Hi All
I’ve just had my home built by an excellent builder up here in Darwin and we are stunned with the result. They are a fairly low volume builder (seem to have about 10-15 houses on the go at one time, at most). You pay for the quality, but he also seems to assist in getting very good rent for his properties. The Defence Housing Authority (DHA) up here often chooses his houses for long term leases as they know they are always good quality.
Anyway, I am fairly low on cash after building our home. We spent about $450K all up including land, building, landscaping etc. and have a $320K loan. We have no investments at present. Myself and my partner have a combined income of around $165K a year at present, but we like to make sure we don’t commit too much of that as it is quite possible that this will go down (I am a contractor). We are also looking at having kids soon which could affect that too.
The builder has offered us an opportunity to buy a display home he is looking at building. It is on a 750m2 block on a hill in Gunn (Darwin) overlooking the escarpment. Total spend including land is to be $500K and its going to be using top quality finishes. He is guaranteeing 6% lease-back (for display purposes) for 12 months with a 6 month option. We also have the security of DHA leases up here which are often as long as 10 years.
The figures seem to add up for me, but I’m just not sure whether it is a safe commitment without a lot of cash in the bank (we put it all into our home). Our income is probably up to it, however.
Up-front costs appear to be stamp duty on the land (about $3.5k – land is $120k), and interest-only repayments while the house is being built. Are these interest-only repayments during the building stage tax deductible?
Any advice?
Regards
AdamAdam be very carefull of the fact that a large number of the construction workforce will be moving on in the next month (almost all of us will be gone by xmas)and alot of us rent in Gunn.This could have the effect of causing a glut of properties in the very near future.
Regards AdamLive every day like its your last.
Learn how to create enough passive income to retire using shares,property and the internet.
http://www.renovateyourfuture.comHi Adam,
Recently went through the whole question of whether loan interest payments were tax deductable before earning any income and ended up talking to the ATO – they confirmed that yes you can and that is what I have done for the last tax year – no problem….
MIKALA
Beanie: When you say ‘construction’ do you mean the gas pipeline etc? The investors who our builder has built houses for seems to rent mostly to DHA but also to companies like Bechtel. Thanks for the heads up on that – Gunn is certainly a rapidly expanding place. I’m living in Gosse Cct at the moment and just around the corner are some new streets just developed.. all sold.
MIKALA: Thanks for that.. that’s awesome!
Anyone else? Am I dreaming of doing this on our income and with minimal cash at hand (about 5K – but we save about 3K a month)? Should we wait until we’ve been in our new house for a while and watch the market?
Adam,
The income side of things seems OK, especially if you can secure one of those 10 yr leases.
My only concern would be the capital growth of such a property. Land value being only 24% (120/500) I would expect that the place might take a fairly large dip for a few years.
You might find in 5 years time the figures might look like (240/480)….that is the land has doubled and the bricks and sticks that you paid 380 for might only be worth 240. You’ll get buku depreciation from the ATO for sure, but your equity has spun it’s wheels and gone nowhere.
Our lowest criteria for land value is 70% with our latest purchases ranging from 84% up to 93%, all with nuetral CF on a 100% lend. Just our preference.
Good luck with whatever path you move along. With your heavyweight income, lots of options there.
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Dazzling,
The Darwin market is interesting like that. Land is very cheap here, but building a house is extraordinarly expensive due to cyclone coding etc. Distance probably doesn’t help either.
To build a really basic, 3 bedroom box you’re looking at $200,000 + land. You can get 600m2 of land up here in a less-expensive new estate for about $60K.
The home we’ve just built we spent $90K on land and $360K on house + landscaping.
I imagine the price of the land is largely due to the fact that there is so much available. There are new estates in Rosebery, Farrar, Gunn, Durack and now Lyons.
If you only considered 70% land value here, you could spend $400,000 on a marina waterfront block in a premium spot (800m2 of land, 200m2 of water title) and you’d only be spending $570,000 in total which is $170,000 on a building. You cant build anything at all for that here – you wouldn’t even be doing the land justice by spending less than $500,000-$600,000.
