Hi,
Building a new investment property but have a dilemma in regards to land size. I have the choice of two blocks. Same area, just a few differences. Once is around a 640m block. The other is around 600m. The 640m has no easement on the block but the 066m one does have a 3m easement. The 640m block is an extra $15,000 though.
Question is, for a rental, is it worth building on the bigger block? I plan to keep this house as a rental for a long long time as I am building it so I know it will be great quality and won't fall apart. Would the extra 30-40m of block actually be a factor in regards to rent charged? Because there is no easement, it would be easy to put a shed out back for example. Would that be a benefit for a rental or would renters not really worry about this?
I can save $15,000 and take the smaller block with the easement but would I get more rent for the extra bit of backyard and possible shed out back? Would a bigger backyard be a big factor or is it just a waste of money when it comes to a rental?
I know if I was selling for a profit the bigger block would probably be better as I could get more for a bigger piece of land, etc, but remember this will only be used for a rental and held for a long time.
Thanks and any opinions/questions are welcome.
From a renter's perspective – it makes no difference whether it is 500 m2 or 750 m2. Likewise they have no development rights so the easement makes not a scrap of difference to them (they are not interested parties on the title & wouldn't know an easement if they fell over one).
Generally rental properties achieve a rent based on the number of bedrooms/facilities/parking spaces available – having an extra 40 m2 to mow is not an attraction for the tenant unless he plans to keep large pets/kids.
As for the investor, selling a block with an easement (depending upon the conditions of the easement) will make the property more difficult to sell – what sort of easement is it? How much of the land does it affect? Does it affect where you can build? All of these factors will influence how much you should pay for the land. The larger, unencumbered block, will allow you to put a pool/garage etc in without shrinking the yard too dramatically (more so of interest to a future buyer than yourself). It will also allow you to build a larger house eg if the FSR is 40% then the additional land will allow an extra 16 m2 of living space (ie bedroom or study).Think about the future.
The larger block with no easement may be more expensive now, but down the track it could be a more sought after block for redevelopment with units, so it may be more valuable to either you or another investor.
Tenants don't care about a few more or a few less metres on your property. It won't influence the rent return much; if at all.
Thanks.
How about property value? Would it influence that because equity in this will play a big part in my next purchase.
As I said all along though, don't plan to sell for a while. Won't redevelop as units as it's an Estate and not allowed. Keeping long term as a 4 bedroom house as I know it will last.
I can't remember how big the easement is. I don't have the plan with me at the moment but I'm pretty sure it's not that big and only to the back of the block. It won't interfere with the house at all. Only if I wanted to throw a shed or something up for the tenants down back.
Does that make a difference? For $15,000 and knowing that it'll only be used as a rental, should I save that $15,000, put a house up and be done with it or will that extra 40m2 plus no easement have benefits in regards to equity and value, which is more what I'm concerned about.
The difference in block size ( 6.7 %) doesnt affect a tenant nor the rental.
You mention and extra 15,000 for the larger block. What is the value of the two at present. A saving of 15 K on a 150,000 block represents 10 % and may be significant to your feasibility and financial situation, however if you're trying to save 15 K on a block worth say 300 K +, then think about it further.
Are you in an area with land scarcity? What are the minimum requirements in that local council for dual occupancy (think potential value add down the track). Just because it is in a Estate, doesn't preclude denser development being allowed in the future.You've mentioned that this is a long term hold and no doubt you're using depreciation to help you with holding costs. Basically if 640 sq m (over 600 sq m) allows development of two rather than one and that 15 K is trivial in the scheme of current land value and indeed end value of the dwelling you're constructiong, I'd go for the larger block. By the way, is it a corner?
Thanks Michael.
Smaller block with easement is $145,000. Larger with no easement is $160,000.
New Estate so all blcoks are vacant at the moment. They all went on the market (22 blocks) and sold out within a week so the popularity is there.
For the short term, no chance of dual occupancy so only single for now.
On those figures,the 15 K saving is significant then. With land value at that level, make sure you don't spend too much on building the dwelling as you state it is going to be a renter.
Look at the 15 K saved (don't go spending that on items of instant gratification…..home theatres and the like) as another deposit on a 150,000 block. Build this house, get depreciation and the tenant to help you hold and as growth occurs, suck out some equity as a deposit and duplicate the process.
Good luck
Thanks Michael.
I should have mentioned this earlier but land is actually valued at about $30,000 more than those values. That's just my portion that I am taking but it's still $15,000 I suppose.
