Forum Replies Created
You should read some of Steve McKnights books.
A key consideration will be the cost of LMI. At 20% deposit you wont have to pay any, at 5-10% you definitely will have that as an additional cost. Allow 4-5k if you buy now.
I imagine that your mortgage interest cost would be a similar cost to the rent at current interest rates?
The other consideration would be the impact of having newborn children in the middle of a major renovation. The two may not mix too well. Starting now may allow you the opportunity to get most of the work done before they arrive.
Personally I would consider waiting to see where interest rates start to level off at again, to gauge affordability on one income.
If a great deal comes up, consider buying it, otherwise keep saving.
The other thing to be wary of is that the hotel controls the building. Don’t count on your body corp fees staying low long term. They are likely to be able to increase them anytime they want.
What were you constructing that allowed savings of 50%? Did that include all electrical, plumbing etc?
Were you doing the project management yourself and co-ordinating each tradesperson to do their part?
What margin are you putting on the properties when you sell them, what interest margin are you capturing above your own interest cost and which state are you operating in?
I have looked into it and they often seem to have inflated prices. If you are able to get one for the real cost then you are getting a good deal.
You should be able to negotiate a deal where they pay to put the home back to as new condition before returning it to you. They would replace the carpets, set up the garage as a garage rather than the sales office etc.
I wouldnt count on 10-15 years though. most only sign contracts with short term options, at their choice whether they extend or not each time. I would work out my figures based on 2 years, rather than an extended period of time as this is likely to be the longest guaranteed rental period they will offer.
I recently went through a similar experience, my client went to about 5 laywers and all of them were either not specialised enough to advise them, or were advising against entering into an installment contract. It wasn’t until they found a lawyer who was familiar with them that they felt comfortable entering into the contract.
I think its dangerous ground advising people not to seek legal advice, not recommended.
I’m thinking perhaps we need to have a list of 3 or 4 lawyers which specialise in installment contracts in each state and let our clients pick one from the list.
On a new property it is easier not to inflate the price significantly. The real killers in a deal normally are the stamp duty and if you have to pay LMI. With a new property, at least stamp duty is minimal as you are only paying it on the land. I got the buyer to cover the interest during the construction phase (which they would have had to do if buying it outright themselves anyway). Perhaps if you are really keen on the builder, you could get him to finance the costs until the completion date. This is likely to save you around $10k in interest costs.
You need to have access to the best possible finance terms, prior to making your markup, and ensure that you are buying the property under the average market price. Some builders are significantly cheaper than others.
The ones that drive me nuts are the property magazines where they show rental return based on the average purchase price for the suburb vs the average rental advertised. This always significantly skews the results. Examples that consistently show the wrong information that is not representative of the market:
Ultimo, NSW – Half the units sold are in a university complex. very cheap and 20 -30 sqm. They aren’t advertised for rent as they are rented straight to students. Those apartments that are for rent are much larger and nicer. The rental return looks fantastic on paper but isnt representative of the market
Hepburn Springs, VIC – Somehow they take the average rental to include holiday homes that are rented by the week. The real rental return is nothing like they report
Woolloomooloo, NSW – This is another market that they claim has a high rental return. I have researched it extensively and can’t find any opportunities at the amount they claim is the average.I think that overall the rental returns are skewed upwards and not representative. If the places that are advertised for rent were priced correctly, they wouldn’t still be available for rent, and high end rentals are likely to sit on the market longest. Statistics like these are always inaccurate and misrepresented, especially in the short term.
Thanks again Scott,
I am looking at a very well priced project home which works out at $750 per square meter (incl. GST) for a turnkey package with many luxury inclusions. $235k for a 306 sqm home including driveway, fencing, site costs, dishwasher, 900mm oven, stone benchtops, full landscaping, ducted heating and cooling, site costs etc.
They appear to be much better value than any other home builders. The only issue is that they advertise alot in the areas that I am looking to build in, so even if I build with them, anyone that I would later look to onsell to, could just have just built with them also.
Any thoughts on how to still lock in a profit on this? A great deal on land in the area would be about $140k for 500 sqm of land (working on a $20k discount from normal sale price). The total cost to me would work out at roughly:
House $235k
Land $140k
Stamp Duty $ 4k
LMI $ 4k
Early exit cost$ 1k
Legals $ 2k
Sell myself $ 1k
Interest during
construction $10kTotal cost $397k
I dont see much point in doing this unless you use it as your PPOR and then onsell later to avoid CGT.
The high level of incentives for new home builds and the stamp duty costs become a killer.
For me to lock in a 50k profit, my sale price would need to be $447k and the extra costs for the buyer compared to new with a builder would be around:
FHOG $10k+ less received by home buyer
Stamp duty $14k higher cost
This means the home buyer needs $24k more cash just to be able to buy off me and takes the effective cost up to $471kThe same home at normal construction costs from an average home builder and average land cost would work out for them at:
House $280k
Land $160k
Interest during construction $ 11kTotal cost $451k
Despite buying $20k better on the land and $45k less than normal construction cost, my price would still be $20k over an equivalent average deal for a new home and require more cash in hand from the buyer.
What am I missing here. I just don’t see a profit in this.
Thanks,
MattThanks Scott.
Still unsure though, as we are talking about a newbuild rather than purchase and subdvide. If I could lock in an $80k profit at the start, from purchasing the land at less than market value, why bother building a house, just onsell the land at market value.
Surely there is more to building for a profit than that.
Cheers,
MattHi all, I just found this old thread.
Can anyone tell me where the profit margin comes from in doing a new build and onselling it? What expenses are able to be removed that allows you to hire a builder and all other contractors and walk away with a profit? Are you just becoming the project manager and taking the equivalent of their salary component?
Thanks,
MattThere are several kiwis here, what is your question?
Just be aware it is likely that you won’t see any of the money from the sale of the property, as I imagine that if they are cross-collateralised, ANZ will just take the money to service what is owed against the other property.
You should be seeing selling as a way to reduce debt and ease your cashflow problems, not as a way to fund your living costs.
Hi Richard,
What is wrong with the St George offset account? I have just set one up for my new IP so would be good to understand if there are any pitfalls with it.
Thanks,
MattRobert Kiyosaki also wrote a book which outlines the impacts of demographics which will cause a huge sharemarket crash as the baby boomers are forced to withdraw their investments to live off. From memory it was around 2014 that it would start as in the US they made it compulsory at a 70 years old you must start withdrawing your money from your 401k plan.
I think the Australian government’s policies have been a huge reason for people not wanting to have a gradual entry into the housing market and instead buy the dream home you could raise a family in. Your first home gets all the concessions, no stamp duty, in NSW at least, or if building your dream home, you only pay stamp duty on the land. To buy a home and then later upgrade to another, you are looking at $50k+ in transaction cost.
As land costs have gone up extraordinarily, while building costs haven’t increased at the same rate, why not pay $500k to get a house twice the size of a $400k house and never have to move again.
Are you sure it is legal to onsell a wrap deal? My understanding is that you aren’t even allowed to refinance the mortgage on them.
Have you asked your clients if they are in a position to buy out the contract themselves? Surely it isnt hard convincing your bank that they could afford 5% interest payments, when they are currently paying 7.5%, especially if there has been capital growth, which is likely since 2003.
I'm in Sydney but investing in Melbourne so am there quite often at the moment. Could look to meet up at some point.
Sounds good, where are you based?
The problem is that you are the last fool. The first fools already took him up on his offer and made their money from him, hence he is going broke.