Adam
Adam when I’m looking at WA properties I look at replacement cost of about $700-800sqm for the house depending on the builder/house and look at comparative block prices to get land value…
Then look at Chattels value..for a ‘rough guide’..
Dont know how you’d go applying that to the North West and NT though..
REDWING
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorThe Darwin market is interesting like that. Land is very cheap here, but building a house is extraordinarly expensiveOK…so how do you interpret the market will perform in the next 5 years given that ?? I know nothing of Darwin, but I imagine the old ‘land appreciates – buildings depreciate’ still holds true ??
I imagine the price of the land is largely due to the fact that there is so much available.Scarcity surely creates demand, which pushes houses up. What are you projecting the 500K spec house will be worth in 5 yrs time ??
Cheers,
Dazzling
“No point having a cake if you can’t eat it.”
Adam
Yes i am refering to the gas line and lng plant.
I am also on Gosse cct two houses have been completed and trying to rent out for about 4 to 6 weeks (one is on Nathan ct) Raine and Horne are the rental agents.I would ring them and ask what rents they are trying to get and how long the properties have been untennanted for.Hope this helps you out regards AdamLive every day like its your last.
Learn how to create enough passive income to retire using shares,property and the internet.
http://www.renovateyourfuture.comHi Adam
The one on Nathan Ct is actually built by the same builder I have been talking about. Also the one we are renting on Gosse Cct is his too (we’re on the corner of Buckingham and Gosse – you can’t miss it).
The one on Nathan Ct has not actually been up for rent long. It’s the builders display home – he is renting it back from the buyer. It was bought for $365,000 a few months back. We were offered it at that price but were keen on building our own. It has a tenant ready to move in shortly at $440 a week.
The other one I think you are referring to is the blue one. It’s asking $400 a week but I think that’s pushing it.. it doesn’t look particularly nice.
Regards
AdamOriginally posted by Beanie:Adam
Yes i am refering to the gas line and lng plant.
I am also on Gosse cct two houses have been completed and trying to rent out for about 4 to 6 weeks (one is on Nathan ct) Raine and Horne are the rental agents.I would ring them and ask what rents they are trying to get and how long the properties have been untennanted for.Hope this helps you out regards AdamLive every day like its your last.
Learn how to create enough passive income to retire using shares,property and the internet.
http://www.renovateyourfuture.comLive every day like its your last.
Learn how to create enough passive income to retire using shares,property and the internet.
http://www.renovateyourfuture.com
[/quote]Hi Adam
A 6% return is not that great in Darwin – especially one that is guaranteed for 12 months. What will the rent be when the lease expires?
We are buying on at 10% return up there at the moment – they are pretty hard to come by but they are still there.
Also, DHA has VERY strict requirements before they least the homes from you – make sure that the DHA want it before you buy it if that is the way you want to go. And DHA management fee is about 16%, which is very expensive.
I think that you could get better bang for your buck up there at the moment.
K
A 10% return? Wow.
I haven’t seen any places yet where I could get that sort of return except at the very low end of the market where the quality of tenants is questionable.
I’ll keep searching…
Adam
Have just come back from 4 days in Darwin, a city which I admit I don’t know too much about.
Had a look at properties in Gunn and Durack (about 20km from Darwin CBD) in the $250k-$300k range (from 6 to 8 years old on smaller land 300m2 to 450m2). There was a lot of new land being opened up in the Gunn/Rosebery/Bakewell area and the newly constructed/partially constructed houses were mostly larger/flasher than the earlier built ones.
I also had a look at vacant waterfront land (950m2) with pontoon for yacht at Bayview. Owner asking 495k. Large houses being contructed on these lots. Only 10 minutes drive to Darwin CBD. Reminded me of the residential land I saw at Cullen Bay in 1996-a few houses/a lot of vacant waterfront. Cullen Bay is now completely developed and Darwin’s premier suburb.The Bayview and Cullen Bay waterfronts sits within a system of locks that minimises the effects of tides (which can be up to 8m).
Ajax
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