size. Yours would be 375m2 each if the block is regular. Doable in most urban areas but check with local council, if you haven't already done it. The frontage is important. The minimum frontage for sub-division is around 24m for detached homes. In near city areas, you can get away with 2 attached homes on less than 20m frontage, 9m minimum for most areas.
2) I attended Martin Ayles seminar & this is what I've picked up from him. My houses all have ensuites. His don't. His reason – they cost up to $10000. His houses have double garages. Mine have single carports with roller doors. His reason is double garages add $30K in sale value. My reason – double garages cost $15K, single carport costs $3500. I want to peg my sale price at the median. My tentative or lowest asking price is $40K below what other people around me are asking. They are asking $30000 to $340K but haven't sold. I can sell @ $285000 & still make profit.
3) If your numbers show a profit around 20%, then you might just want to plunge in & hang the funding! I did. I borrowed $300K from private lenders without a clue how to get an extra $500K for building.
Note on 3) The risk is yours & yours only. You are the one to decide.
What I can share with you is that I took that 1st step against a lot of contrary advice from well wishers.
It's my 1st project & the learning I've gained from it! Even if I just break even (totally unlikely), I will still do it if I had to choose all over again.
As I write this post to you Alex, my agent was on the phone. The old people next door want to trade their house (old house, large block, wide frontage) for one of the houses I've built!
If this is not precession, then I don't what is.
Sorry to be long-winded but God bless your endeavours. Good luck,
Kum YinHi Alex, congratulations on your progress. Sub-division & rebuilding multiple units on the existing block is a quick way to get increased equity. However, some points for you to consider:
1) Time costs: it's better to be VERY conservative on how long the project takes to complete. I was told it'd take 1 year & I doubled it & it's going to take 26 months.
2) Footing & infrastructure costs: demolition quotes can vary. Mine cost $4000 more than initially quoted. Then the engineers did a 'variations' on footings to the tune of $42000! I threw a fit & got someone else to do the footings. Still cost $20000 more than originally quoted.
3) Is it possible for you to build single storey cottage type houses? They're $50000 cheaper to build. Even though the end value may be lower, your profit margin may still be the same. The risk would be significantly lower.
These comments are meant to be helpful. They're not meant to put you off developing. It is the most meaningful thing I've done & the joy in seeing your houses being built is indescribable. Not to mention the profit that's possible. I encountered heaps of problems & yet the project I'm doing will increase my net worth by a hundred & twenty maybe fifty thousand.
If you can do some jobs yourself, your profits may be far higher than mine.
Good luck,
Kum YinHi, thanks for your responses. I'll follow up.
Kum YinHi, I thought that it sounded too good to be true but having looked at it for the 1st time today, it might be useful to me.
If I have 5 newly developed houses that I’m very sure have potential for capital growth, then I want to hold them as rental properties for 5+ years because after that, the GST no longer applies. CGT is much less painful than the tax on profit upon immediate sale.
This loan product then gives me a way to wait out the regulation 5 years while I accummulate either CG or tax savings.
Any additional comment whether +ve or -ve, is much appreciated.
Kum YinHi Devo76,
You’re doing what I’d be doing for exactly the same reasons. Again, your results will be a tad slower because the boom has been & gone. But no problem. All through 1999 to 2002, hardly any gain was made in my case. I was still happy to hold for the forced saving & the tax benefits. I was going to live on the rental income when I retire! And I’m doing that now, with a higher yield than I’d originally thought because the boom raised the bar for me.If you’re already paying into the offset account, well done! I tried that in 2006 & I’m a dismal case because I keep dipping into it.
Bless you & may you reap good rewards for the discipline you put into saving.
Kum YinHi,
1) The yield 6% or 5.5% is good, higher than what’s normal for Adelaide.2) For country towns, there’re other factors to consider. $235K is replacement value for houses, anywhere in SA. If there’s no potential for capital growth, then the rent is all there’d be.
3) Port Pirie for instance, isn’t likely to achieve the same median price as Adelaide. But the cost of a new house is not going to be very different, only the land value difference. Port Augusta, Goolwa, or other biggish centres ditto, inclusive of Hahndorf & the hills towns. The hills centres have high median prices because people are fairly well off.
4) For $235K, you can still buy a house in outer metropolitan Adelaide.
Adelaide & environs has 1.5M people. Country towns may have 5000 only.
I leave you to work out the implications yourself.
Good luck,
Kum YinHi again,
1st, Navyboy, no sense selling to buy again. Either don’t buy, save into an offset account or buy either to build or a new house ready for immediate rental. Your 2 IPs are low priced, sell & the agents/tax man get all the profit. If your tenants are not unhappy, why spend extra to get almost nothing in return? Renovate only when you have a vacancy.Buying land to build may be difficult for you because of distance. You might want to use an agent. Pay about $6000.
Davo76 is really who my return post is for. I was in a similar position to you not that long ago. Except that I was only $10K short on my $240K PPOR. I borrowed $200K to buy another house price $175K. Rented out PPOR and got to work chipping away at the mortgage.
Read this: I was on a loan @8.5% with a 2 year balloon repayment.
Dacium will think I was mad. I wasn’t. I was very confident I could save $100000 in 2 years.
Davo76, what concerns me is that you bought at the plateau of the property boom. When I bought, I was absolutely certain that houses could not go down any further. They had languished for 10 years! I had been looking for 7 out of the 10 years.
We are in a very mature phase of the property market. Davo76, I may be too longwinded & saying something that you already know. Do protect yourself by cashing up asap, in an offset account sounds really good.
May life bless you because you’ve taken steps to financial independence. Good luck,
Kum YinHi Dacium, many will agree with me when I scorn your statement “If you don’t own a PPOR, don’t invest”.
It should be reworded,
DON’T OWN A PPOR, INVEST!Very few people make money by saving and not investing.
The only problem of course is that the investment must be a good one.
Cheers,
Kum YinHi, especially Dacium,
63K pa & $295K mortgage is not bad, depending on the tax situation, especially if the rental is not part of the 63K.Navyboy, what is of concern is not so much the total debt but how you manage it.
It’s the type of property you own. What will you do if you have vacancy?
Your properties are likely to be in Elizabeth, Parafield Gardens or thereabouts. Their value is too dependent on the overall economy.
If you sell, there’s not much profit. The ATO will see to that! The low vacancy rate is in your favour & will likely do so for quite some time.
Your position will be very strong if you direct the rent monies into an offset facility.
If your $63K income is reliable & doesn’t include rental income, you can buy a ‘better’ property, either a block of land to build (I saw 2 blocks at Seaford for $80K ono) or a house & land package. You can get a new 3BR home for $230K
You can work it out yourself. The $230K home will have immediate excess equity. Rental will be easy. Even if vacancy rates go up, your property will still be competitive. You will have tax effectiveness because the new house is fully depreciable. It is a far ‘safer’ investment, if there’s any such thing.
Seaford & Christie Beach are at present undervalued. Infrastructure is good. The ocean is nearby.
At the end of the day, everyone can offer suggestions but it’s you who have to do the numbers & manage the debt. Repayment doesn’t sound so bad.
Good luck,
Kum YinHi Peter, I wonder if you’ve visited Playford North?
I don’t own a car & as far as I know, getting there can be rather difficult. I’ll check it out today.
I’d wanted to look at the builders’ display homes at Playford so I might do some recciing.
The rental wars in the news are mostly limited to places like Parkside where there aren’t many properties to be had.
Cheaper properties are also very easy to rent out.
I’d check the rental guarantee offers very carefully if I were you.
Good luck with your investments,
Kum Yin