What you have said has all made sense so far. That extra 15k could effectively be a deposit elsewhere. You just don't see it like that when considering a loan because it is only an extra $1,400 or so annually at a 9.5% interest rate.
My biggest concern is property value. I know the average renter won't worry much about an easement or lack of 30-40m2 but when the property is valued, will those factors be taken into account? I'd spend an extra $15,000 now if it meant double that in equity. Like, put a house on the smaller block and have it valued at $400,000, I'd spend the extra if the bigger block was going to be valued at $430,000+.
Wouldn't that extra $30,000 in equity help me more in regards to a deposit on something else over $15,000 in cash?
You may find that the lender won't want to visit a re-valuation until a good 6-12 months post construction and with tenancy underway.
If it is, as you say valued at 30 K more than you're paying, I would keep the 15,000 cash (out of the deal), go for the smaller one (as it is a long term hold and unlikely to dual-occ) and get a new valuation six or so months post occupancy, and if equity allows go again.
If land is costing 150,000, how much will the build be…….turnkey, finished product and ready for a tenant?
Try to keep the land value component at 50 %. Remember it is a rental property……..high end finishes not recommended for such a project.Thanks Michael.
I'll be working on it so hopefully under the 150k mark. With the land valued at around 180k (smaller land), it should consist of more than 50% of the total cost.
I want to start again straight away. Whether that is going for a new rental again or purchasing an already established rental, the sooner the better so a re-valuation will happen as soon as I can get the next one.
I'd just hate to make a mistake and realise in 5-10 years that I blew a possible extra 100k in equity although even just typing that sounded a little far fetched. I even can't see the extra land giving anywhere near that much but wanted to post here to make sure.
my first thoughts were "land goes up in value ,houses depreciate "
but after doing the maths it a hundred a month or so in your pocket ( tick )
most people dont understand easments , and tend to fear what they dont understand ( x)
id be standing on each block and thinking about aspect ,views, elevation and drainage
and letting that influence my decisionwe discovered our council allows two dogs on larger blocks of land
as a rental that probably wont be a consideration,unless like me you have a little old lady with two jack russels as a tennant !
( d oh)Hi Donkey33,
those figures sound OK. Don't look at it as blowing an extra 100 K in equity in five or ten years as it sounds to me you have firm intention of building a portfolio and working toward financial independence. Therefore you will manufacture equity growth with the next one, and the next one, and the next one………
Don't squander the extra 15,000. You just never know what opportunities may present themselves when you need a quick/liquid amount such as 15,000 to pounce on another offering.
Good luck with it all
Thanks Michael. Your help has been great.
I actually made a mistake. I took another look at the plans last night and realised that the difference in size is actually 80m2 and not 30m2 like I originally mentioned. Block 1 is 570m2 and block 2 is 650m2. The easement is 3m.
Would this change anything? As I've said above, main concern is that once a property is built, I'd want to access that equity as soon as possible so could the extra 80m2 possibly add more than $15,000 in equity?
Like you said though, this is a long term plan. I want to do this over and over again so long term, equity should be plentiful anyway. In the short term though, I need to weight up whether $15,000 in cash now is better than possibly double or more later on.
So again, does 80m2 extra change your advice at all?
I'd still stick with my previous advice – go for the larger block without affectations, this will be easier to sell at a later date esp if the additional land is only going to cost $15k
Hi, present opportunity is more valuable than future possibility.
Unless your property is within 3km of CBD, it's highly unlikely to sub-divide in future. At present, duplex lot sizes are 250m2. Metro lot sizes can be under 200m2. so even the block 650m2 without easement is unlikely to sub-divide.
$15K is a significant saving. More especially if one is under stress. I thought $2K insignificant until I was 'financially embarrassed' then …
Easements are generally for services eg sewer or something like that. You can pave over it. I have a 3m easement that nobody bothers about. It's along one boundary so we built along the other boundary!
Of course, you need to check the details yourself.
good luck,
KYHi D33
Small block 145,000 / 570 = $254 per sq m
Large block 160,000 / 650 = $246 per sq mLarger block is cheaper by just over $ 8 per sq m as you would expect as smaller blocks are denser price wise.
As I mentioned earler, zonings even in new estates can change over time depending on the amentity and infrastrusture, transport, etc, etc. Perhaps then, err on the side of safety and give your self the largest potential for future use and go for the larger one. From outest if it were me, I would go with Scott's advice, the bigger the better, especially if it is a place where they can not manufacture any more (or too much more) land.
Depends how important liquid CA$H to you in the scheme of things……and remembering you are not going to get any more rent for the larger over the smaller. May I ask where is the property/land in question?
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